Good news from Brussel. ‘A victory for people and the environment.’

Lara Wolters on X, tweet from March 15, 2024: “Due Diligence passed in Council! People and planet prevailed over cynicism. Thanks so much to the Belgian Presidency for all its efforts!”

On Friday, March 15, the EU voted in favor of the Corporate Sustainability Due Diligence Directive (CSDDD, pronunciation: "C S triple D"), or "the anti-look-away-law" as initiator Lara Wolters calls it.

Soon, companies will no longer be able to turn a blind eye to violations of human rights or environmental regulation that occur within their supply chains.

In this article, we explain exactly what the CSDDD entails, how it relates to other emerging laws and regulations, how relevant the new EU law is to the fashion industry, and how companies and entrepreneurs should be preparing for when the directive comes into effect.

The European corporate responsibility law: this is what you need to know about the upcoming Due Diligence Directive

1. What does the Corporate Sustainability Due Diligence Directive (CSDDD) actually mean? What does the upcoming Due Diligence Directive entail? What should we know about the new EU law? And how does it relate to other emerging sustainability laws and regulations?

For the first time, large brands and companies are required to report their environmental performance and social responsibility in addition to how their business is governed on the basis of sustainability (ESG for short), according to the Corporate Sustainability Reporting Directive (CSRD), a new law that is already in effect.

“The CSRD is the pro is the precursor to Corporate Sustainability Due Diligence Directive," explained Dutch fashion professional Melissa Wijngaarden in a previous interview with FashionUnited. “After all, you need all the information available to be able to change things. The CSRD now requires that companies collect all data regarding sustainability and that they identify potential human rights and environmental risks. They will also have to establish improvement processes for this, due to the CSDDD.”

Melissa Wijngaarden is co-owner of Impactbytes. The company helps online stores, brands and search engines effectively identify and communicate product sustainability credentials to their customers.

Read more here: [Comprehensive reporting on sustainability is or will become mandatory: Here's what you need to know about the Corporate Sustainability Reporting Directive (CSRD)].

The CSDDD can be seen as an extension of the CSRD, notes Fleur van de Heuvel-Meerman, Senior Policy Advisor for International Corporate Social Responsibility at the SER and an expert in Due Diligence and human rights. "The goal of both laws - part of a European package of measures to make businesses more sustainable - is ultimately to make a (positive) impact, or in other words, to improve matters," explains Meerman. "But where the CSRD is mainly a reporting standard, the CSDDD focuses on changing the underlying behavior."

The SER, short for Social and Economic Council, is the main advisory body of the Dutch government. The organization plays an important role in formulating policy and advice in fields such as international corporate social responsibility.

Meerman is directly involved in the Corporate Sustainability Reporting Directive. Together with her colleagues, she worked on the practical implementation of the mandatory sustainability reporting, with the SER actively providing advice, guidance and information.

Read more here: [Comprehensive reporting on sustainability is or will become mandatory: Here's what you need to know about the Corporate Sustainability Reporting Directive (CSRD)].

In brief, this is what the CSDDD entails:

The Due Diligence directive holds companies accountable for any adverse environmental impacts and/or human rights violations due to their business activities.

“Under the Corporate Sustainability Due Diligence Directive, businesses should expect that they will have to map out their entire supply chain,” explain experts Naomi Kervel and Eva Smulders from the Netherlands Enterprise Agency (RVO)in a discussion about the CSDDD. "Organizations and brands need to conduct risk analyses, communicate the findings with their various stakeholders, and report the findings. If companies find any violations at their suppliers, they are obliged to take action to address and rectify the situation.”

Naomi Kervel is an advisor for ICSR (which stands for International Corporate Social Responsibility), and Eva Smulders is the coordinator of the ICSR support desk at the Netherlands Enterprise Agency (RVO).

The RVO is an organization that supports businesses and entrepreneurs in the Netherlands. It offers help and advice on various matters, such as sustainable business practices, innovation, international business, and more. The RVO assists entrepreneurs in becoming successful while also preventing any potential negative impacts on people and the environment within a company's supply chain. In short, the enterprise is there to support and encourage companies to operate in a responsible and sustainable manner.

