By Tim Bovy and Ian Hodges
The Corporate Sustainability Due Diligence Directive (CSDDD) is a landmark EU legislation that requires large companies operating in the EU to identify, prevent, and mitigate negative impacts on human rights and the environment throughout their value chains. The directive applies to EU companies with more than 1,000 employees and €450 million in global revenue, as well as to large non-EU companies generating over €450 million in the EU. The European Commission estimates that approximately 6,000 companies fall into the former category, with approximately 900 falling into the latter.[1]
EU member states have until July 26, 2026, to transpose the directive into national law, with the directive applying to companies in progressive stages from 2027 to 2029, depending upon companies’ employee counts and turnover thresholds, as noted above. Companies must conduct comprehensive due diligence to address issues like child labor, worker exploitation, and environmental harm. They need to establish complaint mechanisms, regularly assess their value chains, and take corrective action when violations are identified. The directive also mandates companies to adopt plans ensuring their business strategy aligns with the Paris Agreement, limiting global warming to 1.5°C.
Directors of companies are responsible for overseeing due diligence implementation, and companies face civil liability for non-compliance. CSDDD is intended to create a ripple effect way beyond the EU’s borders since affected organisations are required to conduct due diligence throughout their entire value chain, from raw material sourcing to product distribution and end-of-life disposal.
The industry’s supply chain is one of the most complex of any sector and one suffused with poor and, at times, abusive practices.
On the face of it, it is easy to imagine the clothing and fashion industry was very much in the thoughts of those drafting this legislation. The industry’s supply chain is one of the most complex of any sector and one suffused with poor and, at times, abusive practices. Because of that, the industry will almost certainly be one of the most challenging environments in which to enforce compliance through to every disparate supplier in complex and interconnected webs that can span continents. Successful implementation across the industry will have profound effects on millions of peoples’ lives globally, both directly and indirectly.
The environmental impact of the industry is well documented and increasingly reported across media. The Geneva Environment Network[2] has pulled together a number of illuminating statistics. Global fibre production has almost doubled in the 20 years to 2022 to 116 million tonnes and is expected to reach 147 billion tonnes by 2030. The industry is valued at US$1.3 trillion dollars and employs 300 million people worldwide. The fashion industry is the second largest consumer of water and is estimated to account for 6 to 8% of all global carbon emissions.
A new report from Nottingham University, the Bangladesh Labour Foundation, and Goodweave International[3] into working conditions for the four million Bangladeshis employed in the garment industry in that country has found that widespread and pervasive issues related to modern slavery and child labour remain throughout the extended supply chain. The report looked at the industry in the years since the Rana Plaza tragedy in 2013 in which 1,134 people died and a further 2,500 were injured when a factory on the outskirts of Dhaka collapsed. Significant improvements are evident in similar clothing factories producing finished garments for export, but the report found these changes are having either little impact on the factories suppliers, or a negative impact.
Goodweave International CEO Jon Jacoby said: “This report … highlights persistent risks of exploitation in the hidden tiers of Bangladesh’s garment supply chain while proposing systemic and scaled solutions. By joining forces for more effective due diligence, brands, suppliers, governments, trade unions, and civil society can protect the rights and dignity of vulnerable workers and children while supporting the sustainable growth of this crucial industry for Bangladesh”.[4]
A requirement to trace the origins of every garment back through the mill that made the cloth to the farm that grew the fibre or the factory that produced it is both demanding and necessary. The report makes clear that with the spotlight on only one part of the supply chain it is possible to improve conditions at that level and pass down the chain cost pressures that exacerbate conditions for those dependent on supplying the finished-garment manufacturers.
The clothing brands and major retailers of Europe must now shine a light on those ‘hidden tiers’. This work need not be done by each business working in isolation. The interconnected nature of the supply chain means that while each brand will have a unique supply chain there will be considerable overlap in suppliers. There is an opportunity for trade bodies funded by industry to do much of the initial work and to provide key information on suppliers for the companies to then map their specific chain. This would also be an opportunity for key metrics to be agreed to reduce the reporting burden on the many SMB and microbusiness suppliers.
The more than ten years since the Rana Plaza tragedy have taught us why the EU’s CSDDD legislation is so vital.
- Amongst the UK brands that were making in the Rana Plaza factory at the time of its collapse, were Primark, Matalan and Bon Marche. Many have still not paid the compensation due to the workers.
- According to the Fashion Revolution Global Transparency Index, still more than half of the 250 big brands listed refuse to disclose who their suppliers are.[5]
Such brazen disregard for workers’ well being and human rights is about to be exposed in most European countries.
Such brazen disregard for workers’ well being and human rights is about to be exposed in most European countries. As noted above, EU member states have until July 26, 2026 to incorporate the provisions of the CSDDD into law, thus raising corporate accountability to a high level. In the meantime, it is important for management to understand how CSDDD relates to the EU’s Corporate Sustainability Reporting Directive (CSRD) regarding human rights, which is already in effect.
The CSRD requires transparency in reporting human rights, under its European Sustainability Reporting Standards (ESRS). Brands that refuse to disclose who their suppliers are will be taking a high-risk gamble when filing their first reports, due in 2025 for companies with more than 1,000 employees (up from 250 employees) and €50 million turnover or a balance sheet total of more than €25 million. The risks will only be compounded when the CSDDD takes effect.
