EU Law CSDDD Supply Chain Human Rights Sustainability Due Diligence

Overview of CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD), adopted by the European Parliament in April 2024, represents the most ambitious mandatory human rights and environmental due diligence legislation globally. It fundamentally changes how companies must manage their supply chains and business relationships.

Who Must Comply?

The Directive applies in phases:

  • Phase 1 (2027): EU companies with 5,000+ employees and €1.5 billion+ turnover; non-EU companies with €1.5 billion+ EU turnover
  • Phase 2 (2028): EU companies with 3,000+ employees and €900 million+ turnover
  • Phase 3 (2029): EU companies with 1,000+ employees and €450 million+ turnover

Core Obligations

1. Due Diligence Process

Companies must establish and implement a due diligence process that:

  • Identifies actual and potential adverse impacts on human rights and environment
  • Prevents and mitigates potential adverse impacts
  • Brings actual adverse impacts to an end or minimizes them
  • Establishes and maintains a complaints procedure
  • Monitors the effectiveness of due diligence measures
  • Publicly communicates on due diligence

2. Supply Chain Coverage

The Directive covers a company's own operations, those of their subsidiaries, and "established business relationships" in the upstream supply chain. For certain high-impact sectors, downstream activities are also included.

Impact on Indian Companies

Indian exporters and businesses dealing with EU customers face significant compliance implications:

  • Textile and Garment Sector: Must demonstrate ethical labor practices and environmental compliance throughout the supply chain
  • Pharmaceutical Companies: Required to address environmental impacts of manufacturing, particularly wastewater treatment
  • IT and Services: Must assess labor practices in their operations and those of suppliers
  • Chemical Industry: Stringent requirements regarding hazardous substance management

Civil Liability

One of the most significant aspects of CSDDD is the introduction of civil liability for non-compliance. Victims of adverse impacts caused by failure to comply with due diligence obligations can bring claims in EU member state courts. The statute of limitations is at least 5 years.

Penalties

Member states must provide for effective penalties, which must include:

  • Public naming and shaming
  • Financial penalties of at least 5% of worldwide net turnover
  • Exclusion from public procurement for repeated violations

Comparison with US Regulations

The US Uyghur Forced Labor Prevention Act (UFLPA) takes a different approach—a rebuttable presumption that goods from Xinjiang involve forced labor—effectively banning imports unless proven otherwise. CSDDD is process-oriented (requiring due diligence systems) rather than outcome-based (presuming violation).

Preparing for Compliance

Companies should begin preparation now by:

  1. Mapping their supply chains comprehensively
  2. Conducting risk assessments across value chains
  3. Developing supplier codes of conduct
  4. Implementing grievance mechanisms
  5. Building internal capacity for ongoing monitoring
  6. Engaging legal counsel specialized in EU regulatory requirements

Conclusion

CSDDD represents a watershed moment in corporate law—the formalization of corporate responsibility for impacts beyond a company's legal boundaries. For Indian businesses integrated into global supply chains, understanding and preparing for CSDDD is no longer optional; it is a business imperative.