If they do not comply, sanctions (aka, fines) can be imposed, or civil proceedings (aka, lawsuits) can be initiated against them.

2. Background: What does the CSDDD mean for the fashion industry?

Although the fashion sector has been taking steps to operate more socially responsible for years - "for example, through the former clothing covenant in the Netherlands or similar international efforts," points out Smulders - there is still a lot that needs to be done, especially when it comes to working conditions."Significant improvements for both people and the environment within the fashion industry can be made within the 'upstream' part of the supply chain,” explains Smulders. In other words, key changes can be made in the production countries and concerning the labor conditions of garment and textile factory workers.

You might remember the single largest disaster in the fashion industry? On April 24, 2013, the Rana Plaza garment factory in Bangladesh collapsed, killing over 1,100 people and injuring thousands of others. "Fashion brands claimed their clothes were not made there," reported sustainable fashion expert and journalist Sarah Vandoorne. “But clothing labels from various brands were found in the rubble. Clothes from these brands were certainly being produced in the factory that collapsed. This could mean that these fashion brands have so little control over their supply chains that they don't even know where their clothes truly come from, and that's arguably more problematic than if they were lying about it."

"The supply chain within the fashion industry is complex and opaque. Here's how it works: A fashion company places a production order with a supplier. This supplier, often a manufacturer, then may choose to subcontract certain parts of the production process to other companies (sub-suppliers or suppliers), which can encourage specialization and efficiency. However, this also makes it difficult to maintain complete visibility over the entire supply or manufacturing chain and to ensure that all parties involved adhere to ethical and sustainability standards."

Source: [How (not) sustainable is the fashion industry?]

“In particular the salaries, working hours, and conditions of the people who produce our garments leave much to be desired,” says Smulders. To date, responsibility for garment or textile workers is often entirely pushed onto suppliers or not shared with the companies placing the clothing orders.

With the upcoming due diligence law, one could say that companies will finally be held responsible for the employees of their suppliers, namely those garment workers.

Source: Book 'Kleerkastvasten' from Belgian journalist Sarah Vandoorne pages 82-83.

The CSDDD is commonly referred to as supply chain responsibility and liability or ‘the supply chain law’.

3. What is the current status of the Corporate Sustainability Due Diligence Directive? Where does the Due Diligence Directive stand? Who/Which Companies will the CSDDD apply to? And when will the CSDDD take effect?

There was a lot of tension concerning whether the new EU law would pass or not. In December 2023, a principle agreement for the CSDDD was reached among the European countries. During one of the final voting rounds on February 28, Germany and France, among others, unexpectedly withdrew their support for the bill under pressure from the business sector. As a result, the Due Diligence Directive was on shaky ground for two weeks.

However, on Friday, March 15, the Corporate Sustainability Due Diligence Directive received approval from the majority of the EU countries.

The new directive will be implemented in phases, which are as followed:
- By 2027, companies with more than 5,000 employees and a turnover of 1.5 billion euros will have to comply with the CSDDD.
- In 2028, companies with more than 3,000 employees and a turnover of 900 million euros will have to comply with the CSDDD.
- From 2029 onwards, companies with more than 1,000 employees and a turnover of 450 million euros must adhere to the law.

Scaled down

The number of companies that will have to comply with the new law has been drastically reduced compared to the original proposal. The CSDDD will apply to companies with an annual turnover of 450 million euros and at least 1,000 staff members, instead of the initially agreed 150 million in turnover and 500 employees in December. As a result, the number of European companies falling under the law decreased from 17,000 to fewer than 5,500, as calculated by Oxfam Novib, an organization fighting against injustice and poverty across the globe.

Oxfam press release: 'EU’s heavyweights slash supply chain rules to appease big business' from March 15, 2024.

The actual implementation of the CSDDD is still some time away, a source of disappointment for Oxfam and other NGOs. By the time the law takes effect at the end of 2024, companies with more than 1,000 employees and a turnover of 450 million euros will have until 2029 to comply with the directive. So, they will not have to comply until the end of the decade, thereby diluting law's potency.

