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Key Political Agreement Reached on EU Sustainability Directive

04 June 2024

On 15 March 2024, the European Union reached a crucial political agreement on the latest version of the Corporate Sustainability Due Diligence Directive (CSDDD), marking a significant step towards its formal adoption. This directive aims to enforce stringent sustainability requirements for companies operating within the EU, compelling them to conduct due diligence on their operations and those of their suppliers to prevent, mitigate, or eliminate adverse impacts on human rights and the environment.

Key Requirements of the CSDDD

The CSDDD further mandates companies to implement comprehensive due diligence policies addressing these adverse impacts. These policies must cover the company’s own operations, its subsidiaries, and business partners across the supply chain. Additionally, companies are required to establish climate transition plans aligned with the Paris Agreement’s goal of limiting global warming to 1.5°C.

Implications for Global Businesses

The directive applies to global companies with significant turnover in the EU, necessitating a thorough revision of their approach to environmental and social impact. This includes developing and implementing climate transition plans that align with the sustainable economy transition objectives of the Paris Agreement. The directive categorises companies based on size and turnover, affecting very large companies with more than 1,000 employees and EUR 450 million in net worldwide turnover, as well as companies operating under specific business models like franchising or licensing.

Compliance and Reporting

Companies must publicly report on their due diligence processes, including the identification and management of environmental and human rights risks. Non-compliance could result in significant repercussions such as civil liability, financial sanctions, and reputational damage. Notably, the CSDDD also links directors’ variable remuneration to sustainability targets, integrating sustainability into corporate governance and decision-making processes.

Impact on IT Functions

For IT departments, the CSDDD means managing a substantial increase in data volume and complexity. Compliance will require robust IT systems capable of tracking and documenting extensive information on operations and supply chains. This includes developing advanced data analytics tools for monitoring supply chain sustainability, ensuring data accuracy for reporting purposes, and integrating sustainability data into corporate reporting mechanisms. External certification of disclosures under the CSDDD and related directives, such as the Corporate Sustainability Reporting Directive (CSRD), will necessitate accurate and verifiable data collection.

KA2’s COzPro: A Cutting-Edge Solution for Carbon Management

In the context of these evolving regulations, innovative solutions like KA2’s award-winning COzPro solution play a critical role in helping organisations meet complex granular reporting requirements with transparent and auditable data sources. COzPro – The Environmental Solution, designed and built by KA2 Limited, addresses the pressing need for accurate, auditable measurement and management of carbon emissions within organisations, specifically focusing on IT hardware assets. Surprising to most CIOs, the Scope 3 carbon emissions associated with their technology estate represent up to 30% of the total business environmental impact. At the core of the revolutionary COzPro Solution is the Carbon Rating Engine, an advanced data lake and calculation engine that hosts the world’s largest IT asset-level CO2e data repository. The data is based on manufacturer Environmental Product Declarations (EPDs) or Product Carbon Footprints (PCFs) where available and is supplemented by COzPro science-based carbon profiles created using proprietary algorithms and 8000+ data points from diverse sources.

COzPro provides organisations with unprecedented real-time insights into their environmental impact. Using advanced analytics and visualisation to model optimum procurement, retention, and release outcomes for the entire IT estate, COzPro supports organisations in benchmarking their business impact by location at the asset level and charting an actionable course to net zero.

Comparing CSDDD and CSRD

While both the CSDDD and CSRD aim to promote sustainable business practices, they focus on different aspects of corporate sustainability. The CSRD emphasises transparency in sustainability reporting, requiring companies to provide detailed information on their sustainability activities, impacts, risks, and opportunities. It applies to large and listed companies, including SMEs, banks, and insurance companies within the EU, expanding the scope of the previous Non-Financial Reporting Directive (NFRD).

In contrast, the CSDDD focuses on operational and supply chain due diligence. It mandates companies to manage and mitigate risks related to human rights and environmental impacts in their value chains. The CSDDD targets companies based on size, turnover, and sector, affecting both EU and non-EU companies that meet specific criteria, highlighting the global nature of supply chains and sustainability challenges.

Conclusion

The political agreement on the CSDDD represents a critical step towards formalising stringent sustainability requirements for companies operating in the EU. This directive will necessitate significant adjustments in how companies approach their environmental and social responsibilities, emphasising the importance of sustainability in corporate governance and operational practices. As the directive moves towards formal adoption, companies must prepare to meet these new requirements and ensure their business models align with a sustainable future. Using COzPro will be instrumental in helping organisations navigate and comply with these new regulations, providing the necessary tools for effective carbon management and sustainability reporting.

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