On April 14, 2025, the Council of the European Union gave its final approval to the “Stop-the-Clock” mechanism, effectively postponing the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
This decision aligns with France’s earlier calls for delay. It is part of the broader Business in Europe: Framework for Strategic Autonomy (BEFSA) strategy, which aims to boost EU competitiveness by reducing administrative burdens on businesses.
While the intention is to enhance competitiveness, this move sends a concerning signal across Europe. It’s not merely about postponing reports; it’s about delaying the transformation of how we conduct business in Europe.
The CSRD and CSDDD are more than just reporting obligations. They are about shaping the future of Europe by:
Creating markets accessible only to responsible players who prioritise sustainability.
Fostering innovation and promoting a circular economy, driving Europe towards a regenerative future.
Ensuring Europe’s autonomy in technology, manufacturing, and energy, reducing reliance on external powers.
This is about defining Europe’s role in the 21st century. Sustainability isn’t just another policy; it’s an existential necessity. Europe can either lead in building a resilient, future-proof economy or risk becoming irrelevant in a rapidly changing world.
Why This Matters More Than Ever
Economic Sovereignty: Europe’s reliance on external markets for energy, technology, and manufacturing makes it vulnerable. By building self-sustaining ecosystems, Europe can reduce dependence and increase resilience.
Competitive Advantage: In a world where consumers demand transparency and sustainability, Europe has a chance to lead by setting global standards for responsible business practices.
A Just Transition: The CSRD and CSDDD are designed to protect human rights, ensure fair labor practices, and promote environmental stewardship. Delaying them has now become official policy — but that doesn’t make it the right direction.
Europe’s Existential Choice
This isn’t just about regulatory compliance; it’s about writing Europe’s history. We have a choice:
🌱 Embrace sustainability as a driving force for economic growth, social justice, and environmental stewardship, or
🍂 Delay and dilute our commitments, risking the opportunity to shape the global narrative on sustainability.
What Can We Do?
This isn’t just a policy debate—it’s about the future of Europe. Even with the delay confirmed:
We must keep pressure and expectations high, so that when these laws return, they come back stronger..
Engage with policymakers, industry leaders, and civil society to build a united front for sustainability.
Demand transparency and accountability in the decision-making process.
Europe didn’t cancel its sustainability commitments — it just bought itself time. What we do with that time is up to us.
💬 Are we risking Europe’s future by delaying these crucial regulations? Let’s discuss in the comments.
The EU’s Next Step Towards Sustainable Supply Chains
As part of its broader goal to build a sustainable economy and fight climate change, the EU has taken an important step with the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). This legislation goes beyond encouraging voluntary practices by mandating that large companies across Europe and globally integrate human rights and environmental considerations into their supply chains. By doing so, the EU aims to make supply chains greener, more ethical, and more resilient in the face of climate change.
And with penalties that can reach up to 5% of the global revenue, this is not something to be ignored !
In this article, we will look at what the CSDDD is, what the obligations on business are going to be and how to navigate this with local law.
The Corporate Sustainability Due Diligence Directive (CSDDD) is a legislative proposal introduced by the European Commission in February 2022. Its primary aim is to promote responsible business practices by requiring companies to identify, mitigate, and prevent human rights violations and environmental damage across their supply chains. The directive addresses the entire value chain, including suppliers and business partners both within and outside the EU.
In addition to this, the Directive introduces a climate change mitigation plan, mandating that companies align their business models with the Paris Agreement’s goal of limiting global warming to 1.5°C and achieving climate neutrality by 2050.
2. Who is Concerned?
The CSDDD targets large corporations operating in the EU and globally, divided into two main categories:
Large EU Companies: Companies with more than 500 employees and a turnover exceeding €150 million.
High-Risk Sectors: Companies in sectors such as textiles, agriculture, and mining with over 250 employeesand turnover exceeding €40 million.
Non-EU Companies: Non-EU companies with significant business operations in the EU and meeting the same thresholds as EU companies.
These companies are expected to integrate sustainability due diligence into their operations and supply chains, ensuring compliance with the directive’s requirements.
Despite covering around 6,000 EU companies and 900 non-EU companies, the directive indirectly affects a larger number of small and medium-sized enterprises (SMEs) through the supply chains of these large companies. This significantly extends the impact of the directive across the global economy.
For context, while the role of SME is key in EU, the 42000 largest businesses account for 52% of the added value and 37% of the carbon emissions. Tackling this, while having repercussions over the remaining businesses is likely to have massive impacts.
3. What is Expected from Businesses?
Companies under the scope of the CSDDD are required to adhere to due diligence duties that ensure sustainability is embedded throughout their operations. These key requirements include
Integrate Due Diligence into Policies and Risk Management Systems (Article 5):
Implement a policy to ensure risk-based human rights and environmental due diligence.
