Getting Ready Series: Corporate Sustainability Due Diligence Directive
Download PDFGETTING READY
Understanding and mapping your value chain, engaging with stakeholders and reviewing contracts. A major challenge will be accessing sufficient information on the company’s chain of activities to map and assess potential and actual adverse impacts. Suggested early actions for businesses include establishing robust processes relating to data collection, reviewing their design and distribution processes, carrying out meaningful engagement with stakeholders and undertaking a review of procurement policies and practices. Existing contracts should also be reviewed and updated to reflect these changes, and proportionate support should be provided to SMEs to help them meet any new obligations placed on them. Commission guidance is expected in due course on best practice as to how to conduct due diligence (Q4 2026), the use of model contractual clauses (Q1 2027) and identifying and engaging with stakeholders (Q2 2027). |
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Reviewing governance structures. Previous iterations of the CS3D articulated an explicit “duty of care” for directors of EU companies that would make them responsible for overseeing due diligence requirements, and linked directors’ variable remuneration to sustainability contributions. Although the measures have been removed, the CS3D still requires that the adverse impacts stemming from the environmental and human rights issues listed in the Directive be considered and assessed at Board level. There will likely need to be a review of policies and processes to check that the new obligations are fully integrated, and the Board should have oversight of and accountability for this work programme. Boards will also need to consider how to best align the new obligations with their duties under domestic law, such as s.172 of the UK’s Companies Act 2006. |
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Take stock and map out your reporting obligations, to identify synergies and avoid duplication. In responding to the new reporting requirements under the CS3D, a first step could be to map out existing voluntary and mandatory reporting and consider what further data, processes and policies are needed to fill any gaps. Fortunately for entities subject to both the CSRD and CS3D, where the directives cover similar ground in relation to publicly communicating on due diligence and publishing transition plans, the CS3D recognises a degree of equivalence. As such, companies which report or are exempted from reporting in accordance with the CSRD are not required to publish the annual website statements otherwise required under the CS3D. Companies that report a transition plan for climate change mitigation in accordance with the reporting obligation brought in by the CSRD will be deemed to have complied with the obligation to adopt a transition plan in the CS3D. In taking advantage of these equivalence provisions, businesses can look to align their group reporting under the CSRD with their approach to CS3D compliance. |
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Consider how the CS3D interacts with transition planning. The CS3D makes it mandatory for some companies to produce a transition plan, and an important step will be to ensure any transition plans being drafted are able to meet the CS3D’s requirements alongside the features and requirements of other frameworks and rules, such as the Transition Plan Taskforce Disclosure Framework. |