With the Corporate Sustainability Due Diligence Directive (CSDDD) set to come into effect for European businesses in 2027, a new study by EQS Group and the University of Applied Sciences Ansbach has identified ‘critical gaps’ that need to be addressed by firms.
According to the survey of some 400 European companies, businesses were found lacking in areas such as supply chain transparency and the resources required to comply with the new directive.
Ensuring compliance with the CSDDD will be essential for businesses based in the EU as well as global corporations with €1.5 billion in EU revenue, meaning that ‘organisations need to start preparing to proactively manage human rights and environmental risks throughout their supply chains,’ EQS Group noted.
With this in mind, 86% of surveyed companies said that they have started familiarising themselves with the CSDDD, even though the final text of the directive had not been published at the time of the survey.
Key challenges to compliance
However, businesses have identified a significant lack of personnel and financial resources as the primary obstacles to compliance.
Challenges related to documentation, reporting requirements, and insufficient supply chain visibility were also cited. Despite these challenges, only 30% of the companies surveyed plan to allocate additional resources—such as budget, staff, or IT tools—to meet the requirements of the CSDDD.
While companies generally perceive low risks in their direct operations—84% reporting low risk—the perception of risk escalates significantly when it comes to indirect suppliers. More than half of the respondents (55%) rate the risk of human rights and environmental violations as high or very high for these indirect suppliers, while 41% consider it to be medium.
“The deeper you go into the value chain, the more complex the risks become”, commented Professor Dr. Stefanie Fehr, lead researcher of the study at Ansbach University. “This poses significant challenges for businesses seeking to comply with the new regulation, and requires a proactive, risk-based approach.”
In terms of reporting and accountability, 94% of organisations state that they have established whistleblowing channels in accordance with the EU Whistleblowing Directive or national legislation. However, despite the implementation of these channels, 73% of organisations are yet to have received reports regarding human rights or environmental violations, and when reports have been received, they were typically anonymous.
Elsewhere, more than two thirds (68%) of companies have integrated human rights and environmental considerations into their risk management processes, as they seek to transform into a more sustainable business.
Among these organisations, around a quarter (26%) are utilising digital solutions to support risk management, demonstrating the growing importance of technology in achieving compliance.
‘A more sustainable infrastructure’
“The complexity of global supply chains presents not only challenges but also significant opportunities to build a more sustainable infrastructure,” added Achim Weick, founder and CEO of EQS Group.
“The CSDDD, as well as the German Supply Chain Due Diligence Act, offers an opportunity for companies not only to meet legal requirements but also to strengthen the trust of business partners and customers. By investing in transparency and responsibility now, companies can gain a lasting competitive advantage. To fully capitalise on this, further investment in technology solutions will be crucial to compensate for staff shortages.” Read more here.
