Sustainable finance in Europe: understanding the CSDDD

The CSDD Directive (Corporate Sustainability Due Diligence Directive, also known as CS3D), adopted in 2024, represents a significant development in European sustainability legislation. It imposes a duty of care on large companies, as well as certain non-European groups operating in the EU, in social and environmental matters. In practical terms, this means that companies can no longer simply declare their commitments: they must now take concrete action to prevent human rights abuses, limit environmental impacts and establish responsible governance.

For financial institutions and large industrial companies alike, the CS3DD is a revolution. It requires them to integrate ESG (Environmental, Social and Governance) factors into their decision-making processes and to demonstrate active vigilance throughout the value chain.

What is the CSDDD Directive?

What is the definition of the CSDDD?

The Corporate Sustainability Due Diligence Directive (CSDDD) is a European directive that requires companies to implement a due diligence process in relation to sustainability. This means identifying human rights and environmental risks, preventing them, correcting them if necessary and reporting on the measures taken.

In practice, this process covers both the company's own activities and those of its business partners, suppliers and subcontractors. The CSDDD therefore does not stop at the company's borders: it extends to the entire global value chain.

What are its main objectives?

The CS3D Directive has four main strategic objectives:

• Align the European economy with the climate targets set by the Paris Agreement and carbon neutrality by 2050.
• Strengthen the protection of human rights by requiring companies to avoid or remedy practices such as forced labour, child labour or discrimination.
• Reduce the negative environmental impacts of economic activities, such as deforestation, water pollution and the excessive exploitation of natural resources.
• Harmonise due diligence practices within the EU to avoid regulatory disparities between Member States.

How does it differ from the CSRD and other regulations?

The CSRD (Corporate Sustainability Reporting Directive) requires detailed non-financial reporting in accordance with European standards. It focuses on transparency and the disclosure of ESG data. The CS3D, on the other hand, imposes an obligation to act. Companies must demonstrate that they have put in place effective policies and mechanisms to prevent and remedy negative impacts.

The CS3D also complements other texts:

• the SFDR (Sustainable Finance Disclosure Regulation), which requires financial actors to publish information on the sustainability of their investments,
• the European Taxonomy, which defines what constitutes a sustainable activity,
• …and national laws such as the French “Duty of Care” Law (2017), the scope of which is broadened and harmonised at European level by the CS3D.

Which companies are affected by the CS3D Directive?

What size and turnover thresholds apply?

The directive will be phased in from 2026, with a timetable for entry into force depending on the size of the companies. The main thresholds are:

• European companies with more than 1,000 employees and a turnover of more than €450 million.
• Non-European groups that generate more than €450 million in turnover within the European Union.

This affects around 6,000 companies at European level, but their influence has an impact on hundreds of thousands of suppliers worldwide.

Are SMEs indirectly affected?

Micro-enterprises and SMEs are not directly targeted by the CS3D. However, as business partners, they will be required to provide ESG data to their large corporate customers. They will sometimes have to adapt their practices to meet the contractual clauses imposed by the latter.

For example, a textile SME in Asia working for a major European brand could be subject to strict conditions on the traceability of cotton or compliance with social standards in its workshops. In this sense, the CS3D acts as a domino effect in supply chains. However, the changes made to the text this year should limit the number of subcontractors involved: only tier 1 suppliers are affected by the new version of the regulation. 

Which sectors are most affected?

Although the directive is cross-cutting, certain sectors present a higher level of risk and will therefore be more affected:

• The textile industry, due to the risks associated with working conditions in producing countries and the environmental impact of manufacturing processes.
• The agri-food sector, particularly with regard to imported deforestation, land use and respect for agricultural workers' rights.
• Energy and mining, due to their high carbon footprint and the challenges associated with resource exploitation.
• Financial services, as their investment and financing decisions directly influence many high-risk sectors.

What specific obligations does the CS3D impose?

The obligations of the CSDDD directive are based on five main pillars:

• ESG risk mapping: identifying and prioritising risks across all activities and value chains.
• Preventive and corrective measures: implementing policies and procedures to prevent negative impacts and taking corrective action when they occur.
• Monitoring mechanisms: establish regular monitoring and evaluation processes, with clear and traceable documentation.
• Governance and accountability: integrate sustainability into corporate strategy, with involvement of the board of directors and part of executive compensation linked to ESG objectives.
• Transparency and communication: publish clear information on the policies put in place, the measures adopted and the results achieved.

Failure to comply with these obligations may result in financial penalties or even civil liability for the company in the event of proven damage.

How does WeeFin support companies in dealing with the CS3D?

What solutions are available for integrating the CS3D into your ESG reporting?

Compliance with the CSDD cannot be achieved without reliable, centralised collection of ESG data. WeeFin supports financial players by providing them with a SaaS platform that allows them to integrate this data into their reporting, in line with the CSRD and European standards. This ensures consistency between transparency and vigilance requirements.

How does WeeFin help manage risks and opportunities?

Beyond reporting, WeeFin helps financial institutions map their ESG risks, prioritise actions and implement corrective plans. This approach is not limited to compliance: it also opens up business opportunities, such as improving reputation, securing financing and anticipating customer expectations.

FAQ – CS3D Directive

How does the CSDD complement the CSRD?

The CSRD requires non-financial reporting, while the CS3D requires action. Together, they create continuity: measure, publish, then act and demonstrate progress.

What is the implementation timetable?

Initially, the directive was to be transposed into national law in 2026, with a gradual entry into force from 2027 for the largest companies. This timetable has been pushed back by one year. The regulation will therefore apply from 2028 for the largest companies.

How can companies prepare for CS3D audits?

To prepare for audits, companies must implement traceability processes, document all their actions and have centralised monitoring tools. WeeFin helps its clients prepare with a platform that secures data, automates controls and generates reliable evidence for responding to authorities.

‍