The Corporate Sustainability Due Diligence Directive (CSDDD) is recognized as a significant regulation by the European Union (EU) aimed at improving global standards in environmental and human rights issues. It represents a substantial step towards achieving the Green Deal targets.
The directive's most notable features are its requirement for companies to manage their international value chains and the imposition of stringent sanctions. As a result, large companies, including those with value chains extending to Turkey, will be held accountable. Turkish companies must understand these regulations thoroughly and evaluate their risks in acknowledging their obligations.
This directive, which officially came into force on July 25, 2024, mandates large companies to identify, assess, and manage their human rights and environmental impacts. Member states are required to transpose this directive into national law by July 26, 2026. Compliance obligations for the first group of companies will begin in July 2027.
Scope of the Directive and Compliance Obligations for Companies
Scope
The CSDDD applies to large companies operating within the EU and non-EU companies meeting specific thresholds. The compliance obligations will be implemented gradually based on the size and financial status of the companies. Companies that meet the following thresholds for two consecutive years will be covered by the directive:
By 2027: €1.5 billion global turnover and 5,000 employees or €1.5 billion turnover within the EU.
By 2028: €900 million global turnover and 3,000 employees or €900 million turnover within the EU.
By 2029: €450 million global turnover and 1,000 employees or €450 million turnover within the EU.
Key Obligations
Assessment of Human Rights and Environmental Impacts Companies are required to identify and assess potential human rights and environmental impacts arising from both their direct and indirect operations. This assessment must cover all stages of the company's value chains.
Prevention and Mitigation Processes Companies must implement the necessary processes to prevent or mitigate identified adverse impacts. They must continuously evaluate the effectiveness of these measures.
Climate Transition Plan Companies must develop a climate transition plan with science-based targets in line with the Paris Agreement's 1.5°C scenario. This plan should include goals for reducing greenhouse gas emissions for the 2030-2050 period.
Annual Reporting Companies are required to provide annual assessments and reports on human rights and environmental impacts within their value chains.
Sanctions
The CSDDD holds companies legally accountable for failing to take the necessary measures to prevent human rights violations and environmental damages within their value chains. Companies that do not comply with the directive's requirements may face fines of up to 5% of their annual turnover. Furthermore, the directive grants rights holders the ability to seek legal recourse and compensation in cases of non-compliance.
Compliance and Implementation Process
By 2029, companies are expected to implement due diligence processes concerning human rights and environmental issues across their internal operations and entire value chain. The European Commission is anticipated to guide to support companies in their compliance efforts during this period.
Please contact ramazanertas@ertaspartners.com for detailed information.
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