The new rules for so-called non-financial reporting associated with the implementation of the Corporate Sustainability Reporting Directive (CSRD) are talked about quite often. However, we are hearing less about the proposal for a Directive on Supply Chain Responsibility, also known as CSDDD. At the same time, both directives complement each other well and can be used by European companies to gain a considerable competitive advantage.
As you know, the CSRD directive imposes non-financial reporting obligations on all large companies with 250 employees or more, with more than 50 million EUR in turnover, or 25 million EUR in assets, as well as public interest companies in the EU, which means that they must report their environmental, social and governance data (ESG ).
The CSRD Directive imposes on the private sector common rules for non-financial reporting that level the playing field and strengthen corporate accountability. However, this directive can be considered as a guide on how to capture best of the current negative and positive impact of companies on the environment or in the social area, while the newly approved CSDDD directive imposes on companies the obligation to identify and prevent the negative impacts of companies' actions across the supply chain.
At the end of May 2024, the EU Council approved the long-prepared Directive on due diligence, or CSDDD (Corporate sustainability due diligence). For companies with more than 1,000 employees and a global turnover of more than 450 million euros, the CSDDD has a new duty of due diligence across the supply chain. The basic elements of this obligation are the identification, termination, prevention, mitigation and consideration of negative impacts on human rights and the environment in our own operations, subsidiaries and their value chains.
The proposed directive would be enforced at Member State level and companies affected by it would have to take into account two enforcement tools in particular:
Administrative supervision: Member States shall designate an authority responsible for the supervision of compliance with the rules and their enforcement, including the application of court orders and effective, proportionate and dissuasive sanctions (in particular fines). At the European level, a European network of supervisory authorities will be established, which will ensure a coordinated approach, where information on violations of the directive will be shared with each other. According to currently available information, the company's problematic conduct will also be communicated to the public.
Civil liability: Member States shall ensure that victims (including individuals) receive compensation for damage caused by intentional or negligent negligence. It should be mentioned that potential fines for violations of the CSDDD can be up to 5% of global turnover.
The directive will affect around 6,000 companies in the EU as well as around 900 large multinational corporations based outside the EU. The Due Diligence Directive will be published in the Official Journal of the EU at the end of 2024, national governments will then have 2 years to transpose it, the expected start of force is 2027. However, companies are starting to prepare now.
Practical advice and warnings
Regularly review all members of your supply chain.
Don't overlook smaller suppliers, as risks can also arise at lower levels of the supply chain.
Develop concrete plans to reduce your carbon footprint
Don't delay implementing your sustainability strategy.
Report regularly on your ESG activities.
Do not withhold negative information that could lead to mistrust from investors and other stakeholders.
Monitor current legislative developments in the area of sustainability and responsibility for supply chains and adapt your strategies accordingly.
Do not underestimate the importance of legislative requirements, as non-compliance can lead to heavy fines and legal disputes.
Don't ignore the potential risks associated with ESG.
Proactively seek out and mitigate these risks to avoid legal and reputational consequences.
Don't underestimate the impact of climate change on your business and supply chain.
Prepare for climate change adaptation and mitigation.
Better safe than sorry
For companies that will be affected by the CSDDD, it will therefore be a very important innovation. But there is no need to be unnecessarily afraid of her. The existing implementation of the CSRD directive is a very good preparation for the introduction of appropriate measures. Czech companies are already getting used to having, for example, the calculated carbon footprint of their own company or its products, which is required from them by their large customers today. It is this that helps them gain a foothold on the market in front of competitors who do not have this data, often necessary for success in tenders. Adapting to the requirements of CSRD is a great opportunity for making companies run more efficiently and introducing innovations. And that includes the automation and digitization of data collection, which is a necessary goal not only for companies, but also for the state.
Non-financial reporting is a big concern for many companies today: the scope of requirements, the unavailability of data in one place, demanding cooperation with stakeholders, and increasing pressure from customers. You can help yourself by preparing in time, centralizing data collection and automating reporting. In addition, with the help of Green0meter you can manage data from the entire supply chain, where each supplier has its own profile and the data is collected in one place.
A very important factor is the possibility of verifying whether the data corresponds to reality. Through local partners in China, India and Indonesia, Green0meter can help ensure that you base your non-financial reporting on real data in compliance with legislation. Compliance with legislative requirements will not only give you an edge over the competition, but also a high added value - both a better position of the company on the market and an increase in overall value and attractiveness for investors.
We'll help you with all your non-financial reporting worries - contact Green0meter for your first free consultation and find out how you can gain a competitive edge!
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