Supply Chain Due Diligence CSDDD Human Rights ESG Compliance Supply Chain

Introduction

Mandatory supply chain due diligence has become a critical compliance requirement for multinational companies. This article examines the EU Corporate Sustainability Due Diligence Directive (CSDDD) and other global frameworks.

EU Corporate Sustainability Due Diligence Directive (CSDDD)

Scope and Applicability

  • 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
  • High-risk sectors: Textiles, agriculture, mining, construction; may be subject to lower thresholds

Due Diligence Obligations

  • Integrate due diligence into policies and risk management
  • Identify actual and potential adverse impacts (human rights, environment)
  • Prevent and mitigate potential adverse impacts
  • Bring actual adverse impacts to an end or minimize
  • Establish complaints procedure
  • Monitor effectiveness of due diligence measures
  • Publicly communicate on due diligence

Value Chain Coverage

  • Own operations, subsidiaries, and "established business relationships"
  • Upstream supply chain (tier 1 and beyond)
  • Downstream activities for certain sectors (disposal, distribution)
  • Business relationships must be "established" (not occasional or minor)

Climate Transition Plan

  • Adopt transition plan aligned with Paris Agreement (1.5°C)
  • Include emission reduction targets (Scope 1, 2, 3)
  • Describe decarbonization levers and investments

Civil Liability

  • Victims may claim damages for harm caused by failure to comply
  • Statute of limitations: at least 5 years
  • Burden of proof: victims must show failure and harm; causation presumed

Penalties

  • Naming and shaming (public disclosure)
  • Financial penalties: at least 5% of worldwide net turnover
  • Exclusion from public procurement for repeated violations

German Supply Chain Due Diligence Act (LkSG)

Scope

  • Effective 2023 for companies with 3,000+ employees; 2024 for 1,000+ employees
  • Covers human rights and environmental due diligence

Key Requirements

  • Risk analysis (identify risks in own operations and supply chain)
  • Preventive measures (policies, training, purchasing practices)
  • Remedial measures (cease violation, prevent recurrence)
  • Complaints procedure (accessible to supply chain workers)
  • Documentation and reporting (annual report to BAFA)
  • Supply chain extends to direct suppliers; indirect suppliers where substantial evidence of violation

Enforcement

  • BAFA (Federal Office of Economics and Export Control) supervision
  • Fines up to €8 million (or up to 2% of annual turnover for companies >€400M turnover)
  • Exclusion from public procurement for up to 3 years

Norwegian Transparency Act

Scope

  • Effective 2022; applies to large companies (over 50 employees)
  • Covers human rights and decent work due diligence

Key Requirements

  • Accountability: report on due diligence
  • Information requests: right to information on how company addresses adverse impacts
  • Mandatory disclosure: annual report on due diligence

Other Jurisdictions

France: Duty of Vigilance Law (2017)

  • First mandatory due diligence law; applies to large French companies
  • Requires vigilance plan covering human rights, environment, health and safety
  • Civil liability for non-compliance; injunction and damages available

Netherlands: Child Labour Due Diligence Act (2022)

  • Due diligence to prevent child labor in supply chains
  • Declaration confirming due diligence performed
  • Enforcement by Authority for Consumers and Markets

Canada: Fighting Against Forced Labour and Child Labour in Supply Chains Act (2024)

  • Reporting for companies with certain size thresholds
  • Annual report on efforts to prevent forced and child labor
  • Government publishes list of non-compliant companies

Australia: Modern Slavery Act (2018)

  • Reporting for companies with annual consolidated revenue >A$100 million
  • Annual modern slavery statement to Attorney-General's Department
  • Mandatory reporting criteria (structure, operations, supply chains, risks, actions, effectiveness)

Practical Implementation Steps

Risk Assessment

  • Map supply chain (tier 1, 2, n)
  • Identify high-risk products, geographies, suppliers
  • Conduct human rights and environmental risk assessment

Prevention and Mitigation

  • Develop supplier code of conduct
  • Integrate due diligence into procurement practices
  • Provide training to procurement staff and suppliers
  • Conduct supplier audits (risk-based approach)

Remediation

  • Establish grievance mechanism accessible to supply chain workers
  • Develop remediation procedures for identified violations
  • Track remediation progress and effectiveness

Reporting

  • Prepare annual due diligence report (content varies by jurisdiction)
  • Public disclosure (website, annual report)
  • Monitor compliance with multiple overlapping regimes

Common Challenges

  • Supply chain visibility: Limited visibility beyond tier 1 suppliers
  • Data quality: Incomplete or unreliable supplier information
  • Multiple regimes: Overlapping requirements across jurisdictions
  • Remediation complexity: Addressing violations in supply chain
  • Confidentiality: Supplier reluctance to disclose information

Practical Recommendations

  1. Map supply chain for high-risk products and geographies
  2. Implement supplier management system with due diligence integration
  3. Develop risk-based audit program (own operations, tier 1, high-risk suppliers)
  4. Establish grievance mechanism (accessible, confidential, non-retaliation)
  5. Provide training to procurement, legal, and compliance teams
  6. Document due diligence activities for regulatory reporting
  7. Monitor evolving requirements in all operating jurisdictions