The New EU Directive 2024/1760 on Corporate Sustainability Due Diligence: A Landmark Move Towards Accountability and Transparency

The European Union has approved Directive (EU) 2024/1760, known as the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), to solidify rules and standards on sustainability across the entire value chain. This represents a turning point that impacts the governance and operational practices of numerous companies, now required to comply with obligations of analysis, prevention, and reporting on social and environmental matters.

Why is it relevant?

The Directive aims to:

• Prevent human rights violations and environmental damage resulting from business activities or supply chains.

• Strengthen consumer and investor trust by promoting transparency and accountability.

• Ensure fair competition conditions, preventing companies lacking adequate control processes from gaining competitive advantages.

Who is subject to the Directive?

The CSDDD applies to:

• Large European companies (exceeding certain revenue thresholds and/or employee counts) and their subsidiaries.

• Non-EU multinational groups with significant economic presence in the European market (revenue generated in the EU above certain values).

• High-impact sectors (e.g., textile, mining, agri-food), for which the Directive establishes specific or more stringent obligations.

Micro and small enterprises are generally excluded from direct application but may still be indirectly affected, for example as suppliers to companies subject to the regulation.

Key Obligations of the CSDDD

• Risk Mapping and Identification: Companies are required to perform a systematic analysis of risks concerning human rights violations, environmental standards, and governance, assessing the entire supply chain, including subcontracting activities.

• Prevention and Mitigation Measures: Upon identifying critical areas, corrective actions must be implemented, ranging from training business partners to including specific contractual clauses to ensure ESG (Environmental, Social, Governance) compliance.

• Reporting and Transparency: Companies are obligated to publish periodic reports on the due diligence measures adopted and the results achieved, to ensure maximum visibility towards stakeholders, investors, and regulatory authorities.

• Complaint Mechanisms and Stakeholder Dialogue: Reporting channels and procedures for dialogue with NGOs, local communities, and other stakeholders must be established to facilitate timely detection of potential issues.

• Integration with Internal Governance Systems: The company management (Board of Directors and senior executives) could be directly responsible for implementing and complying with due diligence processes, with potential sanctions for non-compliance.

Sanctions and Legal Liability

• Monetary Sanctions: Member States must establish national rules that prescribe fines proportional to the size of the company and the severity of the violations.

• Civil Liability: Should a company fail to adopt adequate due diligence measures, it may be held liable for damages caused by human rights violations or environmental principles.

• Exemptions and Mitigating Factors: In some cases, if a company demonstrates that it has established effective control systems or responded promptly to a report, it may benefit from mitigating factors or even exemptions from liability.

Impact on Italian Businesses

• Supply Chain Review: Many companies will need to perform audits and sustainability assessments, including on subcontractors, often located outside the EU.

• Adoption of ESG Contractual Clauses: Ethical Codes may represent the document that lists the vision, mission, and all the obligations and rules of conduct adopted by the company, providing a clear and concise internal document and for presentation to their customers.

• Integration with Compliance and Risk Management Systems: Audit, Compliance, and Legal functions will need to collaborate more closely, setting up continuous risk monitoring procedures.

• Reputational Opportunities: Companies adopting clear Codes of Conduct and robust, transparent due diligence models may benefit from greater credibility on international markets and a competitive advantage in their sector.

Timeline and National Implementation

• Effective Date: Directive (EU) 2024/1760 came into effect on July 25, 2024.

• Implementation in Member States: Each EU country is required to implement the Directive into national legislation within a set deadline (usually 18-24 months). Meanwhile, the European Commission’s guidelines will help define operational aspects.

• Transitional Period: Businesses will have several months to prepare, develop new policies, and train their employees starting from July 26, 2027, based on specific criteria of revenue and employee count. A phased application is anticipated, with different timelines depending on the size and type of business.

How Rosano Law Firm Can Support You

Rosano Law Firm, with its expertise in commercial law, international law, and compliance, assists Italian and foreign businesses in meeting the requirements of the CSDDD:

• Initial Analysis and Risk Mapping: Checks on supply chains, contracts, and internal processes.

• Ethical Code Drafting: Definition of the vision, mission, and rules of conduct adopted by the company in its internal and external relationships with its stakeholders.

• Contractual Support: Review of supply contracts and inclusion of ESG clauses, shared responsibility agreements, and sanction mechanisms.

• Staff Training: Training courses on the adoption of appropriate organizational, administrative, and accounting best practices ESG, including contract management and organization and management of debt recovery.

• Litigation and Sanctions: Legal assistance in case of disputes or proceedings initiated by national and European authorities.