On 1 June 2023, the European Parliament agreed its position on the proposal for the Directive on Corporate Sustainability Due Diligence (“CSDDD”) as part of its “Just and sustainable economy” package. The final adoption of the CSDDD is expected in 2024. Businesses have several options to prepare for this directive in time.
The Corporate Sustainability Due Diligence Directive aims to ensure that businesses operating in the EU take responsibility for their impact on people and the planet. They will have to identify and mitigate the adverse impacts of their operations and supply chains on human rights, the environment, and good governance.
To achieve this goal, companies will have to conduct due diligence throughout their entire value chain (i.e. business partners on the input as well as output side). Businesses will have to analyse their value chains and identify potential risks and impacts, such as human rights violations, environmental pollution, and corruption. This process will require businesses to collect and analyse data from a range of sources, including suppliers and other business partners.
Similar efforts have also been recently undertaken by the US and the UK. In Germany, similar legislation also came into force in January 2023. It addresses several areas in which partners must be reviewed. These include child labour, health and safety at work, and handling of waste and hazardous substances.
Complementary to the Corporate Sustainability Reporting Directive
The proposed directive is complementary and closely related to the adopted Corporate Sustainability Reporting Directive (“CSRD”) and the EU Taxonomy’s minimum (social) safeguards.
In addition, companies that fall under the scope of both directives must report on their due diligence duties. The proposed CSDD Directive will thus lead to more complete and effective reporting under CSRD.
Scope
Based on the current draft of the CSDDD (June 2023 after the first reading in European Parliament), the new obligations will relate to the following groups of companies:
EU Companies
Group 1: Company with
More than 250 employees on average
A net turnover of more than € 40 million
Group 2: Ultimate parent company of a group that has:
More than 500 employees on average
A net turnover of more than € 150 million
SCOPE
The Directive applies to the following companies
Third-Country Companies
Group 1: Company with
A net turnover of more than € 40 million
Group 2: Ultimate parent company of a group that has:
More than 500 employees on average
A net turnover of more than € 150 million of which min. € 40 million from EU
- Timing
- Challenges
- Benefits of the value chain due diligence
Timing
It is expected that the directive will be adopted by the EU in 2024. After the transposition to national legislations, the directive is likely to be applicable to large companies from 2027 (>1,000 employees, >EUR 150 mil. turnover). Smaller companies are likely to be added within the transition period, which will probably end in 2029. It is expected that the directive will be fully applicable from 2029/2030.
Challenges
- Enhance governance to tackle the requirements of the new directive
- Reinforce the current internal policies to embed human rights and environmental risks
- Describe measures taken, engage with the suppliers, obtain reliable information, and transform where required
- Ensure appropriate data collection process for reporting purposes (availability, security, accuracy, data completeness)
- Monitor progress toward the objectives
- Adapt and align director remuneration with climate, environment, and human rights objectives
- Report on 30 April each year for the previous calendar year
Benefits of the value chain due diligence
- A valuable contribution to creating a sustainable and fair economy and society
- Contribution to bringing sustainability reporting on par with the financial reporting
- Improvement of organisation's risk assessment over the entire value chain
- Decrease in reputational risks
- Easier and cheaper access to financing
- Consumer and employee loyalty
- Competitive advantage
How we can help you
KYBP Platform - Unique software solution focused on Know Your Business Partner processes
New obligations related to the due diligence of business partners represent a challenge, but with the right setup, they can provide companies with a competitive advantage and cost savings, e.g. by eliminating reputational risks. PwC has developed a software solution that will help you automate and organise your due diligence process.
PwC’s KYBP Platform is cutting-edge software that allows businesses to verify their business partners, assess their risk levels and track them. The KYBP Platform contains numerous automated tests. The KYBP Platform will help your business rapidly and accurately identify risks in your value chains, such as suppliers who may be engaging in unsustainable practices or who have a history of human rights violations.
Our KYBP Platform is designed to automatically cover the standard scope of four risk areas which can be extended to more than seventeen additional scopes. The covered scopes can also be subsequently adjusted to take into consideration new regulations the company may have to fulfil. KYBP Platform also provides greater transparency and accountability, as the company has full control over the due diligence process.
KYBP Platform's risk area coverage for the effective management of business partners
Standard Scope
Anti-Bribery & Corruption
Excessive transfers of values to influence decision-making processes in the advantage of the value-transferring entity
Sanctions & Embargoes (interface)
Business partner trades with prohibited persons / blacklisted organizations or has a location in high risk countries / regions
Conflict of Interest
Business partner has multiple interests and serving one could involve working against another
Confidentiality
Disclosure of confidential information with others
Extended Scope
Animal Welfare
Anti Money Laundering
Anti-Trust
Corporate Digital Responsibility
Cyber Security
Data Privacy
Environmental Sustainability
Financial Stability
Human Rights
Information Security
Intellectual Property
Lieferkettensorgfalts - pflichtengesetz (LkSG)
Natural Disasters
Patient Safety
Product Compliance
Product Quality
Product Security
Etc.
The KYBP Platform helps businesses streamline the due diligence process and save time and resources. This can help your business comply with the Corporate Sustainability Due Diligence Directive more efficiently.
Managed services
Using the KYBP Platform as a managed service helps you decrease your capacity requirements as regards your human and technical resources. Our team of highly-skilled professionals in combination with the use of the latest advancements in technology and processes, allows us to provide more effective and efficient outcomes. Shifting strategic business operations to PwC increases your ability to focus on accelerating your organisation’s priorities. This allows a company to invest more time in their core business, while still having the advantage of the transparency and full-control the KYBP Platform provides.
Planning your next steps
Don’t hesitate to contact us to find out if the directive will apply to your company and what you will need to do.
