Supply chain due diligence: what is the CSDDD and why is it important?

27 March 2024

Corporate responsibility is a growing topic, both with regard to environmental sustainability and social impact. Many businesses want to do the right thing and are taking some form of action, however, while there are various guidelines for corporate behaviour, up until recently there has been very little legislation to mandate corporate accountability. We are now seeing a shift here, with new ESG regulations forcing social and environmental factors into core business considerations. This is a shift that we highlighted earlier this year as one of the key ESG trends for 2024, as we believe this move to a more integrated approach to ESG will only increase with emerging regulatory frameworks.

CSDDD: an overview

An example of this came this month, when the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) was approved by the council. The CSDDD creates a legal liability for large organisations operating within the EU to identify, manage, mitigate, and address the environmental and human rights risks across their subsidiaries and entire value chain. This includes environmental impacts such as pollution and ecosystem damage, as well as social impacts such as slavery and child labour. Under the directive, companies which fail to take action, such as having a plan for reaching net zero and preventing human rights abuses, would face penalties such as public shaming and fines of up to 5% of net turnover.

Although the scope of the framework was significantly scaled back in order to reach agreement, the CSDDD is seen as a landmark for legislating supply chain due diligence as the responsibility of businesses. The CSDDD will now go to the European Parliament for approval.

This new framework signifies increasing pressure for businesses to take responsibility over the actual and potential environmental and human rights risks of their work. With most businesses relying on complex networks of supply and value chains, without proper due diligence it is too easy for environmental and human rights abuses to be missed. Initiatives such as this provide a framework for businesses to increase accountability and prevent perpetuating abuses.

Supply chains and modern slavery

The need for corporate action cannot be understated. Just this month, the International Labour Organisation (ILO) published a report based on their recent study, which provides new estimates to show that profits from forced labour in the private sector have soared in recent years. Forced labour is a form of modern slavery, which the United Nations describes as “situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, deception, and/or abuse of power.” The ILO report showed that the annual global profit generated from forced labour is US$236 billion, which is a 37% increase from 2014. Gilbert F. Houngbo, ILO Director-General, said in their press release, “Forced labour perpetuates cycles of poverty and exploitation and strikes at the heart of human dignity. We now know that the situation has only got worse. The international community must urgently come together to take action to end this injustice."

Social responsibility: what businesses can do

Ending forced labour in all its forms must be the responsibility of businesses alongside governments and civil society. Modern slavery is a global human rights issue which many businesses find themselves inadvertently linked to if they do not monitor their operations and supply chains adequately. Regulatory frameworks are important for enforcing and guiding corporate action, to ensure that the largest market players in particular are addressing the risks across their supply chains. However, we encourage all organisations, regardless of size, to implement measures to identify, mitigate, and respond to human rights risks across their supply chains.

At ESGmark®, we support our members to monitor their supply chains to ensure they work with suppliers who share their values. ESGmark® members have access to a library of resources, including policy guides and templates. Included in this library are our guides and templates for implementing modern slavery statement and policy, as well as our supply chain auditing guide and survey templates. You can find previews of these in our public library here. To find out more about how we can support your business, do not hesitate to get in touch.