The EU Directive On Corporate Sustainability Due Diligence
In February 2022, the European Commission proposed the Corporate Sustainable Due Diligence Directive (CSDD) as part of the European Green Deal. The CSDD aligns with the UN Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises. The Corporate Sustainability Reporting Directive (CSRD) was adopted on November 28th, 2022, and came into effect on January 5th, 2023.
The CSRD has to be transposed by the EU member states into national legislation by 6 July 2024. A number of Member States have already introduced national rules on supply chain due diligence and some companies have taken measures at their own initiative. Germany is pioneering the changes on a national level by introducing the German Supply Chain Due Diligence Act focused on improving human rights on an international scale. Germany’s Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) is a law passed by the German government in June 2021. The law requires companies to identify and prevent human rights abuses and environmental damage in their global supply chains.
Key Initiatives To Reduce Climate Change
The CSDD proposal lays the groundwork for member states and outlines rules on obligations for large companies regarding actual and potential adverse impacts on human rights and the environment. These impacts can range from their own operations to those of their subsidiaries, and potential impacts throughout the organization’s global supply chain.
-The CSDD requires a climate reduction plan. Recital 50 of the CSDD provides: “In case climate is or should have been identified as a principal risk for or a principal impact of the company’s operations, the company should include emissions reduction objectives in its plan.“
-Articles 7 and 8 of the CSDD oblige companies to take preventive measures, as well as to end activities that result in an adverse climate change impact.
-Article 15 of the CSDD includes a requirement to adopt a plan that ensures that the company’s business model and strategy are compatible with the transition to a sustainable economy and the limiting of global warming to 1.5 °C in line with the Paris Agreement.
– The variable remuneration of directors should be linked to the achievement of the plan if ESG aspects are taken into account in the remuneration.
Key Sustainability Initiatives
The CSRD imposes a more detailed reporting obligation on a whole range of sustainability issues relevant to the company’s business in comparison to the predeceasing Non-Financial Reporting Directive (NFRD). Companies will have to report on how their business model affects their sustainability throughout their own supply chain, and on how external sustainability factors (such as climate change or human rights issues) influence their activities. Furthermore, companies have to formulate long-term ESG targets and annually publish their progress on these targets.
The sustainable targets, and performance linked to those targets, must also be incorporated into the annual report, which is subjected to an independent audit. In addition to the CSRD, the European Financial Reporting Advisory Group (EFRAG) is currently drafting mandatory EU sustainability reporting standards (ESRS). Subsequently, The European Commission has to finalize the submitted ESRS on 30 June 2023 by adopting a ‘delegated act’.
The Farm to Fork Strategy – What This Means for Food & Beverage
The EU initiative has significant implications for organizations in the Food & Beverage sector which will have to adapt to meet the new requirements. One area of focus for the EU is evident in its new approach to agriculture, fisheries, and aquaculture and the food value chain highlighted in its Farm to Fork Strategy. This new approach is meant to ensure that member states contribute appropriately to the objective of a climate-neutral Union in 2050. Food systems remain one of the key drivers of climate change and environmental degradation. Here are a few key areas where these initiatives are likely to have an impact:
-Sustainable Sourcing: The Farm to Fork Strategy and The European Union’s Green Deal Action Plan prioritize sustainable sourcing practices, with a focus on reducing the environmental impact of food production. This may require Food & Beverage companies to shift their supply chains to include more sustainably produced ingredients and materials.
-Circular Economy: The EU’s Green Deal Action Plan aims to create a circular economy where waste is minimized, and resources are used more efficiently. This means that Food & Beverage companies may need to rethink their packaging, waste management, and recycling practices to align with circular economy principles.
-Health and Nutrition: The Farm to Fork Strategy places a strong emphasis on promoting healthy and sustainable diets. This may require Food & Beverage companies to reformulate their products to reduce sugar, salt, and fat content, and to promote more plant-based alternatives.
-Regulations and Compliance: The EU’s Green Deal Action Plan includes several regulations that Food & Beverage companies will need to comply with, such as the Corporate Sustainability Reporting Directive and the Supply Chain Due Diligence Act. These regulations may require companies to provide greater transparency and accountability around their sustainability practices.
Who Does The EU Directive Apply To?
The CSDD Directive is proposed to apply to two main groups of companies, based in the EU:
Group 1 – large EU limited liability companies that on average employ more than 500 people and whose worldwide annual net turnover surpasses euro (EUR) 150 million.
Group 2 – other EU limited liability companies that do not reach these two thresholds, but which operate in certain high-risk sectors (for example, the garment, agriculture and food manufacturing, and extractive and mineral resources industries), have on average more than 250 employees and a worldwide annual net turnover of over EUR 40 million.
For more information on the CSRD, please see the reason for and objective of the Corporate Sustainability Reporting Directive (CSRD).
Ensuring Supply Chain Visibility and Transparency With AuditComply
AuditComply aims to lift the visibility barrier with an end-to-end supply chain management solution. The EU initiatives have identified Food Management systems as one of the key drivers in fighting climate change and environmental degradation. A supply chain management system can help ensure compliance with regulations related to food safety and security, environmental sustainability, and labor standards. By tracking the origin of products and ensuring that they meet regulatory standards, EU organizations in high-risk sectors can minimize the adverse impact that comes from a lack of traceability and transparency.
Overall, the Farm to Fork Strategy and The European Union’s Green Deal Action Plan represents a significant shift towards more sustainable and responsible Food & Beverage practices. Companies in this industry will need to adapt to these changes to remain competitive and meet consumer expectations for sustainability and transparency.
To learn more about how AuditComply can guide & evolve your Supply Chain Management strategy, you can request a demo here.
