The EU's push for due diligence is gaining unstoppable momentum. This represents a fundamental shift in how companies operate and is comprehensively reshaping global supply chains. Simply put, due diligence is no longer optional for businesses; it's now a critical requirement for gaining access to the EU market.
What Is Due Diligence?
Many years ago, the Organization for Economic Cooperation and Development (OECD) issued the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
This guideline is the first of its kind to introduce a risk-based, step-by-step framework for due diligence. It's designed to help companies in the mineral supply chain find, prevent, and lessen any harm their operations might cause to human rights and the environment. Essentially, it establishes a foundational, non-binding set of rules for due diligence.
Since then, the European Union has increasingly applied the concept of due diligence to sustainable development.
Basically, due diligence is when companies do deep dives into their operations. They're making sure their products and everything involved in making them aren't hurting people or the planet.
Why Is Due Diligence Necessary Now?
Previously, companies typically embraced social responsibility to boost their brand image, adhere to ethical principles, or respond to consumer demands. However, the EU has since rolled out a suite of ambitious sustainability policies and regulations. This has transformed due diligence from a voluntary "soft law" approach into a legally enforceable "hard law" requirement.
This shift makes due diligence a mandatory legal obligation for companies, helping to achieve the goals of the European Green Deal and drive the economic transformation towards sustainable development.
The Corporate Sustainability Due Diligence Directive (CSDDD) is a milestone for the EU in this field.
The Corporate Sustainability Due Diligence Directive (CSDDD) takes the established principles and framework of the OECD Due Diligence Guidance and elevates them to a legally binding requirement. This means that large companies are now mandated to perform extensive due diligence on both human rights and environmental impacts across their entire value chain, encompassing both their upstream suppliers and certain downstream operations.
Aside from the CSDDD, the EU has also introduced regulations in particular areas that similarly require stakeholders to perform due diligence:
EU New Battery Regulation (Regulation (EU) 2023/1542): For batteries and their key raw materials (such as cobalt, lithium, nickel, and natural graphite), companies are explicitly required to conduct due diligence on their supply chains to ensure responsible sourcing.
EU Deforestation Regulation (EUDR) (REGULATIONEU (EU) 2023/1115): Requires companies importing or exporting certain commodities (such as coffee, cocoa, timber, etc.) to carry out due diligence and prove that their products are free from ties todeforestation or forest degradation.
Due Diligence Requirements of the EU New Battery Regulation, EUDR, and CSDDD
The table below details the fundamental due diligence requirements of the EU New Battery Regulation, EUDR, and CSDDD. Businesses must fulfill these obligations according to their specific circumstances.
| Feature | EU New Battery Regulation | EU Deforestation Regulation | The Corporate Sustainability Due Diligence Directive |
| Regulation No. | Regulation (EU) 2023/1542 | Regulation (EU) 2023/1115 | DIRECTIVE (EU) 2024/1760 |
| Release Date | July 28, 2023 | June 9, 2023 | May 7, 2024 |
| Due Diligence Fulfillment Date | August 18, 2025 | December 30, 2025 (for large enterprises) June 30, 2026 (for SMEs) | July 25, 2026 (transformation into national laws of member states) July 1, 2027 (largest companies) July 1, 2028 (sub-large enterprises) July 1, 2029 (all businesses that meet the threshold) |
Due Diligence Focus | Responsible sourcing of specific raw materials (cobalt, graphite, lithium, nickel), including human rights and environmental risks | Ensuring that specific commodities (e.g. coffee, cocoa, timber) are free from deforestation and forest degradation and are produced legally | Comprehensive human rights and environmental impacts, including forced labor, child labor, pollution, biodiversity loss, climate change, etc. |
Scope of Due Diligence | Supply chain of battery raw materials | The entire supply chain of a particular good (from production site to the EU market) | The entire value chain (the company’s own operations, subsidiaries, upstream supply chain, and some downstream activities such as waste treatment) |
| Purpose | Ensure transparent and sustainable battery supply chains and promote a circular economy | Reducing global deforestation and promoting sustainable agriculture and forestry | Promote universal corporate social and environmental responsibility and systematically integrate human rights and environmental due diligence into corporate governance. |
Penalties/ Liability | Market supervision and penalties for violations | Fines, product seizures, market bans | High fines (up to a percentage of global turnover), civil lawsuits for damages by victims, administrative sanctions (such as exclusion from public procurement)
|
What Should Companies Do for Due Diligence?
EU regulations require relevant companies to establish a systematic, continuous and risk-based due diligence process.
According to the CSDDD directive, this typically includes the following key steps:
Incorporate due diligence into policies and management systems: Enterprises need to formulate clear due diligence policies internally and integrate them into the overall management system to ensure that due diligence work is taken seriously from top to bottom and provide institutional guarantees for subsequent work;
Identify and assess adverse human rights and environmental impacts: Comprehensively investigate the negative impacts that may be caused to human rights (such as forced labor, infringement of employee rights, etc.) and the environment (such as excessive pollution emissions, ecological damage, etc.) during the operation of the enterprise, and conduct scientific assessments;
Prevent, stop, or minimize actual and potential adverse human rights and environmental impacts: Once a problem is discovered, the company should promptly take effective measures to prevent potential problems from occurring, stop the negative impacts that are occurring, and minimize the extent of the impacts that have already occurred;
Monitor and evaluate the effectiveness of measures: Continuously monitor the measures taken to prevent and reduce impacts, and evaluate their actual effects so as to adjust the strategies in a timely manner according to the actual situation;
Communication and disclosure: Companies need to communicate and disclose the relevant information of due diligence, including the problems found, measures taken, and the final results, to internal employees, external partners, and the public in a timely manner to maintain information transparency;
Provide remedial measures: For human rights and environmental damage that has already been caused, enterprises must formulate and implement appropriate remedial measures to compensate for the losses and restore the original state.
It can be seen that for enterprises, compliance is no longer an optional additional item, but a necessity for survival and development.
Companies can only win over the EU market and grow their business by actively changing their approach. This means planning ahead, meticulously reviewing their supply chains, knowing their responsibilities, fully integrating due diligence into all corporate activities, and ensuring transparent and responsible products and operations.
In the future, we will continue to track the developments of relevant EU regulations, and gradually launch due diligence content and practical guidelines under specific regulations to help companies better cope with EU market compliance challenges.
If you have any questions in this regard, please feel free to contact us at customer@reach24h.com.