Integrate due diligence policies and processes across the company and within risk management systems.
Identify and Assess Actual or Potential Adverse Impacts, and Prioritize Based on Severity (Article 6):
Map the company’s own operations and those of its upstream and downstream supply chain.
Conduct periodic in-depth assessments using relevant internal and external information sources.
Prioritize impacts based on severity and likelihood.
Prevent and Mitigate Potential Adverse Impacts, and Bring Actual Impacts to an End or Minimize Their Extent (Articles 7 & 8):
Take appropriate measures to prevent and mitigate impacts and bring actual impacts to an end or minimize their extent.
Develop corrective action plans and seek contractual assurances from business partners.
Engage in multi-stakeholder initiatives, providing support to SMEs where applicable.
Conduct effective stakeholder engagement during the due diligence process.
Establish and Maintain a Notification Mechanism and Complaints Procedure (Article 9):
Set up a company-level notification mechanism accessible to affected stakeholders and representatives.
Institute procedures to address complaints raised through the notification mechanism in a fair, transparent, and accessible manner.
Provide adequate information on the notification mechanism to employees and stakeholders.
Monitor the Effectiveness of Due Diligence Policies and Measures (Article 10):
Carry out periodic assessments of the effectiveness of due diligence policies and the measures implemented to address potential and actual adverse impacts.
Publicly Communicate on Due Diligence (Article 11):
For companies subject to the Corporate Sustainability Reporting Directive (CSRD), report due diligence through CSRD-compliant disclosures.
Other companies must issue an annual statement describing their due diligence efforts.
Combatting Climate Change (Article 15):
Adopt and implement a climate transition plan in line with the Paris Agreement, with time-bound targets supported by decarbonization levers and resourcing strategies.
4. Transition Plans for Climate Change Mitigation
A critical requirement of the CSDDD is the development of climate change mitigation transition plans that align with the Paris Agreement. Companies must:
Set time-bound targets for 2030 and 2050 for reducing carbon emissions.
Detail the decarbonization levers they will employ, including specific actions and investments.
Provide an outline of the role of management in achieving these targets and quantify investments and funding dedicated to implementing the transition plan.
The CSDDD complements and interacts with several other EU and national laws, such as:
Germany’s Supply Chain Act (LkSG), which has similar due diligence requirements.
France’s “Loi de Vigilance”, which requires companies to implement vigilance plans to prevent human rights abuses and environmental damage in their global supply chains.
Other EU laws include the Conflict Minerals Regulation, Batteries Regulation, and the forthcoming Forced Labor Regulation.
The CSDDD ensures minimum harmonization across the EU, meaning that Member States can impose stricter requirements but cannot lower the level of protection. Companies must meet the highest standard when different regulations overlap.
6. Why Does CSDDD Matter?
The directive introduces legal accountability for businesses. Non-compliance can result in significant penalties, and companies may face civil liability if they cause or fail to prevent human rights violations or environmental harm.
Beyond legal implications, adhering to the CSDDD also enhances brand reputation and investor confidence, as businesses can demonstrate their commitment to sustainability.
Additionally, the CSDDD aligns with global trends. Countries such as Canada and South Korea are considering similar legislation, and the UN is negotiating a binding instrument on business and human rights. Thus, the directive not only prepares EU companies for future international regulations but positions them to be leaders in sustainable business practices.
5. Why Was There a Need for the CSDDD?
Previous voluntary frameworks, such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, were insufficient in ensuring that companies comprehensively integrate sustainability across their supply chains. Research revealed that companies often focused only on their first-tier suppliers, leaving significant risks further down the value chain unaddressed.
Moreover, inconsistencies in national laws created a fragmented legal landscape across the EU, which increased the administrative burden on companies and caused legal uncertainty. The CSDDD seeks to harmonize due diligenceacross the EU, making it easier for businesses to navigate the legal landscape and take meaningful actions to mitigate risks.
6. When Will the Rules Start Applying?
The CSDDD was published in the Official Journal of the European Union in July 2024, with full enforcement starting in 2027:
2027: Applies to EU companies with over 5,000 employees and €1.5 billion turnover, and non-EU companies with similar EU operations.
2028: Covers companies with 3,000 employees and €900 million turnover.
2029: All other companies falling within the scope of the directive will be subject to the requirements.
Companies that fail to comply with their obligations under the CSDDD are subject to:
A fine of up to 5% of their global turnover;
Compensation to victims for damages caused by non-compliance with due diligence obligations;
Public disclosure of the names of companies penalized and the sanctions imposed.
7. How Does the CSDDD Affect SMEs?
While SMEs (small and medium enterprises) are not directly under the scope of the CSDDD, they may still be indirectly affected. Larger companies may require their smaller business partners to align with due diligence requirements as part of their supply chain obligations. To protect SMEs, the directive includes provisions to support these businesses, ensuring they receive the necessary financial and non-financial assistance from larger companies. The directive also mandates the reporting company to inquire at the most likely level of abuse, ensuring the due diligence requirements aren’t just massively sent out.
