Advancing sustainability in 2024: A business market update

Although the CSDDD solely applies to the largest companies, I believe the directive will have a huge spillover effect to other companies in the chain of activities of such large companies. Stephanie ter Brake Attorney-at-law, Lexence

On June 25, 2024, Simply Sustainable hosted another roundtable event in Amsterdam, which saw a big turn out from sustainability experts, practitioners, and thought leaders. There were lively discussions, as participants shared their experiences and insights. Two current sustainability topics were introduced by expert speakers. Stephanie ter Brake dove into the details of the newly adopted Corporate Sustainability Due Diligence Directive (CSDDD) — delineating companies’ corporate due diligence duties and reporting obligations — and Sytze Dijkstra shared the latest from the Science-Based Targets initiative (SBTi), where the role of carbon credits is back in the spotlight. The input and exchange of ideas sparked fresh multiple perspectives. 

The CSDDD radically extends a company’s responsibility along the value chain – but how far does it reach? 

Firstly, we learnt that the CSDDD aims to promote responsible business conduct while minimizing negative effects in global value chains. Companies must implement due diligence practices across their supply chain, both within and outside the European Union, prioritising their efforts based on the severity and likelihood of risks. Not only will the company be expected to take ‘appropriate measures’ to verify supply chain claims, but to act to prevent negative impacts, including terminating contracts if necessary. Not doing so comes with liabilities for the company of up to 5% of the company’s global turnover, and perhaps consequences at a board level. 

Much of the discussion revolved about the extent and limits of this responsibility. How far down the value chain can a company exert influence? How can it take ‘appropriate measures’, as per the text of the Directive, when the impacts are several tiers down the value chain? And how does a company know that it has done enough to address negative impacts? The vagueness of this wording brings in question the ability to enforce the Directive. However, it could also be seen as a necessarily broad scope to facilitate the diversity of affected companies.  

The CSDDD will initiate a cascading of due diligence requirements that will affect many companies 

While the text of the final Directive was significantly weaker than earlier drafts, this is not to underestimate the spillover effect of this directive which will have consequences on all companies, in all tiers, of global supply chains. The large companies subject to the regulation can only fulfil their due diligence duty by asking their suppliers and supply chain partners to share information, monitor risks and take action when needed. There have also been discussions about future extension of the regulation to a wider group of companies.  

Companies should start anticipating these spillover effects by mapping the main impacts on people and the environment in their supply chain – many have already started doing so as part of their double materiality assessment and include appropriate expectations in any supplier contracts that are up for renewal. 

Wanted: clarity on the rules for use of carbon credits 

Lastly, we discussed the intention of the Science-based Targets initiative (SBTi) to extend the use of environmental attributes certificates – aka carbon credits. The strong views around the table emphasised the importance of further clarity on the role of carbon credits in net zero strategies, what quality criteria should be applied to them and how this can be verified. The devil will be in the detail of the guardrails, thresholds and rules that the SBTi has promised to publish July. To be continued. 

For more information or to share your thoughts on these topics, please get in touch with us at Simply Sustainable. To be informed of future events, please subscribe to our newsletter or/and follow us on LinkedIn. 

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