The Corporate Sustainability Due Diligence Directive

From the November 2024 edition of Supply Chain Management Review.

November 2024

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The world of business is rapidly evolving, with sustainability becoming a central pillar of corporate strategy. The European Green Deal has set off an avalanche of sustainability regulation in the EU, and if you find it quite challenging to keep up, you are not alone. With regulation on everything from reporting to circular economy to carbon border adjustments, it’s easy to feel slightly overwhelmed. Even so, companies are now bracing themselves for CSDDD, the Corporate Sustainability Due Diligence Directive.

CSDDD is poised to accelerate the transition to sustainable business practices, especially within supply chains. The new directive, scheduled to be implemented as national law in the coming two years, requires large companies to confirm compliance with human rights and environmental impact standards across both direct and indirect value chains within Europe and beyond. This responsibility does not stop at tier 1 suppliers, but covers the entire value chain, even when violations occur at third (or more) tier suppliers on other continents.

But CSDDD doesn’t just mandate compliance—it presents a unique opportunity for companies to lead in sustainability, create value and differentiate themselves in a competitive market. For supply chain professionals, the CSDDD should not be merely a regulatory hurdle, but a catalyst for innovation and leadership.

The CSDDD: What it means for supply chains

The CSDDD is part of the European Green Deal and represents EU’s efforts to ensure that businesses operate responsibly and sustainably, with a strong focus on human rights and environmental impacts. At its core, the directive requires companies to conduct thorough due diligence across their supply chains, identifying, preventing and mitigating adverse impacts on human rights and the environment.

CSDDD is poised to accelerate the transition to sustainable business practices, especially within supply chains. The new directive, scheduled to be implemented as national law in the coming two years, requires large companies to confirm compliance with human rights and environmental impact standards across both direct and indirect value chains within Europe and beyond. This responsibility does not stop at tier 1 suppliers, but covers the entire value chain, even when violations occur at third (or more) tier suppliers on other continents.

For supply chain professionals, this means a comprehensive review of every link in the supply chain—from raw material sourcing to final product delivery. Businesses will need to assess risks, implement effective strategies to address them, set up grievance functions and maintain ongoing oversight to ensure compliance. This level of transparency and accountability is unprecedented, pushing companies to scrutinize their global partners and suppliers.

Turning compliance into opportunity

While the primary goal of the CSDDD is to ensure companies adhere to ethical and sustainable practices, it also offers significant opportunities for those willing to embrace its principles. Because it focuses on more than compliance, businesses have the opportunity to view these requirements as a pathway to competitive advantage.

By adopting the CSDDD’s standards, companies can enhance their brand reputation, foster customer loyalty and attract capital from investors keen to know all risks are being addressed, and the business future-proofed. New markets and customer segments can be unlocked with broader implementation of sustainable principles in core offerings and strategies. In essence, the CSDDD is a framework not to be viewed as a regulatory burden, but a trigger for creating long-term value.

Many companies have already begun to integrate sustainable practices into their supply chains, serving as inspiration for how the CSDDD can be leveraged to drive business success.

As an example, IKEA’s approach to sustainability is deeply rooted in circular economy principles, responsible resource management and renewable energy transition. The company’s commitment to sustainable forestry practices and its efforts to design products with longevity and recyclability in mind, along with billion-euro investments in renewable energy production, are excellent examples of how businesses can align with the CSDDD’s objectives while finding new commercial opportunities. By integrating sustainability into its core business model, IKEA has not only ensured compliance but has also created value through cost efficiencies, customer loyalty, new business opportunities in the circular economy and profitable investments in energy production.

Another example is Patagonia, the outdoor clothing and gear company, which has made ethical sourcing a central part of its business strategy. The company’s commitment to environmental activism and fair labor practices has resonated strongly with its customer base. Patagonia’s transparency about its supply chain, including public disclosure of its suppliers and their practices, is a prime example of how companies can turn CSDDD’s due diligence requirements into a competitive advantage. By leading with its values, Patagonia has built a loyal customer base and set a high standard for corporate responsibility in the apparel industry.