Wolters has the following to say on the matter: "Yes, it's less impressive than what we agreed upon in December (...) But even this agreement was nearly not reached. Including the liability, the fines, the involvement of trade unions. The pressure from companies that believe they have rights but no obligations was truly immense," she writes on Instagram Stories in response. "Politics is the art of the possible. This was what was possible at this moment. This is what we can and must build on in the coming years. And believe me: in the context, I dare to call this historic."

Next Steps

The CSDDD still needs to receive final approval from the member states and the European Parliament. The latter is scheduled for April. With a positive vote, the CSDDD will become a reality this spring.

After that, EU countries must then translate the European law into national legislation.

But this does not mean that companies should wait. "Prepare now," advises Kervel. "Start setting up a due diligence process right away." After all, even more laws and regulations as incentives for sustainable(er) business operations and (international) corporate social responsibility are in the making. "And the risk assessments you need to do as a company for the CSRD and CSDDD, for example, are similar," explains Kervel.

SMEs pay attention

Kervel emphasizes that despite the revised criteria of the law, small and medium-sized enterprises (SMEs) can still be affected because they are part of the supply chain and often supply to large companies that are covered by the legislation. "They will also be asked to provide information and practices to their supply chain partners on how they manage risks concerning people and the environment in the supply chain," she explains.

4. What can or should companies do now in light of the upcoming CSDDD? How can companies start implementing due diligence within their supply chain? How can companies prepare in advance for the European law that will promote international corporate social responsibility?

"You can properly prepare your company for the upcoming CSDDD and other sustainability laws and regulations by implementing the OECD guidelines," explains Kervel. “Regardless of how the CSDDD may apply to you in the future.”

These OECD guidelines are one of the global standard frameworks around the so-called due diligence process and cover areas including human rights, labor rights, environmental impact, and technological development. With the help of these guidelines, companies can identify problems in their operations and supply chains and, where necessary, prevent and mitigate them.

The business advisor expects that companies using the OECD guidelines will largely meet the requirements of the Due Diligence Directive. In particular, it involves six steps that companies must continuously repeat.

The aim is for companies to delve deeper into the supply chain and continually come up with new solutions ‘to prevent a negative impact’. “But Due Diligence doesn’t have to be done all at once,” says Kervel. “Approach it step by step, that way it remains manageable.”

Finally, the Netherlands Enterprise Agency (RVO) encourages entrepreneurs in the fashion industry to join industry initiatives. Smulders: “Collaboration is important. You can learn a lot from each other.”

Also see;
- The official European Commission website 'Corporate sustainability due diligence'.
- RVO page CSR support desk for companies
- ‘Responsible Supply Chains in the Garment and Footwear Sector’ from OECD.org
- OESOguidelines.nl: the flyer 'Due Diligence in six steps'.

Sources:
- Interview with Naomi Kervel, CSR Advisor, and Eva Smulders, coordinator of the iRBC (international CSR) and Support Office at the Netherlands Enterprise Agency (RVO) on February 7, 2024
- Interview with fashion professional Melissa Wijngaarden, co-founder of Impactbytes and Project Cece, on January 25, 2024
- Interview with Fleur van de Heuvel-Meerman, Senior Policy Advisor on International CSR at the SER and board member of the Open Supply Hub, on January 29, 2024
- Lara Wolters on X, tweet from March 15, 2024: “Due Diligence passed in Council! People and planet prevailed over cynicism. Thanks so much to the Belgian Presidency for all its efforts!”
- The Instagram account of Lara Wolters, Member of the European Parliament for the PvdA and initiator of the CSDDD law, specifically the Instagram Stories from March 15, 2024
- Oxfam Press Release: 'EU heavyweights lower supply chain rules to appease big businesses' from March 15, 2024
- Press release Council of the EU 'Agreement between Council and Parliament on sustainable business' from December 14, 2023
- European Commission 'Corporate sustainability due diligence' page
- CSR support desk for companies (rvo.nl)
- Responsible Supply Chains in the Garment and Footwear Sector - OECD.org website
- Ministry of Foreign Affairs 'OECD guidelines', getting started with CSR (international corporate social responsibility), document 'Flyer: Due Diligence in 6 steps', from October 7, 2021.
- FashionUnited article ‘How (not) sustainable is the fashion industry’, from June 23, 2022.
- Parts of this article text were generated with an artificial intelligence (AI) tool and then edited.