ESG – impact of the EU Corporate Sustainability Due Diligence Directive on UK companies

The Corporate Sustainability Due Diligence Directive ((EU) 2024/1760) (known as CS3D), which will require certain large companies to conduct due diligence on themselves and their supply chains to identify adverse human rights and environmental impacts, has been published in the Official Journal of the European Union. Member States have until 26 July 2026 to transpose CS3D into national law, and it will then be implemented over a two-year period from July 2027.

Under CS3D, in-scope companies are required to:

• integrate due diligence into all their relevant policies and risk management systems and have in place a due diligence policy that ensures risk-based due diligence;

• identify and assess actual and potential adverse human rights and environmental impacts arising from their own operations as well as those of their subsidiaries and business partners; and

• prevent or mitigate the adverse impacts identified.

UK companies may be impacted by CS3D as it applies to:

• EU companies with more than 1000 employees and a net worldwide turnover exceeding EUR 450 million;

• non-EU companies generating a net turnover exceeding EUR 450 million within the EU; and

• companies with franchising or licensing agreements in the EU with a net worldwide turnover of more than EUR 80 million, where at least EUR 22.5 million was generated by royalties.

Even if not directly in scope, UK companies may be indirectly impacted if they supply goods to EU companies that are within the scope of CS3D (and therefore required to conduct due diligence on their supply chains).

Consequences for failure to comply include fines of up to 5% of net worldwide turnover, public ‘naming and shaming’ and potential claims for damages from impacted individuals.

CS3D complements the Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD) which was adopted in 2022 and which imposes sustainability reporting requirements on both EU and non-EU companies.

For further information on CS3D see this post on our ESG blog and for further information on CSRD see this post on our Corporate blog.