Practical steps for supply chain professionals

For supply chain professionals, preparing for the CSDDD should involve more than just ticking boxes—it’s about embedding sustainability into every aspect of the supply chain to gain maximum benefits.

Assess and map supply chains. The first step is to conduct a thorough assessment and mapping of the supply chain. This involves identifying potential risks related to human rights and environmental impact at every stage, from raw material extraction to product delivery. By understanding where the greatest risks lie, companies can prioritize their efforts and allocate resources more effectively.

Engage with suppliers. Building strong relationships with suppliers is crucial for ensuring compliance with CSDDD. This means working collaboratively with suppliers to improve their practices, provide training, and support capacity-building efforts. By fostering a culture of sustainability throughout the supply chain, companies can ensure that their suppliers are not just compliant but also committed to the same values.

Leverage technology. Technology plays a critical role in ensuring compliance with CSDDD. Tools such as blockchain can enhance traceability, providing real-time insights into the supply chain and helping to verify the origin and sustainability of materials. Similarly, AI-driven risk assessment tools can help companies identify potential issues before they become critical, allowing for proactive management of supply chain risks.

Continuous improvement. Compliance with CSDDD should not be viewed as a one-time effort but as an ongoing commitment to continuous improvement. This means regularly reviewing and updating due diligence processes, staying informed about emerging risks and adapting to new regulations and industry standards. By making continuous improvement a core part of their supply chain strategy, companies can not only ensure compliance but also drive innovation and long-term value creation.

For supply chain professionals, this presents a unique opportunity to lead the way in building more sustainable and resilient supply chains while simultaneously finding commercial opportunities and brand-strengthening activities and attracting investor capital. By embracing the CSDDD’s requirements, companies can turn compliance into a strategic advantage, creating value for their business while contributing to a more sustainable global economy.

Unilever, a global leader in consumer goods, has long been at the forefront of sustainable sourcing. The company’s Sustainable Living Plan, which aims to decouple its growth from environmental impact, includes commitments to sourcing all agricultural raw materials sustainably. By working closely with suppliers to ensure adherence to sustainability standards, Unilever has not only reduced risks associated with environmental degradation and human rights violations but has also enhanced the resilience of its supply chain. This proactive approach positions Unilever well for CSDDD compliance, while also boosting its brand value among consumers who prioritize ethical products.

Apple, which perhaps needs no introduction, has made significant strides in greening its supply chain as well, particularly through its focus on renewable energy and reducing its carbon footprint. The company’s Supplier Clean Energy Program encourages suppliers to transition to renewable energy sources, aligning with the CSDDD’s environmental goals. Apple’s investment in green innovations and stringent supplier audits not only promotes compliance but also reinforces its position as a leader in sustainable technology. By prioritizing sustainability, Apple has created value through cost savings, improved supplier relationships and enhanced brand loyalty.

Most—if not all—companies still have issues, however. Apple has a supply chain full of critical minerals, which are notorious for their many social and environmental issues. Unilever still has a way to go to ensure its goods come from regenerative agriculture that promotes positive impact on farmers and land alike. But the first steps are being taken to ensure that their business remains relevant and resilient for decades to come.

The future of supply chains under CSDDD

CSDDD is likely to influence the future of supply chain management, both within the EU and globally. As more companies adopt the directive’s principles, we can expect to see a shift toward greater transparency, accountability and sustainability in supply chains worldwide.

For supply chain professionals, this presents a unique opportunity to lead the way in building more sustainable and resilient supply chains while simultaneously finding commercial opportunities and brand-strengthening activities and attracting investor capital. By embracing the CSDDD’s requirements, companies can turn compliance into a strategic advantage, creating value for their business while contributing to a more sustainable global economy.

By taking proactive steps to align with the CSDDD, companies can position themselves at the forefront of responsible business practices, turning compliance into a powerful tool for growth and differentiation in the market.

The time to act is now. The CSDDD is not just a challenge—it’s an opportunity to transform supply chains into engines of sustainability and to build a business that’s not only compliant but also competitive and resilient in the face of future challenges.

About the author:

Angela Hultberg is global sustainability director at Kearney. She can be reached  at [email protected]

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