Taking responsibility
First steps after CSRD
Leading organizations recognize their moral obligation to ensure that their business practices do not contribute to human rights abuses or environmental degradation, as well as the benefits that value chain responsibility can bring to the company. This responsibility extends beyond their immediate operations to the source of their products and resources and all the links that add value to their product and service and that play a part in their chain. This stance not only aligns with global standards and regulations – but also resonates with the values of investors and consumers who prioritize sustainability and ethical practices.
For companies that have already been preparing for CSRD, continuing their value chain related activities is a logical and strategic next step. Having completed the Double Materiality Assessment (DMA) and potentially CSRD reporting, companies are well-positioned to map out a more complete picture of their value chains, including relevant business relations and activities. This ensures a holistic understanding of upstream and downstream impacts risks and opportunities, which not only strengthens future DMA iterations, but also enhances transparency, informs risk mitigation strategies, and improves sustainability reporting. One of the most common recommendations of auditors after reviewing a company’s first CSRD report is that the value chain information should be further completed and detailed in subsequent reports. Addressing gaps in value chain information early will not only improve reporting quality but also demonstrate to stakeholders that the company has a clear understanding of its entire value chain and control over the effects of its products and resources. By taking action, companies can not only ensure compliance but also showcase their commitment to ethical practices and sustainability towards investors, consumers and the world at large.
From soft law to hard law: the rise of value chain regulations
Soft-law instruments, such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGPs), have long provided voluntary frameworks for responsible business conduct. However, their non-binding nature often limited their effectiveness and adoption at scale. In response, various countries introduced country-specific due diligence laws based on the OECD & UNGP principles. Examples are the German Supply Chain Due Diligence Act (LkSG) and the French Duty of Vigilance Law (Loi de Vigilance). CSDDD is designed to build on these efforts by establishing a unified, legally binding framework across the EU to harmonize standards and provide clear remedies, fostering a more sustainable and equitable global economy.
The aim of the CSDDD (and that of other value chain regulations) is to drive companies to be more accountable and responsible in their business practices. This not only improves risk management and competitiveness but also supports sustainable development and aligns with the EU's broader goals, such as climate change mitigation and transitioning to a sustainable economy.
Interconnection with other relevant value chain directives
The European regulatory landscape aimed at enhancing corporate responsibility and sustainability is evolving. Aside from CSRD and CSDDD, several other EU regulations and directives focus on specific aspects of the organization’s value chains also require value chain insight, transparency, and responsibility. Examples of these are the EUDR (deforestation) and EUFLR (forced labour). Proper preparation for all relevant rules and regulations demands considerable time, resources, and expertise.
A key advantage is that the steps outlined in the OECD Due Diligence Guidance for Responsible Business Conduct as outlined earlier in this whitepaper also support much of the groundwork required for compliance with other directives, frameworks, and laws. By following the OECD's structured approach to due diligence -identifying risks, taking preventive measures, monitoring effectiveness, and reporting transparently- companies can create a robust foundation that aligns with multiple regulatory requirements, ensuring a comprehensive and efficient path to compliance.
EU Forced Labour Regulation (EUFLR)
Forced labour is a major global concern, affecting an estimated 27.6 million people in 2021, including 3.3 million children. Marginalized groups—such as women, minorities, and migrants—are often at higher risk. As much as 86% of forced labour takes place in the private sector, affecting industries ranging from services, manufacturing, and agriculture to construction. This means that a large part of the products we use and consume might have a direct connection to forced labour.
As forced labour concerns continue to rise, businesses face increasing pressure—from regulators, investors, and the public—to scrutinize their supply chains and eradicate such practices. The EU Forced Labour Regulation (EUFLR), adopted in December 2024, aims to ban the import, sale, and export of products made with forced labour. The EUFLR requires and encourages the prevention of forced labour (including child labour) in all stages of a product’s life cycle, including production, manufacturing, harvesting, or processing, both EU-produced and non-EU produced goods, and online or distance sales.
Unlike more targeted legislation, the EUFLR adopts a global and far-reaching approach by banning all products linked to forced labour—regardless of industry or geographical origin—from being placed on, sold in, or exported from the EU market. It empowers national authorities to investigate and take enforcement actions, such as bans and withdrawals, and explicitly excludes transport services, keeping its focus on products and their components. The EUFLR applies to all companies, irrespective of size, sector, or location, if they place products on the EU market or export products from the EU. This also includes goods sold through distance sales, such as online platforms. Specific measures will be provided for SMEs, along with guidelines for detecting and eradicating forced labour in supply chains.
EUDR: regulation on deforestation-free products
The goal of the EU Deforestation-free Regulation (EUDR) is to limit the EU market’s impact on deforestation and biodiversity loss, and to reduce greenhouse gas emissions from EU consumption and production. The aim is to prevent the introduction of products into the EU that contribute to deforestation.
Since 1990, approximately 420 million hectares of forests have been lost, accounting for 3% of the land's surface. Alarmingly, we continue to lose 10 million hectares of forests each year. The primary driver of deforestation is the expansion of agricultural land, linked to the production of commodities such as cattle, wood, cocoa, soy, and coffee. As a major economy and consumer of these commodities, the EU bears partial responsibility for deforestation
The EUDR is a reporting regulation that sets out due diligence steps for operators and traders placing relevant products on the EU market. Due diligence, in this context, obligates companies to investigate the negative impact of products in terms of deforestation or forest degradation both within the EU and globally. Companies must collect information to demonstrate compliance, evaluate the risk of non-compliance, and take mitigation measures when necessary for products they place on the market. Furthermore, companies are required to report and communicate their efforts to authorities and, to a limited extent, the public.
The EUDR aligns with the broader goal of reducing the EU’s impact on deforestation and forest degradation, as confirmed by the 2019 Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forests, the European Green Deal, the EU Biodiversity Strategy for 2030, and the CSDDD
The consequences of non-compliance
Failing to comply with various value chain due diligence regulations can lead to significant repercussions for companies. Aside from fines or the confiscation of goods, companies may face legal liabilities, requiring them to provide remediation for any harm caused by their failure to comply. This could mean financial compensation to affected parties and other corrective actions.
Additionally, not being able to demonstrate proper value chain due diligence can severely damage a company's reputation, diminishing trust among stakeholders, investors, and consumers. In an era where value chain responsibility is increasingly valued, failing to meet these standards can result in a loss of business opportunities and long-term success.
Value chain responsibility activities recommended for companies out of CSDDD scope
The CSDDD directive specifically targets large companies with significant operations in the EU, encompassing both EU-based and non-EU organizations. Companies within the scope of this directive which also fall under the CSRD, will need to report on their value chain due diligence efforts in the sustainability statement of their CSRD report. Although these directives primarily target the largest companies, the effects will extend beyond as (limited) information requests will cascade up and down the value chains. This means SMEs that supply goods and services to these larger companies will also be affected. As a result, these businesses are also strongly recommended to align their practices with the directive's standards, ensuring to remain competitive in the market by being an attractive business partner to larger companies, whilst ensuring that their operations or value chain activities do not harm people or the planet.