This Directive creates a regulatory environment that will provide clear guidance on conducting environmental and human rights due diligence up and down the value chain, and on adopting and implementing a climate transition plan. Companies will be required to drive change through the due diligence process, which will include monitoring, managing and remediating any identified impacts. Where businesses previously needed to manage investing in ESG performance alongside remaining competitive, the Directive will even out the playing field by providing a consistent framework for increasing environmental and social activities; not forgetting non-compliance will result in sanctions of up to 5% of net global turnover. UK and other non-EU businesses, which generate a net turnover exceeding €450 million within the EU, will also be in scope of the CS3D, with the ripple effects on British consumers and retailers likely to be significant.
On 26 February 2025, the European Commission proposed a series of amendments to the requirements for ESG reporting and due diligence under CSRD, the Taxonomy Regulation, and CS3D. These proposals are part of a broader package of proposed measures, the ‘omnibus package’, to respond to concerns about EU competitiveness, by simplifying the ESG regulatory framework to reduce administrative burdens for companies and facilitate implementation. The importance of this cannot be underestimated as in addition to delaying the implementation of these laws, it also effectively reopens key parts of all three laws.
The key measures relating to CS3D include: (1) a directive to amend the substantive requirements of CSRD, the Taxonomy Regulation and CS3D (“substantive directive”); (2) a directive to delay the entry into application of reporting and due diligence obligations under CSRD and CS3D (“delay directive”). The two directives will need to be adopted by the Council of the European Union and European Parliament. The Council and Parliament will now propose changes to the proposals, before the final texts of the directives are adopted.
Notwithstanding these proposed amendments and changes, organisations still need to prepare for CS3D. Key actions points to consider include:
- What are the implications of the proposed changes for your company?
- Use this delay to prepare for reporting and the due diligence compliance which still remain a challenging and complex process
It is likely that the full extent of these changes will not be known until late 2025 as the proposals need to go back through the full legislative process.
Ready or not for CS3D?
In 2024, DWF conducted a proprietary ‘True Diligence’ market-led research survey involving over 1,200 UK and EU business leaders across various sectors, to assess their readiness and awareness of CS3D. 72% of the total respondents believe that CS3D will inspire similar legislation worldwide. The UK, having already implemented the Modern Slavery Act in 2015 and the Environment Act in 2021, may be well positioned to extend this responsibility to supply chains. Should the UK adopt similar requirements to the obligations of the CS3D, consumer expectations and demands for transparency and accountability will undoubtedly rise. This will act as a driving force for businesses to collaborate and act collectively in industry-wide transparency initiatives for their supply chains.
The human rights risks of doing business
Although some environmental regulations have been in place for several years, human rights obligations for corporates have largely been limited to modern slavery commitments and discrimination within an organisation’s own operations and some health and safety. Our ‘True Diligence’ research revealed that only 14% of businesses had attempted to identify modern slavery within their supply chains. This indicates that many organisations might be unknowingly benefitting from exploited labour or other forms of modern slavery, such as human trafficking and forced labour from their supply chain.
The human rights obligations within CS3D go beyond identifying child or slave labour, and include multiple rights and provisions from a range of international instruments. This includes the International Covenant on Civil and Political Rights, International Covenant on Economic, Social and Cultural Rights, Convention on the rights of the Child and multiple International Labour Organisation Conventions. Businesses will be required to conduct human rights due diligence that will ensure that every person involved in the manufacturing, design, or transport of their products enjoys fair and dignified working conditions, such as a safe and healthy working environment, equal remuneration and freedom to strike or join a union, should they choose to. Additionally, CS3D will integrate existing environmental policies into social and human rights requirements, providing clear guidance on how to ensure that land and water use doesn’t negatively impact local communities.
The labour rights above aren’t exhaustive, and in reality there will be different risks and challenges across industries and regions. In order to implement CS3D, companies will be encouraged to collaborate in industry-wide initiatives, and the responsibility of addressing human rights issues will largely be shared between businesses with the greatest leverage over a supply chain.
If the UK enacts legislation requiring businesses to address such issues, consumers will become more aware of how the human rights violations described above can take place in the production of everyday items - from the mica in their make-up, coffee in their mug to aluminium in their cars and the cotton in their clothes.
The momentum towards responsible supply chains is growing, and businesses that pride themselves on doing good and acting responsibly should proactively engage with their supply chains now. Addressing any risks or impacts that are uncovered, and reporting on their findings and activities transparently, is critical to demonstrate transparency and integrity.
DWF’s proprietary True Diligence research surveyed 1200 business leaders, and less than a third of those who work in consumer and retail sectors are currently seeking to identify child forced labour in their value chains. Will this figure remain the same when consumers have the option of choosing between brands that transparently manage their environmental and human rights impacts, and those that don’t? This question is particularly pertinent in sub-sectors like textiles and cocoa, where the risks are well-known and often the subject of scrutiny.
The question that all business leaders need to consider
This leads to a broader question, reminiscent of the classic chicken-and-egg dilemma. Will UK policymakers create obligations to ensure that UK consumer businesses meet expectations and remain competitive in a globalised marketplace, or should UK businesses proactively adopt due diligence practices themselves, to keep up with their competitors' ethical standards and to meet increasing consumer demands? Either way, it seems certain that responsibility for supply chains and a new era of corporate responsibility is here to stay.
How DWF can help you
DWF’s Sustainable Business and ESG Advisory Practice works with organisations on Human Rights Due Diligence aligned to CS3D requirements, to identify and mitigate potential and actual risks, and to maximise on human rights opportunities. We can support you based on our practical knowledge, experience and expertise leveraging our unique blend of legal, change management consulting, regulation and compliance skills, and capabilities to:
- conduct supply chain mapping to identify human rights risks and opportunities in value chains;
- design and/or conduct critical stakeholder engagement to build data-driven human rights strategies, policies and procedures;
- develop risk-based action plans to enable protection of workers, communities, consumers, and suppliers;
- facilitate training and workshops with business leaders to onboard and engage to management in their human rights risks and opportunities; and
- deliver a comprehensive human rights investigation and remediation service, drawing on legal, regulatory and compliance expertise that provides practical and risk-based actions to address issues and mitigate future risks.
If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please get in touch with our Consumer and ESG experts.
