2024 ESG Regulations Update: What You Need to Know
The adoption of the EU Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD was adopted in May 2024 and entered into force in July 2024. It mandates companies to conduct risk-based due diligence. This means that in-scope companies will be required to identify, prevent, mitigate, and, where needed, remediate the human rights and the environment impacts linked to their operations, those of their subsidiaries and to those of their suppliers in their chain of activities.
Which companies fall under the scope of the CSDDD?
The rules will only start to apply as of July 2027 to:
- Some very large EU companies with a minimum of 1 000 employees and a global turnover of more than €450 million. It represents around 6 000 companies
- Non-EU companies with a turnover of at least €450 million in the EU, representing around 900 companies
The application of the rules will continue in stages, all the way to 2029:
- As of 2028: EU companies with more than 3 000 employees and €900 million worldwide turnover, as well as non-EU companies with more than €900 million turnover generated in the EU.
- As of 2029: All other companies in scope
However, its impact will go far beyond the only companies in scope but are expected to drive positive impact in global value chains.
How is the CSDDD impacting the SMEs?
SMEs are not directly subject to the CSDDD legislation, they won’t face obligations or penalties under the Directive. SMEs could still be affected as direct or indirect partners within the supply chains of larger companies subject to the rules. As a result, they might be asked to gather and provide information on adverse actual or potential impacts, and take steps to address these in line with the obligations of the larger companies.
What are the next steps?
To support companies in their implementation, the European Commission will develop a list of guidelines and accompanying measures by 2027.Those will complement and support the implementation of the EU Directive’s requirements.
Member States have to transpose the European Directive into national law and communicate the relevant texts to the European Commission by July 2026. Some EU Member States have already kick-started their national transposition process.
What is amfori’s position on the CSDDD?
The adoption of the CSDDD was not a straightforward process as it reopened the debate on the seemingly mutually exclusive objectives of sustainability and economic considerations.
Whilst its implementation will necessarily entail some challenges, it is important to highlight that:
- This directive is largely aligned with already existing international standards (OECD guidelines, UN Guiding Principles on Business and Human Rights)
- The due diligence duty under the CSDDD is risk-based, allowing for prioritisation and proportionality
- The text acknowledges role of collaboration in due diligence. Furthermore, it recognises that companies can resort to collaborative initiatives across the various due diligence steps, still making it clear that companies retain their individual responsibility.
At amfori, we believe in trade with purpose and as such, we are convinced that there cannot be sustainable profit without responsible business. Whilst there is no doubt that EU competitiveness is essential for our future, competitiveness also requires increasing resiliency, securing access to key resources and supply chains, being able to anticipate business risks and opportunities and acting upon them - sustainability is key to achieve all of those.
We will continue to support our members to prepare for the CSDDD upcoming implementation. Over the past months, amfori has carried out a survey on companies’s preparedness to the CSDDD implementation. Main conclusions will be shared in January 2025. These will set a strong base for our advocacy work in 2025 to support an harmonised transposition of the legislation and actionable EU guidance documents.
The adoption of the Forced Labour Regulation
The Forced Labour Regulation entered into force on 13 December 2024 and will take effect from the end of 2027. This EU regulation is prohibiting products made with forced labour from being sold on the European Union market. Companies that fail to comply with the regulation may face significant penalties, including fines and restrictions on market access.
What are the products banned by the regulation?
The Forced Labour Regulation bans products linked to forced labour, from being sold or made available on the EU market, or exported from it. According to the ILO Convention, forced labour is defined as “all work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily." The ban applies to all businesses, no matter their size or location, including small and medium-sized ones. An “economic operator” is anyone, whether a person or a company, who sells or exports products in or from the EU.
The ban covers all physical products that have a monetary value, but it does not include services. It applies to all types of products, whether they are perishable or not, as long as they are sold or exported within the EU.
How will this work in practice?
