The United Nations’ Principles for Responsible Investment has released an investor briefing on the European Union’s new Corporate Sustainability Due Diligence Directive (CSDDD). This directive creates a legal liability for companies relating to environmental and human rights violations within their supply chain. The guidance provided by PRI aims to help investors navigate the potential repercussions of the CSDDD, which establishes a corporate due diligence standard on sustainability issues for businesses operating in the EU, focusing on environmental concerns, climate change, and human rights.
The new due diligence requirements of the CSDDD apply not only to the direct actions of the company but also to their subsidiaries and supply chain. Both EU-based companies and non-EU companies conducting a certain level of business in the EU could become liable for the actions of their suppliers. The CSDDD will be phased in over five years, impacting companies based on their size and turnover. The European Parliament approved the CSDDD on April 24, moving it closer to formal adoption by the EU. Once adopted, member states will have two years to implement the directive at the national level.
The PRI investor briefing analyzes the CSDDD as it relates to the investment sector and ties it to the broader Environmental, Social, and Governance (ESG) movement. The report notes that while the CSDDD will only impact a small number of financial companies due to high threshold standards, investors still expect companies to conduct risk assessments in line with the directive. With 5,372 investment organizations having signed a pledge committing to the six Principles for Responsible Investment, it is evident that there is a growing emphasis on incorporating ESG factors into investment decisions.
PRI has been a supporter of the CSDDD’s adoption throughout the process, as it aligns with the broader sustainability and ESG movement. The organization believes that mandatory human rights and environmental due diligence will support investors in their risk and impact analysis, enabling better-informed engagement with investees. PRI views the final requirements of the CSDDD as proportionate and practicable, playing a critical role in achieving the EU Green Deal, which is essential for EU competitiveness, security, and resilience.
As the CSDDD moves closer to adoption by the EU, the PRI investor briefing provides valuable insights for investors on navigating the implications of the directive. With the increasing focus on sustainability and ESG factors in investment decisions, understanding the requirements and potential impact of the CSDDD will be crucial for investors operating in the EU market. By aligning with the principles of responsible investment and incorporating ESG factors into decision-making, investors can effectively manage risks and opportunities associated with the CSDDD and contribute to a more sustainable and responsible investment landscape.