8. What Are the Key Human Rights and Environmental Impacts Covered?
The CSDDD is based on internationally recognized human rights standards, as outlined in conventions referenced by the UN Guiding Principles. The environmental aspects cover a range of impacts, including pollution prevention, biodiversity preservation, and climate change mitigation, all derived from multilateral environmental agreements.
Conclusion
The CSDDD represents a pivotal moment in the EU’s push towards a sustainable economy. By ensuring that companies are held accountable for the human rights and environmental impacts across their entire supply chains, the directive aims to create a fairer and greener global economy. Companies complying with the CSDDD will not only mitigate legal risks but also position themselves as leaders in the sustainability transition, enhancing their resilience and competitiveness in a rapidly evolving global marketplace.
The CSRD has the ambition to become the new standard for sustainability reporting, aligning EU businesses with the EU net-zero goals.
CSRD: A Comprehensive Guide for Businesses
The Corporate Sustainability Reporting Directive (CSRD) is a major new European Union (EU) regulation that significantly expands the scope and depth of sustainability reporting for companies operating within the EU. Implemented as part of the broader European Green Deal and climate-neutrality goals, the CSRD is designed to improve corporate transparency on environmental, social, and governance (ESG) issues. As sustainability becomes a top priority for investors, governments, and consumers, understanding the CSRD and how to comply is crucial for businesses.
This article explores what the CSRD is, why it was created, how companies can comply, and its connections with other regulations. It also provides a dedicated section on the concept of double materiality—a core principle of the directive.
Find the PDF summary here. Access the EU page related to CSRD here.
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD), adopted in April 2021 by the European Commission, is designed to replace and enhance the existing Non-Financial Reporting Directive (NFRD). The CSRD mandates that companies report detailed information on how they manage social and environmental challenges. This directive covers a much broader range of companies than the NFRD, expanding both the scope and depth of required disclosures.
Key Features of CSRD:
Broader Scope: The CSRD applies to all large companies (with over 250 employees, €40 million in turnover, or €20 million in assets) and listed SMEs (small and medium-sized enterprises) in the EU, increasing the number of companies required to report on sustainability.
Standardized Reporting: The directive introduces detailed sustainability reporting standards developed by the European Financial Reporting Advisory Group (EFRAG), ensuring consistency and comparability.
Third-Party Assurance: Companies will need to have their sustainability information independently verified by an accredited auditor, which adds credibility to their reports.
Digitalization: CSRD mandates that companies make sustainability data available in digital format, aligning with the EU’s goal of enhancing data transparency.
Why Was the CSRD Introduced?
The CSRD was introduced to address several gaps in sustainability reporting:
Lack of Consistency: Under the NFRD, companies had significant discretion in how they reported sustainability data, making it difficult for stakeholders to compare companies. The CSRD solves this by requiring standardized reporting.
Increasing ESG Concerns: Stakeholders, especially investors, are increasingly concerned with ESG factors and want detailed, reliable information. The CSRD was created to meet these growing demands for transparency.
Green Transition: The CSRD is a critical part of the European Green Deal, which aims to make the EU climate-neutral by 2050. By requiring companies to disclose their environmental impacts, the CSRD ensures that businesses contribute to the EU’s sustainability goals.
Specific Aims of CSRD:
Strengthen Transparency: Enhance corporate transparency on ESG issues.
Improve Decision-Making: Help investors, consumers, and other stakeholders make informed decisions based on reliable ESG data.
Support the Green Transition: Align corporate strategies with the EU’s environmental objectives and global sustainability goals, such as the Paris Agreement.
How to Comply with CSRD?
Complying with the CSRD involves several steps, from understanding the reporting requirements to implementing internal processes and securing external audits. Here’s a guide to help companies comply with the CSRD:
1. Determine Applicability:
Companies must first determine whether they fall under the CSRD’s scope. If your company has more than 250 employees, €40 million in turnover, or €20 million in assets, or is a listed SME, you are required to report from the first year. Otherwise :
2. Understand the Reporting Requirements:
Familiarize yourself with the reporting standards that are set by EFRAG. These standards cover a broad range of sustainability topics, including environmental impacts, social issues, and governance practices.
The reporting is based on 12 ESRS :
3. Establish a Reporting Process:
Companies must develop internal processes to collect and verify sustainability data. This involves collaboration across departments (e.g., finance, operations, human resources) to gather the required data.
4. Perform a Double Materiality Assessment:
Double materiality is a key principle of the CSRD (explained in detail below). Businesses must assess their impact on the environment and society, as well as the financial risks they face from sustainability issues.