As Blackrock recently pointed out: “From an investor’s perspective, unmanaged potential or actual adverse human rights issues can expose companies to significant legal, regulatory, operational, and reputational risks…. We note that at the national level, regulation and regulatory action on human rights is increasing….This is why, in our view, long-term investors can benefit when companies implement processes to identify, manage, and
prevent adverse human rights impacts that could expose them to material business risks, and provide robust disclosures on these processes.”[6]
The EU has helped in this regard by incorporating the UN’s Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct into its ESRS. This integration will carry over to the CSDDD, thus helping companies prepare robust human rights due diligence guidelines.
Much has been made of the omnibus proposals weakening reporting requirements. The ICAEW have a useful digest of the changes on their website[7]. Mishcon de Reya have been trenchant in their criticism.[8] Yet many of these changes will smooth the introduction of CSRD and CSDDD and make it more likely to succeed over the longer term. We will not be rehearsing the arguments here because, as Mishcon de Reya point out, it doesn’t matter if the scope of the CSRD has been ‘heavily watered down’ or whether the due diligence requirements under the CSDDD have been significantly weakened.
Companies can demonstrate their commitment to good practice both in highlighting examples of it and in demonstrating progress towards it in areas of weakness.
“None of this changes the reality of escalating physical, transition and litigation risks, which, on the current trajectory, could destroy 50% of GDP as early as 2070.”[9] “The underlying logic and original intent of the regulations, such as CSRD and CSDDD, therefore still stand – i.e. the necessity of driving transformations in strategy and governance, informed by thorough due diligence and the proper assessment and management of ESG impacts, risks and opportunities.”
There are significant commercial advantages to compliance with the potential to offset many of the costs. Companies can demonstrate their commitment to good practice both in highlighting examples of it and in demonstrating progress towards it in areas of weakness. They could also divest of suppliers not meeting appropriate human rights conditions if they have the reporting in place to demonstrate breaches of either contractual or legal obligations. And, through these and similar actions, they can strengthen their brand.
Organisations can either make meaningful contributions to ending human rights abuses in their supply chains by preparing now to commit themselves to the humane and ethical human rights processes of CSDDD. Or, they can remain on the outside, looking in from the wrong side of history, as Millennials and Generation Z leave their reputations in tatters.
About the Author
Tim Bovy has over 35 years of experience in designing and implementing various types of information and risk management systems for major law firms such as Clifford Chance; and for international accountancy firms such as Deloitte. He has also developed solutions for organisations such as BT, Imperial Tobacco, Rio Tinto, the Kuwaiti government, The Royal Household, and the US House of Representatives. Tim is an elected member of The Royal Institute of International Affairs, Chatham House, an Independent Think Tank based in Central London, and holds a BA degree, magna cum laude, from the University of Notre Dame, and MA and C.Phil degrees from the University of California, Davis.
Ian Hodges has worked in a variety of information management roles over a twenty-year career. He has designed and implemented records and information management systems at a national scale, developing parts of the digital archive at The National Archives (UK). At a corporate level he’s undertaken information management projects with The Royal Household and Her Majesty’s Treasury. Ian also has information rights expertise developing policies and procedures for Freedom of Information and Data Protection compliance and working as a Data Protection Officer. In addition to CISM, CIPP/E and CIPM certifications, Ian holds a BA degree from the University of Southern Queensland, a postgraduate diploma from Deakin University, Melbourne and an MA from Birkbeck, University of London.
References
[1] “Corporate sustainability due diligence, European Commission, available at https://commission.europa.eu/business-economy-euro/doing-business-eu/sustainability-due-diligence-responsible-business/corporate-sustainability-due-diligence_en#which-companies-will-the-new-eu-rules-apply-to
[2] Geneva Environment Network https://www.genevaenvironmentnetwork.org/resources/updates/sustainable-fashion/
[3] Modern slavery and child labour in Bangladesh’s garment sector: Documenting risks and informing solutions https://goodweave.org/wp-content/uploads/2025/02/Modern-Slavery-and-Child-Labour-in-the-RMG-Sector-of-Bangladesh-Report.pdf
[4] Goodweave Internaitonal https://goodweave.org/new-report-highlights-the-need-for-solutions-to-tackle-exploitation-of-workers-and-children-in-bangladeshs-garment-sector/
[5] “Rana Plaza Ten Years on: Do Consumers Now Care Where Their Clothes are Made?”, 2023, Market British available at https://makeitbritish.co.uk/opinion/rana-plaza-ten-years-on/
[6] BlackRock Investment Stewardship, “Our approach to engagement on corporate human rights risks,”
January 2025, available at https://www.blackrock.com/corporate/literature/publication/blk-commentary-engagement-on-human-rights.pdf
[7] ICAEW, Euro ‘omnibus’ proposal reveals softer CSRD and CSDDD, March 2025, available at
https://www.icaew.com/insights/viewpoints-on-the-news/2025/mar-2025/euro-omnibus-proposal-reveals-softer-csrd-and-csdd
[8] Mishcon de Reya, Have the CSRD and CSDDD been thrown under the EU omnibus? March 2025 available at https://www.mishcon.com/news/have-the-csrd-and-csddd-been-thrown-under-the-eu-omnibus
[9] Mishcon de Reya, Have the CSRD and CSDDD been thrown under the EU omnibus? March 2025 available at https://www.mishcon.com/news/have-the-csrd-and-csddd-been-thrown-under-the-eu-omnibus
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