The EU Corporate Sustainability and Due Diligence Directive (“EU CS3D” or “EU CSDDD”)
After Germany launched a national supply chain due diligence initiative, the EU adopted its own supply chain sustainability act: the EU Corporate Sustainability and Due Diligence Directive (“EU CS3D”), likely to ensure common market standards.
The EU law will not only concern the supply chain, but will also cover the entire value chain – including the sales organization (the “chain of activities”). The EU law will address work safety and worker rights requirements, as well as environmental and sustainability requirements. While the EU law is similar to the German LkSG in that it will target smaller companies and require implementation of expectations within the entire chain of activities, the scope of the EU CS3d exceeds the scope of the German LkSG.
Companies subject to EU CS3D requirements will have to pursue a periodical risk analysis and define compliance measures to avoid human rights, environmental, and sustainability risks. Measures include a constant risk monitoring (covering the entire chain of activities), a Due Diligence Policy explaining the company’s human rights, environment, and sustainability approach, a concept and measures to implement the requirements within their chain of activities, a sustainability concept, a catalogue of mitigating measures in case risks materialize, a whistleblower hotline and an annual reporting process. Non-EU companies must appoint an authorized representative based in the EU, and EU Member States must set up supervising authorities, which shall receive the annual reports and monitor compliance with the EU requirements.
Companies will be liable for damages resulting from violations of the company’s human rights, environment, and sustainability approach within their chain of activities. However, companies will not be liable for damages only caused by their business partners if they themselves did comply with EU law. Penalties by supervisory authorities for non-compliance may go even beyond 5% of the global net-turnover (the minimum maximum limit).
Note: The EU CS3D will need to be implemented into the national laws of the EU Member States at the beginning of June 2026 to become effective.
Partner and Co-Head German Compliance Group, Dentons Europe (Germany)