The Corporate Sustainability Due Diligence Directive (CSDDD) and Its Impact on EU-Funded Projects

The Corporate Sustainability Due Diligence Directive (CSDDD) is set to transform how companies operate within the European Union and beyond. Adopted as part of the EU’s Green Deal and the broader sustainable finance agenda, the directive aims to ensure businesses integrate sustainability and human rights considerations into their operations and supply chains. It imposes legal obligations on companies to identify, prevent, and mitigate adverse environmental and human rights impacts across their value chains.

Jorge BARONA

2/26/20252 min read

Legislative Background

The Corporate Sustainability Due Diligence Directive (CSDDD) was officially adopted by the European Parliament in 2024 and is set to take effect in 2026, following national implementation by EU member states. This directive establishes a comprehensive legal framework requiring large EU and non-EU companies operating within the EU to conduct due diligence on human rights and environmental risks across their supply chains. The regulation primarily applies to companies with over 500 employees and a net turnover exceeding €150 million, with stricter requirements for firms operating in high-risk sectors.

Beyond company size, CSDDD is also relevant to businesses outside the EU that engage in commercial relationships with EU-based companies. This means that foreign enterprises, regardless of their direct presence in the EU, will be expected to comply with the directive’s sustainability and human rights due diligence standards if they supply goods, provide services, or have partnerships with EU firms. Compliance obligations will be assessed not only based on a company's financial metrics but also on the nature of its business activities, including operational processes, workforce conditions, and product lifecycle impact. This expanded scope ensures that sustainability and ethical standards are upheld across global supply chains, reinforcing the EU’s commitment to responsible business conduct beyond its borders.

CSDDD and Horizon Europe: Key Implications

Horizon Europe funds innovation and research projects that drive sustainability, technological advancements, and economic growth. With the implementation of CSDDD, project participants—whether institutions, corporations, or SMEs—will need to align with enhanced sustainability and human rights due diligence standards. Key implications include:

  • Stricter compliance requirements for project funding, ensuring adherence to sustainability and human rights benchmarks.

  • Greater accountability in supply chains, encompassing material sourcing, labor practices, and environmental impact.

  • Enhanced risk assessment and reporting mechanisms to align with the EU’s corporate sustainability objectives.

Challenges for Global and South American Companies

While large EU-based corporations may have the resources to comply with CSDDD, companies worldwide—particularly in regions like South America—face significant challenges. Many SMEs operate with limited financial and human resources, making compliance more difficult. Some key obstacles include:

  • High adaptation costs to meet EU sustainability and human rights due diligence requirements.

  • Lack of technical expertise in compliance, reporting, and supply chain management.

  • Potential exclusion from EU-funded collaborations due to failure to meet new regulatory thresholds.

  • Increased scrutiny of business operations, requiring better documentation and transparency regarding labor conditions and environmental impact.

Looking Ahead

Despite these challenges, CSDDD presents valuable opportunities for businesses that proactively adapt. Companies that align with the directive’s standards will gain access to EU-funded projects and partnerships, positioning themselves competitively in global markets. By fostering sustainability and ethical business practices, CSDDD has the potential to drive long-term benefits for companies, consumers, and the environment alike.

Foreign companies looking to engage in business with EU firms should take proactive measures to assess their current processes, identify areas requiring improvement, and establish robust due diligence frameworks. Those that successfully integrate CSDDD principles into their operations will not only meet regulatory expectations but also enhance their market reputation, strengthen business resilience, and secure long-term growth opportunities within the European and global economy.

Conclusion

The CSDDD represents a significant step toward a more responsible and sustainable global business environment. While the directive introduces new challenges, it also encourages companies to implement better risk management, transparency, and accountability practices. Businesses that embrace these changes early will be well-positioned to thrive in a market increasingly driven by sustainability considerations.

We would love to hear your insights on how the CSDDD might impact your industry or business. Are you preparing for these changes, or do you foresee specific challenges? Share your thoughts in the comments or reach out for further discussion!

"The content of this blog reflects my professional insights and is intended for informational purposes only. It does not constitute legal advice for any specific case or situation. For tailored legal guidance, please feel free to consult me directly."