What does the CSDDD mean for European companies?

From now on, large companies in Europe must map their impact on people and the environment. This involves quite a lot. Corentin Dandrimont of KPMG and Nicole van Deventer of Cegeka Group elaborate on the CSDD Directive.

Companies have both a direct and indirect impact on the world, which can be either positive or negative. To gain insight into this, the European Commission introduced the CSDDD (Corporate Sustainability Due Diligence Directive). “With this Directive, the EU aims to encourage sustainable and responsible behavior among European companies in all their activities and value chains on a global level," says Corentin Dandrimont, Sustainability Manager at KPMG in Belgium.

The CSDDD requires European companies with at least 1,000 employees and an annual turnover of 450 million euros to report on due diligence. They must map out the potential risks and negative impacts of their activities. Identifying these negative impacts allows them to mitigate or eliminate these consequences. Non-European companies with a turnover of 450 million euros in Europe are also subject to the regulations.

“Member States must now transpose the CSDDD into national legislation within two years. The Directive will come into effect in 2027 for the largest companies and will extend to smaller companies with a turnover exceeding 450 million euros by 2029. Non-compliance can result in fines up to five percent of their global turnover, and companies may be held liable for damages resulting from failure to meet their obligations. Governments may additionally decide to stop cooperating with non-compliant companies," Dandrimont said.

The CSDDD is intended to help companies prevent, mitigate, or stop negative impacts on people and the environment. Dandrimont identifies three important steps that companies can start with now. "It begins with designing sustainability policies and processes that are integrated into your operations. Then, you identify the risks and negative consequences associated with your sector, business model, or location. You can use various tools and indices for this. Once you have a clear picture, you determine which risks or suppliers you need to change."

One of the companies that falls under the CSDDD is Cegeka, the IT player originally from Limburg that now has a turnover exceeding one billion euros. "For us, this is not entirely new," says Nicole van Deventer, Global Procurement Director at Cegeka. "As early as 2022, we started questioning suppliers on ESG matters. Thanks to the CSDDD, we are now seeing more responses to our questionnaires."

Together with KPMG, Cegeka launched a corporate project to gather the company's procurement data, categorize suppliers, and assign risks to them. "Based on NACE codes, we can cluster suppliers by type of services and products. But we also look at country-level risks in terms of human and environmental impact. We need guarantees from our suppliers that they are reliable to mitigate risks. For purchases of computers and IT infrastructure, we even look deep into the supply chain to see, for example, how raw materials are extracted. We also check if our contracts are airtight and add clauses, if necessary," says Van Deventer.

A lot of work goes into the CSDDD, but according to Van Deventer, it will pay off in the long run. "In a few years, reporting will be much smoother. Two years ago, suppliers were still reluctant. Now we are receiving more and more responses, resulting in qualitative data. We are looking for a tool to automate our reporting. There is not yet a uniform system since this exercise is new to the market, but that will change.”

"When everyone is required to report in a uniform manner, it will not only simplify the reporting process but also make it easier to consciously choose strategic suppliers who are reliable both socially and environmentally. CSDDD helps procurement departments to select suppliers in a professional manner," she concludes.

This article was created in collaboration with De Tijd and L'Echo.