The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) significantly impacts suppliers across the value chain of CSDDD-covered companies.

These companies must scrutinize their business partners‘ information and performance to comply with the Directive, which entails rigorous supplier risk assessments, risk-based policy development, and revisiting supplier codes of conduct and contracts.

CSDDD addresses adverse human rights and environmental impacts across the value chain, covering the entire lifecycle of products or services from production to distribution. The value chain includes upstream activities such as product development, design, extraction, sourcing, manufacture, and supply of raw materials, as well as downstream activities like distribution, transport, and storage.

CSDDD-covered companies will exert legal and operational pressure on their business partners. Operationally, they may push partners to adopt different materials, technologies, methods, and obtain ESG certifications. They might use market power to establish pre-qualification requirements and incentives tied to human rights and environmental performance.

Additionally, these companies may support small and medium-sized enterprises (SMEs) through training, capacity-building, management system upgrades, knowledge and technology transfer, and financial aid.

Legally, covered companies must comply with disclosure and reporting obligations and meet performance requirements across the value chain. This includes conducting due diligence, identifying, assessing, preventing, mitigating, and remediating adverse impacts. Legal pressure on suppliers may involve contract revisions to include assurance clauses, audit and inspection clauses for reviewing operations and records, and suspension clauses for terminating relationships if standards are unmet or significant breaches occur. Suppliers can also expect to adhere to codes of conduct and climate change transition plans.

Some suppliers are already familiar with due diligence measures and are committed to UN principles related to environmental preservation, climate change adaptation, and human rights protection, which are core to the CSDDD. However, these commitments will need to be translated into concrete performance measures.

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