EU Corporate Sustainability Due Diligence Directive: Impact on Logistics

In France and Germany, supply chain regulations are already in force. Now, the EU Commission wants to follow suit at European level. The draft of the EU supply chain law has reached another milestone following an agreement between the three relevant bodies. It is uncertain how long it will take before the law is passed – however, we can already reveal what (logistics) companies should be prepared for.

Corporate Sustainability Due Diligence Directive: Current Status

In 2017, France adopted the “Due Vigilance Act” (Loi sur le devoir de vigilance), and in Germany, the “Act on Corporate Due Diligence Obligations in Supply Chains” (Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten) became effective at the beginning of 2023. The laws oblige companies to comply with labor laws, human rights, and environmental standards – not only in their own business activities, but also with contractual partners and suppliers, and hence also with logistics service providers.

At EU Level, efforts have also been underway for several years to introduce a supply chain law for all EU member states. In February 2023, the European Commission presented a draft for the “Corporate Sustainability Due Diligence Directive” (CSDDD). At the end of December 2023, the European Commission, the European Council, and the European Parliament agreed on a compromise proposal.

What the Draft EU Supply Chain Law Stipulates

The declared aim of the CSDDD is to promote a fair and sustainable global economy. The EU Commission wants to rule out, for example, child labor, forced labor, substandard health protection, inadequate remuneration, violations of the law, or avoidable environmental damage in the value creation of European companies.

The planned directive accordingly provides for human rights and environmental duty of care. Potential risks and existing grievances in these two areas are to be identified and eliminated – throughout the entire value chain, including all subcontractors, business partners, service providers, and contractors.

The due diligence applies to the upstream and downstream value chain, i.e., to the entire cycle of a service or a product – from raw material extraction to disposal. The supply chain law also implies accountability with an annual report and the establishment of complaints procedures. Companies are given leeway as they only have to take action within the scope of their own influence and only in a way that is appropriate to the grievance or risk.

EU Supply Chain Act: From When Does It Apply and Who Is Affected?

It will probably take several years for the CSDDD to become effective in all areas and for all companies. Once the EU Council and Parliament have adopted the legislation, the member states must transpose the directive into national law within two years or adapt their own regulations accordingly – in this case, France and Germany. After this, national legislation will successively come into force depending on the size of the company: first for large companies, then for smaller ones. Five years after adoption, the CSDDD-compliant national legislation will be applicable to all company sizes specified in the EU supply chain directive. There are three categories of companies:

• Companies based in the EU with 500 or more employees and a worldwide annual net turnover of € 150 million
• Companies based in the EU with 250 or more employees and a worldwide annual net turnover of at least € 40 million, if they generate at least € 20 million of turnover in predefined risk sectors (e.g., chemicals, mining, oil and gas extraction, textiles, agriculture and forestry, fishing or food)
• Companies from a third country if they either
  • generate more than € 150 million in annual net turnover in the EU
    
    or
  • € 40-150 million in annual net turnover in the EU and at least € 20 million of worldwide turnover in a risk sector (see above).

EU companies with more than 500 employees are also obliged to draw up a climate plan with emission reduction targets that contribute to achieving the 1.5-degree target of the Paris Climate Agreement.

Logistics and the EU Supply Chain Law

Logistics service providers are involved in all stages of the supply chain: be it between raw material extraction and production or between outgoing goods and trade. And if a logistics service provider constitutes a link in the value chain of a large company, the size of the logistics company itself is irrelevant.

As an integral part of the supply chain, small and medium-sized logistics companies will thus also be obliged to comply with the standards. The clients transfer their duty of care to the contractors. For this reason, companies of all sizes should create the resources in good time to provide relevant data on human rights and environmental risks – as some French and German companies are already required to do.

In addition, individual aspects of the CSDDD may come into force earlier as part of the European Green Deal, for instance in terms of environmental accountability. The “Corporate Sustainability Reporting Directive” (CSRD), for example, became effective at the beginning of 2023. From 2024, companies with more than 500 employees must publish a sustainability report. For small and medium-sized enterprises, this obligation will apply from 2026.