The EU Corporate Sustainability Due Diligence Directive (CSDDD), which came into force on July 25, 2024, marks a significant step towards promoting sustainable and responsible corporate behaviour in global value chains. While the Directive primarily targets large companies within the European Union (EU), its impact extends far beyond Europe, including businesses in Africa. With many African nations maintaining strong trade relationships with the EU, the Directive’s influence on African businesses, particularly those in sectors such as mining, agriculture, and manufacturing, will be substantial.
This article explores the CSDDD and its potential effects on African businesses, highlighting the challenges and opportunities as they adapt to this new regulatory environment.
What is the CSDDD Directive?
The CSDDD Directive places a legal obligation on large companies to implement due diligence processes to identify, address, and prevent adverse human rights and environmental impacts throughout their operations, subsidiaries, and global value chains. The Directive aligns with international commitments, such as the Paris Agreement, aiming to limit global warming and promote sustainability across the corporate world.
The Directive applies to around 6,000 EU-based companies and 900 non-EU companies, with a staggered compliance timeline beginning in 2027. It affects businesses based on criteria like employee count, revenue, and global reach. For non-EU companies, the Directive covers those generating a net turnover exceeding EUR 450 million within the EU, with additional thresholds applying to parent companies and franchising arrangements.
In line with the Directive’s requirements, companies must integrate due diligence into their corporate policies, identify risks, mitigate human rights violations, and adopt climate change transition plans to achieve climate neutrality by 2050.
Impact on African Businesses
Africa plays a critical role in the EU’s supply chain, and as the Directive applies to businesses operating within EU companies’ value chains, African businesses—especially in sectors exporting raw materials and goods to the EU—will be affected. Some key implications include:
1. Increased Due Diligence Requirements
African businesses will face increased scrutiny, particularly those tied to EU companies. Compliance with international labour, human rights, and environmental standards will be paramount. As EU companies are held responsible for their entire value chains, African suppliers can expect more frequent audits, compliance checks, and certification processes.
2. Higher Operational Costs
Meeting the requirements of the CSDDD will likely increase operational costs for African businesses, particularly SMEs. Compliance may require investment in new systems, such as Environmental, Social, and Governance (ESG) reporting mechanisms and certification processes. For smaller businesses, the financial burden of these changes could be challenging.
3. Market Access and Competitive Advantage
Compliance with the CSDDD will become essential for African businesses aiming to access EU markets. However, companies that align with the Directive’s standards may gain a competitive edge over non-compliant counterparts. By demonstrating a commitment to sustainability, African businesses can attract investment, enhance their global market reputation, and solidify relationships with EU-based companies.
4. Risk of Disengagement
Although the Directive emphasizes collaboration with business partners, disengagement may occur if severe impacts are identified and mitigation efforts fail. In such cases, EU companies may terminate relationships with non-compliant African suppliers, highlighting the importance of proactively adopting sustainability practices.
Opportunities for African Businesses
While the CSDDD presents challenges, it also offers significant opportunities for African companies. By aligning with international sustainability standards, African businesses can position themselves as preferred partners within global value chains. This could lead to stronger partnerships with EU companies, new business opportunities, and increased competitiveness.
In addition, the Directive’s focus on capacity building and support for SMEs offers African businesses the chance to collaborate with EU partners to improve sustainability practices. This collaboration could involve financial support, technical assistance, and training in compliance measures, ultimately helping African companies meet international standards.
Conclusion
The EU Corporate Sustainability Due Diligence Directive will have far-reaching implications for African businesses, particularly those engaged in exporting to the EU. While compliance with the Directive may involve increased costs and operational challenges, it also presents a unique opportunity for African companies to improve their sustainability practices, build stronger partnerships with EU firms, and secure their place in global value chains.
By proactively embracing the requirements of the CSDDD, African businesses can not only navigate the challenges but also capitalize on the long-term benefits of sustainable and responsible corporate behaviour.
Source: Lexology/N Dowuona & Company
