On March 15, the European Council approved the Corporate Sustainability Due Diligence Directive (CSDDD). The European Parliament is scheduled to vote in plenary on the CSDDD on April 24, and if it is formally adopted, it will be implemented in the second half of 2026 at the earliest. The CSDDD has been years in the making and is also known as the EU’s new Environmental, Social and Corporate Governance (ESG) regulation or the EU Supply Chain Act. The legislation, which was proposed in 2022, has been controversial since its inception. On February 28, the EU Council failed to approve the landmark new regulation due to the abstention of 13 countries, including Germany and Italy, and the negative vote of Sweden.
The changes were finally approved by the Council of the European Union. Once approved by the European Parliament, the CSDDD will become a new law.
CSDDD requirements:
1.Conduct due diligence to identify possible actual or potential impacts on workers and the environment along the entire value chain;
2.Develop action plans to mitigate identified risks in their operations and supply chain;
3.Continuously track the effectiveness of the due diligence process; Make due diligence transparent;
4.Align operational strategies with the 1.5C target of the Paris Agreement.
(In 2015, the Paris Agreement formally set out to limit global temperature rise to 2 ° C by the end of the century, based on pre-industrial revolution levels, and strive to reach the goal of 1.5 ° C.)As a result, analysts say that while the directive is not perfect, it is the beginning of greater transparency and accountability in global supply chains.
The CSDDD bill is not just aimed at EU companies.
As an ESG-related regulation, the CSDDD Act not only governs the direct actions of companies, but also covers the supply chain. If a non-EU company acts as a supplier to an EU company, the non-EU company is also subject to obligations.Overextending the scope of legislation is bound to have global implications. Chemical companies are almost certainly present in the supply chain, so CSDDD will certainly affect all chemical companies that do business in the EU.At present, due to the opposition of EU member states, if the CSDDD is passed, its scope of application is still in the EU for the time being, and only enterprises with business in the EU have requirements, but it is not ruled out that it may be expanded again.
Strict requirements for non-EU companies.
For non-EU enterprises, the requirements of CSDDD are relatively strict.It requires companies to set emissions reduction targets for 2030 and 2050, identify key actions and product changes, quantify investment plans and funding, and explain management’s role in the plan.For listed chemical companies in the EU, these contents are relatively familiar, but many non-EU enterprises and EU small sized enterprises, especially those in the former Eastern Europe, may not have a complete reporting system. Companies have had to spend extra energy and money on related construction.
The CSDDD is mainly applicable to EU companies with a global turnover of more than 150 million euros, and covers non-EU companies operating within the EU, as well as smes in sustainably-sensitive sectors. The impact of this regulation on these companies is not small.
The impact on China if the Corporate Sustainability Due Diligence Directive (CSDDD) is implemented.
Given the broad support for human rights and environmental protection in the EU, the adoption and entry into force of the CSDDD is highly likely.
Sustainable due diligence compliance will become the “threshold” that Chinese enterprises must cross to enter the EU market;
Companies whose sales do not meet the scale requirements may also face due diligence from downstream customers in the EU;
Companies whose sales reach the required scale will themselves be subject to sustainable due diligence obligations. It can be seen that regardless of their size, as long as they want to enter and open the EU market, companies cannot completely avoid the construction of sustainable due diligence systems.
Considering the high requirements of the EU, the construction of a sustainable due diligence system will be a systematic project that requires enterprises to invest human and material resources and take it seriously.
Fortunately, there is still some time before CSDDD comes into effect, so companies can use this time to build and improve a sustainable due diligence system and coordinate with downstream customers in the EU to prepare for CSDDD’s entry into force.
Faced with the EU’s upcoming compliance threshold, enterprises that are prepared first will gain a competitive advantage in compliance after the CSDDD comes into effect, become an “excellent supplier” in the eyes of EU importers, and use this advantage to win the trust of EU customers and expand the EU market.
Post time: Mar-27-2024