Are Companies Prepared for the EU’s CSDDD Regulations?

Behind the scenes, tens of thousands of European companies are frantically preparing for the phased implementation of the Corporate Sustainability Due Diligence Directive (CSDDD).

However, research carried out by EQS Group and the University of Applied Sciences Ansbach has revealed critical gaps in supply chain transparency and the resources required to comply with the new directive.

Surveyed companies said a lack of personnel and financial resources were the biggest challenges facing them in relation to the incoming regulations. 

Documentation and reporting requirements, as well as lack of supply chain visibility, were also cited as key issues. 

However, less than a third (30%) of firms are planning to allocate additional resources, such as budget, staff or IT tools, to address these challenges and meet CSDDD requirements.

Risk levels surge along supply chain 

Passed as EU law earlier this year, the CSDDD requires firms to identify, prevent and mitigate their social and environmental impact. It also establishes companies’ legal responsibility for the social and environmental impact of their suppliers.

EU countries have two years to implement this law, with each setting up supervisory bodies to monitor and investigate compliance. Non-compliant organisations could face fines of up to 5% of their global turnover.

The deadline by which companies must implement the new rules is broken down by company size or turnover, as follows:

• 5,000+ employees or €1.5bn+ turnover – by 2027
• 3,000+ employees or €900m+ in turnover – 2028
• 1,000+ employees or €450m+ in turnover – 2029

While the aforementioned research discovered companies are confident in their ability to manage risks within their direct operations, with 84% reporting low risk, the level of perceived risk escalates further along the supply chain.

For indirect suppliers, more than half of respondents (55%) rate the risk of human rights and environmental violations as high or very high, while 41% rate it as medium.

“The deeper you go into the value chain, the more complex the risks become,” says Professor Dr. Stefanie Fehr, lead researcher of the study at Ansbach University.

“This poses significant challenges for businesses seeking to comply with the new regulation, and requires a proactive, risk-based approach.”

ESG integration into risk management grows

In carrying out their research, EQS Group and the University of Applied Sciences Ansbach surveyed more than 400 companies headquartered in the EU, based in Germany, Switzerland, France, Spain, Denmark and the UK.

They found that, despite resource constraints, companies are prioritising ESG issues in their supply chain strategies, recognising that human rights and environmental protection are increasingly shaping their supplier relationships, business practices and risk management. 

More than two-thirds (68%) have integrated human rights and environmental issues into their risk management processes, ensuring that these criteria are considered in the selection of suppliers. Of these organisations, 26% are using digital solutions to support risk management, highlighting the growing role of technology in achieving compliance.

“The complexity of global supply chains presents not only challenges, but also significant opportunities to build a more sustainable infrastructure,” adds Achim Weick, Founder and CEO at EQS Group. “The CSDDD, as well as the German Supply Chain Due Diligence Act, offers an opportunity for companies to strengthen the trust of business partners and customers.

“By investing in transparency and responsibility now, companies can gain a lasting competitive advantage. To fully capitalise on this, further investment in technology solutions will be crucial to compensate for staff shortages.”

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