EU Corporate Sustainability Due Diligence Directive: 79% of companies are confident that compliance is achievable
But two thirds of businesses say they face challenges in complying with the Directive
The EU Supply Chain Act has now been adopted with some amendments to the original draft, providing clarity for those companies impacted. A study conducted by KGM Strategy, a Boston Consulting Group subsidiary specializing in procurement and supply chain management, reveals optimism among French and German companies about their readiness for compliance. Many have already started to implement the due diligence guidelines.
Cologne / Cologne, 18 March 2024 – The importance of enhancing supply chains’ environmental and social impact is a priority for nearly three-quarters of companies surveyed by KGM Strategy. 77% of companies consider the EU Corporate Sustainability Due Diligence Directive (CSDDD) as an opportunity to show greater respect for human rights and the environment.
79% of companies surveyed believe that compliance with the directive is achievable. In contrast, 23% primarily see the new regulation as a risk because companies outside the EU do not have to comply with the obligations.
The majority of respondents have already taken steps to comply with the CSDDD. These include, for example, the development of compliance procedures (77%), the communication of an annual financial report (76%), the introduction of supplier selection criteria and standards for their collaboration (75%), and performance indicator monitoring (74%).
Nearly 70% of those surveyed are aware that this new European directive will entail costs, but most estimate that these will be minimal or moderate. In the long term, seven out of ten businesses think that the financial impact will be positive and that they can expect a return on investment.
Implementation challenges
Many of the study participants are sceptical when it comes to implementing the measures: Two out of three companies say they face challenges. These obstacles include a lack of transparency and access to data (28%), insufficient personnel capacity (24%) or difficulties in operationalizing the strategy (23%). Over 30% of respondents would also like to see better training for those who have to put the guidelines into practice.
Just 43% state that they already fully comply with their respective national due diligence laws. Even fewer – 34% – already comply with the stricter European rules. Beyond the financial aspect, many of those surveyed also expect positive results from the introduction of the legislation: For example, stricter regulations could have positive consequences for their image (60%), and respect for human rights (55%). Other important reasons to implement measures include the ability to attract talent (52%), and greater respect for the environment (52%).
“To succeed in complying with the CSDDD, it is essential for companies to train their employees in the requirements of the new regulation. This is a need expressed by nearly half of the respondents. Leaders must also adopt a cross-cutting approach and integrate the duty of vigilance into a corporate program that effectively combines cost control, ESG commitment, and increased resilience. The CSDDD should be approached as a performance issue rather than a compliance issue,” says Jean-Pierre Masson, Principal at KGM Strategy.
The new EU Directive builds on laws introduced in France and Germany. The Corporate Duty of Vigilance has been enshrined in French law since March 2017 for business with over 5,000 employees, while the German Supply Chain Act (LkSG) came into force at the beginning of 2023 for companies with more than 3,000 employees and since the start of this year for companies with more than 1,000 employees.
The now finalized EU law extends this duty of vigilance to all companies in the European Union with more than 1,000 employees and €450 million in turnover. Depending on the size of the company, different start dates are planned. The KGM Strategy study, in partnership with Verian (formerly Kantar Public), surveyed over 680 decision-makers from B2C and B2B companies with more than 500 employees.
An opportunity with a cost… But also, a return on investment
Procurement departments play a significant role in the implementation of the law. Therefore, they should take the initiative by getting an overview of the available procurement data and creating more transparency in the supply chain. Companies should actively request missing data from their suppliers and adjust their strategies and processes accordingly.
“To minimize the costs and efforts associated with compliance with the legislation, they should also ensure that the measures taken under the CSDDD are directly compatible with the requirements of the Corporate Sustainability Reporting Directive,” concludes Jean-Pierre Masson.
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