Preparing for the CSDDD, part 1: Supply chain due diligence is ‘no desk exercise’

“You can’t just do this as a desk exercise in Europe,” says non-profit Solidaridad. “You need to go out there and speak to those who are affected by human rights and environmental impacts and get their input on what the risks are.”

Now in the final stages of approval, the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) will require companies in the food and nutraceutical industries to identify and assess adverse human rights and environmental risks in their supply chains. Vitafoods Insights looks at what exactly this entails and where should they start.

The CSDDD establishes obligations for companies to identify, assess, prevent, mitigate, address and remedy actual and potential impacts on people and planet in their upstream supply chain and downstream activities. It places a particular emphasis on disclosures related to pollution and emissions, deforestation and damage to ecosystems and human rights issues such as child labour and forced labour. It also introduces a legally mandated standard for how companies conduct supply chain due diligence.

There have been more dramatic twists and turns in the process to reach an agreement on the Corporate Sustainability Due Diligence Directive (CSDDD) than in a Hollywood action movie plot. The latest twist in the saga was on 15 March when, after weeks of delay, EU member states endorsed the directive after several changes were made to the draft.

Whilst the core of the legislation remains intact, in order to reach a majority in the European Council and win over member states who were blocking the directive, several concessions were made. These included limiting its scope to companies with more than 1,000 employees and a worldwide turnover of more than €450 million euros.

Previously, the threshold for compliance was set at companies with more than 500 employees and a turnover of more than €150 million. There were lower thresholds for companies in high-risk sectors such as agriculture, food manufacturing and trading of raw materials. However, high risk sectors have been scrapped altogether in the latest draft. 

Updated version of CSDDD has less impact

Non-profit organisation Solidaridad, whose focus is fostering cooperation to make supply chains sustainable and equitable, is among those who feel that the compromises made to the directive have diluted its original ambition.

“We are disappointed with this last compromise as it means a lot of companies are now exempt from having to comply, which waters down the impact of the legislation,” Catarina Vieira, EU policy advisor for Solidaridad, told this publication.

She said that calculations estimated the legislation would affect 5,500 companies in the entire EU. “In practice, the number of companies directly covered by the directive is quite small,” she noted.

However, she said that Solidaridad was happy with the supply chain due diligence requirement set out in the directive.

“We think it is sturdy and in line with international standards. It requires meaningful stakeholder engagement, which we consider very important.”

No ‘cut and run’: Risky suppliers must address their operations

As an example of this, she said that under the requirements, companies are not allowed to disengage with suppliers if they find a risk in their supply chain.

“It’s important to us, in working to protect smallholders and independent farmers, that legislation doesn’t lead to a ‘cut and run’ approach. The directive requires companies who find risks to address those risks, not cut ties with that supplier and source somewhere else because it is easier.”

In this situation, she said the legislation requires that companies engage with stakeholders and can invoke responsible disengagement only after repeated attempts at mitigation.

Next steps

The next step will be a vote in the European Parliament’s plenary session on 24th April, followed by a final vote in the EU Council. If, as is expected, the text is approved by both, the directive will be published. Member states will then have two years to transpose it into national law.

The enforcement of CSDDD will be staggered, so the largest companies (with more than 5,000 employees and a turnover in excess of €1500m) will be required to demonstrate compliance first. They will be given three years from the directive coming into force to meet their legal obligations. Companies that turn over more than €900m will have four years and all other companies will have five years.