The Corporate Sustainability Due Diligence Directive (CSDDD) – a concern for later?

Compliance with the CSDDD 

By 2027, the first group of companies must comply with the CSDDD. These companies must have implemented the six steps of the due diligence cycle. These steps help to adequately address sustainability risks in the supply chain. In addition, it urges companies to be open to incoming signals from potential victims. Non-compliance with the directive has serious consequences. The CSDDD describes two types of consequences for non-compliance with the guidelines: (financial) sanctions and civil liability. Both are explained further below. 

Sanctions (Art. 27 CSDDD) 

Fines can be imposed for non-compliance with the CSDDD. Member states determine the details of such (financial) sanctions. The directive provides guidelines for determining the nature and extent of the sanctions. National legislators must consider factors such as the nature, seriousness, duration, and consequences of the company's violation. Other relevant factors include whether the company has sought cooperation with other entities to address negative impacts, whether previous violations have occurred, whether investments or remedial measures have been taken, or whether the company has gained financial benefits from the violation. 

The directive acknowledges that there can be aggravating or mitigating circumstances that can influence the nature and extent of the sanction.  

Within this framework, it will later become clear what (financial) sanctions the Netherlands will implement. The CSDDD has established that the maximum limit for fines is 5% of the company's worldwide net turnover. 

Civil Liability (Art. 29 CSDDD) 

In addition to financial consequences, there is also the possibility of legal action against companies or even individuals. The legislation states that individuals and legal entities can be held liable through civil law for violations of the legislation. For civil liability of companies, the following conditions must be met: 

1. The company has failed (intentionally or through negligence) to comply with its obligations to prevent potential negative impacts or stop actual negative impacts. 

2. Due to the company's negligent actions, damage has been caused to a natural or legal person who is protected under national law. Parties who have suffered indirect damage cannot hold the company liable. 

If these criteria are met, the person or legal entity that has been harmed is entitled to full compensation for the damage. Additionally, there can be legal consequences for individuals who had the power to prevent the negative impact. 

Access to the Court 

One of the key principles of due diligence is ‘access to remedy’. Therefore, the directive stipulates that member states must ensure access to the court for individuals. This concretely means that affected parties have at least five years (after the negative impact has become known to them) to seek for compensation through the court. Member states must also ensure that legal procedures are not too expensive (and thus inaccessible) for these affected parties. In addition to these efforts, member states must ensure that trade unions and NGOs are authorized to enforce the rights of affected parties.  

What Does This Mean in Practice? 

The aforementioned consequences and mechanisms in the legislation make it important to start embedding due diligence within the organization as soon as possible. This helps a company to be open and adequately respond to signals from the supply chain regarding sustainability risks and acurately address them.  

Want to know more about the CSDDD or implementing due diligence? 

Contact our international value chain specialists.