What is the CSDDD or CS3D?
The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU law aimed at making large companies responsible for the environmental and human rights impacts of their operations and supply chains.
We decided to dedicate a standalone article to the CSDDD because of its significance within the EU’s broader ESG regulatory framework.
While our core audience (private investors in SMEs) will not be directly affected by the directive, we believe it’s important to understand how it fits into the evolving landscape. More importantly, even if SMEs are not within the legal scope of the CSDDD, many will feel its indirect effects through their relationships with larger companies that are in scope.
This article outlines what the CSDDD is, what has changed under the proposed Omnibus amendments, and what SMEs and their investors can expect.
Who is in scope?
EU companies with over 1,000 employees and €450 million+ turnover, plus non-EU companies with €450 million+ turnover in the EU.
In-scope companies are divided into three Waves, depending on when the CSDDD requirements start applying:
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What’s required?
In-scope companies must conduct structured due diligence: identifying, preventing, and mitigating adverse human rights or environmental impacts in their operations and supply chains both upstream (suppliers) and downstream (distributors, users or consumers).
When does the CSDDD start applying?
The EU has adopted a one year delay for Member States to transpose the Directive into national law. The deadline moves from 2026 to 2027.
In addition, Wave 1, meant to start complying from 2027, has also been delayed one year. Therefore, Wave 1 will start complying at the same time as Wave 2.
In short: all companies with 3,000 + employees and €900m net turnover worldwide, or non-EU-headed groups with over €900m turnover in the EU will start complying from 2028. Reporting begins one year later, in 2029.
Wave 3 will start complying from 2029, and their first report will be published in 2030 (unchanged).
Omnibus: Proposed amendments to the CSDDD
In February 2025, the European Commission proposed the “Omnibus” package to simplify sustainability rules, including amendments to the CSDDD. The delay just explained was part of the proposed reform and has already been formally adopted.
Nevertheless, the following proposals are not yet adopted and would require approval by the European Parliament and Council.
Key proposed amendments:
Does the CSDDD affect SMEs?
While SMEs are not directly in scope of the CSDDD, the ripple effects will likely touch them via large business partners. Here’s what investors in SMEs should know:
- Supply chain: Large buyers now covered by the CSDDD may shift responsibility upstream to SMEs, asking for due diligence evidence, codes of conduct, and other ethical sourcing data.
- Operational impacts: SMEs may need to adopt supplier management tools, track relevant KPIs, or demonstrate traceability in operations, though the full value chain may no longer need coverage, only direct relationships if the Omnibus is adopted.
- Contracts and requests: Expect more structured sustainability clauses in contracts. SMEs may support compliance with both the CSDDD and the CSRD via documentation or proactive policies.
- Reputation and readiness: SMEs that voluntarily align with due diligence standards can become resilient partners, close demand gaps and build trust.
In this context, it is advisable to keep an eye on the adoption(or withdrawal) of the Omnibus Proposal. In the meantime, where feasible and proportionate to their scale, SME investors should seek for upgrades that align strategic and ESG risk management. This can be a differentiator for SMEs competing for supply contracts or capital from sustainability-minded investors.
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