Corporate Sustainability Due Diligence Directive (CSDDD)

Overview

The Corporate Sustainability Due Diligence Directive (CSDDD) ensures companies identify, assess, prevent, and mitigate adverse impacts on human rights and the environment throughout their supply chains. The CSDDD touches heavily on the Environmental and Social aspects of ESG. It works to ensure workers' rights to adequate housing, food, clothing, and sanitation and protects children’s health, education, living conditions, and safety from exploitation and abuse. Regarding environmental protections, it works to safeguard biodiversity and endangered species, regulate toxic substances and pesticides, protect the ozone layer, natural heritage, and wetlands, and prevent marine pollution.

Target:

EU Companies: If your brand or lab has more than 5,000 employees worldwide and a global turnover of more than EUR 1.5 billion
Non-EU Companies: If your brand or lab is based outside the EU and generates a turnover of more than EUR 1.5 billion in the EU.

Intended Impact:

Identify, prevent, and mitigate environmental and human rights violations in the supply chain.

Implication for Heath&Beauty Industry:

For brands, particularly those with complex global supply chains, which includes many health and beauty brands, preparation for CSDDD involves building robust due diligence frameworks and aligning operations with its requirements. Brands will be required to produce an annual CSD report or statement. Still, companies that have already published a transition plan under the CSRD are exempt, which shows the benefits of robust and comprehensive reporting. Additionally, beauty brands that violate the CSDDD face fines of at least 5% of turnover an civil liability.

Cosmetic companies must embed responsible business practices into their operations and supply chains. To comply with the CSDDD, cosmetic industry companies must:

Integrate risk-based due diligence into their corporate policy
Identify and assess actual and potential adverse impacts across the supply chain
Take preventative and mitigation measures against identified liabilities and risks.

Timeline

Juli 2024	CSDDD Entered Force
2026	Deadline for member state ot transpode CSDDD into law
2027	Gradual phase in, rules will start to apply to EU companies with more than 5 000 employees and €1 500 million worldwide turnover, as well as non-EU companies with more than €1 500 million turnover generated in the EU.
2028	Rules begin to apply to EU companies with more than 3 000 employees and €900 million worldwide turnover, as well as non-EU companies with more than €900 million turnover generated in the EU.
2029	Rules expand to EU based companies with 1,000+ employees and worldwide turnover of more than EUR 450 million or non-EU based Companies that generate a turnover of more than EUR 450 million in the EU or Franchisors with franchise or licence agreements in the EU and annual franchise fees of more than EUR 22.5 million and a turnover of more than EUR 80 million.

How to Prepare

By taking proactive steps, cosmetic companies can meet the CSDDD requirements and enhance their brand value and resilience in an increasingly sustainability-driven market. Companies can view CSDDD preparation as an opportunity to lead in sustainability and ethics, align with broader ESG goals, and build a reputation as a responsible, future-ready brand.

UNDERSTAND CSDDD Requirements

Scope: Determine if your company is within the directive’s thresholds:
- Large EU companies and non-EU companies with significant EU operations are subject to compliance.
- Smaller companies may be indirectly affected by their role in the supply chain

INTEGRATE: Develop and Implement Risk-based Due Diligence Processes

Policy Creation: Create a due diligence policy aligned with the CSDDD, detailing human rights and environmental sustainability commitments.
Integrate Processes: Embed due diligence into business operations, from product design to distribution.
- Ensure compliance with international standards like the UN Guiding Principles on Business and Human Rights and OECD Guidelines.
- Incorporate CSDDD reporting into your current annual/quarterly reporting scheme.
Legal Readiness: Consult legal experts to ensure contracts and policies reflect CSDDD requirements.
Financial Planning: Budget for potential costs, such as supply chain audits, process improvements, and legal fees.

IDENTIFY: Assess Actual and Potential Adverse Supply Chain Impacts

Conduct a Comprehensive Supply Chain Assessment
- Map your entire supply chain: Include sourcing of raw materials like mica, palm oil, or shea butter, as well as production/processing.
- Engage Suppliers: Require suppliers to disclose practices and adherence to ethical standards.
- Risk Assessment: Conduct due diligence to identify and evaluate human rights and environmental harm risks. Focus on areas such as ingredient sourcing and manufacturing conditions.
Establish a Monitoring and Reporting System:
- Track Progress: Leverage tools that monitor compliance with human rights and environmental standards across the supply chain.
- Report Transparently: Publish annual reports detailing due diligence efforts, risks identified, and actions taken.
- Third-Party Audits: To verify compliance and credibility.