🎉 Announcement: Launching AuditSense - A Supplier Due Diligence Platform Powered by Esger's AI Engine 🎉

🎉 Announcement: Launching AuditSense - A Supplier Due Diligence Platform Powered by Esger's AI Engine 🎉

🎉 Announcement: Launching AuditSense - A Supplier Due Diligence Platform Powered by Esger's AI Engine 🎉

Nishtha Verma, ESG Lead at Esger

The Corporate Sustainability Due Diligence
Directive (CSDDD) and its Impact on Supplier
Due Diligence

May 16, 2024 - 5 min read

The approval of the Corporate Sustainability Due Diligence Directive (CSDDD) last month emerges as a pivotal framework in redefining how businesses operate globally. This directive, proposed by the European Commission, is set to impose rigorous standards on companies to ensure that they are socially and environmentally responsible. But what really are the implications that this regulation holds for companies conducting due diligence across their value chains?

Understanding the CSDDD

The CSDDD aims to embed sustainability into the core operations of companies by mandating them to identify, prevent, mitigate, and account for adverse human rights and environmental impacts in their own operations and across their supply chains. This directive is a response to growing concerns about corporate contributions to global issues such as climate change, human rights abuses, and environmental degradation.

Key Provisions of the CSDDD:

1. Scope and Applicability:

- The CSDDD applies to large companies operating within the EU, as well as smaller companies in high-risk sectors.

- It extends to both EU-based companies and non-EU companies with significant operations in the EU market.

2. Due Diligence Requirements:

- Companies must integrate due diligence into their corporate policies and management systems.

- They must identify actual and potential adverse impacts on human rights and the environment.

- Measures to prevent or mitigate identified risks must be implemented and monitored.

3. Stakeholder Engagement:

- The directive emphasizes the importance of engaging stakeholders, including workers, communities, and other affected parties, in the due diligence process.

4. Reporting and Transparency:

- Companies are required to publicly disclose their due diligence policies and the steps taken to address identified risks.

- Annual reporting on due diligence activities and their outcomes is mandated.

5. Liability and Enforcement:

- Companies can be held liable for damages if they fail to comply with due diligence obligations.

- Member states are tasked with establishing appropriate sanctions for non-compliance.

Impact on Supplier Due Diligence Practices

The CSDDD significantly raises the bar for supplier due diligence. Here’s how it is set to impact companies and their supply chains:

1. Enhanced Risk Identification and Management:

   - Companies must conduct thorough assessments of their supply chains to identify social and environmental risks.

   - This would entail a more comprehensive approach to supplier audits, data collection and analysis.

2. Increased resource allocation
- For companies that do not have responsible sourcing and sustainability practices set up within their organizations, there will need to be resources allocated for compliance review and desktop due diligence processes.
- The directive necessitates the verification of information received from suppliers. Desktop reviews must also be supplemented with on-the-ground checks, independent audits, and stakeholder consultations (including worker voice data). 

3. Integration of Sustainability into Business Strategy and practices:

   - Compliance with the CSDDD requires companies to embed sustainability into their core strategies.

   - This shift can drive innovation and long-term value creation, aligning business success with societal and environmental well-being.

The Corporate Sustainability Due Diligence Directive is a transformative step towards a more sustainable and responsible business landscape. By mandating comprehensive due diligence, the CSDDD not only aims to mitigate adverse social and environmental impacts but also to foster a culture of transparency and accountability. As companies adapt to these new requirements, the directive has the potential to drive significant positive change, making sustainability an integral part of corporate strategy and operations. Embracing these changes will not only help companies comply with regulatory demands but also contribute to a more just and sustainable world.

Esger's AI improves efficiency on supplier due diligence processes by performing reviews against companies’ code of conducts and audit reports in under 3 minutes (including major formats such as RBA, SLCP, BSCI, and SMETA), assigning risk scores, generating corrective action plans, and presenting aggregate trends and granular insights from real supplier data.  

The Operating System for Responsible, Sustainable Supply Chains

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The Operating System for Responsible, Sustainable Supply Chains

All Rights Reserved