5. Ensure Third-Party Assurance:
The CSRD requires that sustainability reports be audited by a third party. Companies must engage with accredited auditors to verify the accuracy of their sustainability data.
6. Digital Reporting:
Prepare to submit your sustainability reports in a digital format as required by the European Single Electronic Format (ESEF). This aligns with the EU’s push for greater accessibility and transparency in sustainability data.
Double Materiality: A Core Principle of CSRD
One of the most significant changes introduced by the CSRD is the concept of double materiality. Unlike traditional financial reporting, which focuses solely on how external factors impact a company’s financial performance, double materiality requires companies to report on:
Financial Materiality: How sustainability issues affect the company’s financial performance and long-term resilience. For example, how climate change might affect a company’s operations, or how environmental regulations might impact profitability.
Impact Materiality: How the company’s activities impact the environment and society. This includes emissions, resource usage, and social practices like labor conditions.
Why Double Materiality Matters:
Holistic Reporting: Double materiality provides a more comprehensive view of a company’s sustainability performance, helping stakeholders understand both financial risks and the company’s broader environmental and social impacts.
Forward-Thinking: By considering both financial and impact materiality, companies can anticipate future regulatory changes and align their strategies with long-term sustainability goals.
Impact Materiality: The company’s activities contribute to high carbon emissions from steel production and raise ethical concerns due to the environmental impact of mining rare earth metals for semiconductors. Waste generated from industrial processes can also harm local ecosystems.
Financial Materiality: Rising costs from stricter emissions regulations on steel production could increase raw material expenses. Semiconductor shortages, driven by resource scarcity or supply chain disruptions, could delay production and raise prices. Both factors could hurt profitability. Additionally, not adopting sustainable practices may lead to fines or reduced investor confidence.
Ties to Other Regulations
The CSRD is closely linked with various EU and global regulations, ensuring that companies adopt a coherent approach to sustainability reporting. Key regulations that interact with the CSRD include:
1. EU Taxonomy Regulation:
The EU Taxonomy provides a classification system that defines which economic activities can be considered environmentally sustainable. Companies reporting under the CSRD must disclose how their activities align with the EU Taxonomy.
The SFDR requires asset managers and financial advisers to disclose how they integrate ESG factors into their investment strategies. The CSRD provides the necessary data for investors to comply with the SFDR.
3. Carbon Border Adjustment Mechanism (CBAM):
The CBAM puts a price on carbon emissions associated with imported goods. Companies reporting under the CSRD must ensure that their supply chains are aligned with the EU’s carbon pricing mechanisms.
4. Corporate sustainability due diligence CSDD:
The Corporate Sustainability Due Diligence Directive is a directive in European Union law to require due diligence for companies to prevent adverse human rights and environmental impacts in the company’s own operations and across their value chains and so intersect with the CSRD
5. Paris Agreement – EU green deal:
The CSRD supports the EU’s commitment to the Paris Agreement by ensuring that businesses align with carbon reduction targets and other climate-related goals.
6. Global Comparability:
Outside the EU, the CSRD aligns with global sustainability reporting standards such as those set by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). This global harmonization allows multinational companies to streamline their reporting across different jurisdictions.
Benefits of the CSRD
The CSRD offers several advantages for businesses that comply, particularly in building long-term resilience and competitiveness. Key benefits include:
Enhanced Transparency: With standardized reporting, companies can provide clearer and more reliable sustainability data to stakeholders.
Investor Confidence: ESG investors rely on accurate sustainability data to make informed decisions. Compliance with the CSRD ensures that companies are more attractive to investors seeking sustainable opportunities.
Reputation and Brand Value: Companies that lead in sustainability reporting can strengthen their brand reputation, attracting customers and partners who prioritize sustainability.
Regulatory Compliance: As sustainability regulations tighten across the globe, the CSRD ensures that companies stay ahead of regulatory demands, avoiding penalties and legal risks.
Challenges of Complying with CSRD
Despite its benefits, the CSRD also presents challenges for businesses, particularly those that are new to sustainability reporting.
Complexity of Reporting: The CSRD requires detailed and extensive disclosures, which may require significant time and resources to gather.
Need for Cross-Department Collaboration: Compliance requires input from various departments, including finance, HR, operations, and sustainability teams.
Third-Party Assurance Costs: Engaging an external auditor to verify sustainability data can be costly, especially for SMEs.
Conclusion
The CSRD represents a fundamental shift in corporate reporting, demanding that companies integrate sustainability at the core of their business operations. While the directive poses challenges, it also provides an opportunity for companies to build resilience, secure investments, and align with the global shift toward sustainability. Understanding the principles of double materiality and preparing for compliance will help businesses navigate this new regulatory landscape successfully.
By embracing sustainable procurement and reporting practices, companies can contribute to a greener, more equitable future while ensuring their own long-term profitability and compliance.