Anyone will be able to make an allegation of forced labour, and complaints or information can be submitted confidentially to a single information point. Investigations will be conducted using a risk-based approach, considering factors such as the scale and severity of the issue, the volume of affected products, and the share of forced labour components in the final product. Before an investigation begins, economic operators (anyone placing a product on the EU market or exporting it) will be asked about the due diligence efforts they have made. If they can demonstrate, within a 30-day deadline, that they have taken steps to mitigate, prevent, or eliminate forced labour, they will not be included in the investigation.
Investigations will be opened if there is a reasonable suspicion of forced labour. The European Commission will lead investigations into products made outside the EU, while the relevant Member State authorities will handle investigations for products within the EU. Information may be gathered from various stakeholders, including complainants, NGOs, and other parties. If an investigation is launched, the Commission or competent authority will request information from the economic operator within 30 to 60 days. They will also use data from a database and information provided by interested parties. A decision on the investigation should be made within nine months, although this is not a strict deadline, and the results of the decision will be published.
What happens if a case of forced labour is discovered?
If forced labour is discovered, products entering the EU will be seized by customs and disposed of at the economic operator's expense. Products already on the market must be withdrawn within 30 days and either recycled or destroyed, unless the product is perishable, in which case the deadline is shortened to 10 days and the product should be donated. If the product is a component of a final product, it can be replaced. In cases where the product is of strategic importance, it will be withheld from the market until the economic operator can prove that forced labour has been eradicated. Decisions made under this regulation can be reviewed and challenged in court.
What are the next steps?
In the coming years, the European Commission will be working on guidance documents to support the proper implementation of the legislation, including best practices on bringing to an end and remediating different types of forced labour.
If adhered to and applied effectively, the regulation could be an important step toward eliminating forced labour within supply chains.
What is amfori position on the EU Forced Labour Regulation?
Companies within the EU now need to take the next three years to scrutinise their supply chains to establish (and eliminate) any forced labour within their supply chains. Companies that can show they have found, and mitigated, forced labour could be exempt from investigations and an eventual marketing ban – this should encourage greater due diligence efforts.
Factories found to be involved in forced labour will recognise that EU companies will be discouraged from sourcing their products, creating a strong incentive for them to change their practices.
amfori will continue to advocate for an effective implementation of the regulation which will require all actors to collaborate – companies, factories, government and civil society to collaborate.
The implementation of the EU Deforestation Regulation (EUDR)
What is the EU Deforestation Regulation (EUDR)?
The European Union Deforestation Regulation (EUDR) is designed to tackle global deforestation caused by the production and import of certain goods. Under the EUDR, companies in the EU must ensure that products like soy, coffee, palm oil, cattle, wood, rubber, and cocoa, as well as products made from these materials, do not come from land that has been recently deforested.
The regulation mandates businesses to conduct due diligence on their supply chains and provide verifiable data proving that goods imported into the EU are “deforestation-free” and legally produced, with traceability the land where they originated.
What is the status of the EUDR?
In November 2021, the Commission published its proposal for a regulation on EUDR to address EU-driven deforestation embedded in international supply chains, which accounts for approximately 10% of global deforestation.
The EUDR came into force on 29 June 2023, with its main requirements scheduled to take effect on 30 December 2024 and 30 June 2025 (for micro and small companies).
Following a heated debate in November 2024 about the readiness of companies, EU Member States and producer countries to comply with the EUDR, the European Commission, European Parliament and EU Member States reached a provisional agreement to delay the EUDR application requirements by 12 months.
The agreement only affects the application dates, without further amending the substance or objectives of the EUDR text. As result, application requirements for large and medium enterprises will kickstart as of 30 December 2025, and as of 30 June 2026 for small and micro-enterprises.
What is amfori position on EUDR?
The EUDR is not a standalone piece of legislation. Together with the CSDDD and CSRD, it is part of a holistic framework for due diligence and transparency to capitalise on responsible business conduct's benefits. In view of the EUDR, the company’s efforts to strengthen its traceability, risk management and stakeholder engagement processes, will enhance its capacity to comply with other pieces of legislation. Furthermore, it will lead to new business opportunities and increase mid-term and long-term economic resilience.
Over the past year, we have seen significant market developments, with companies enhancing their internal due diligence processes, traceability systems, and available tools. But many concerns were also expressed, especially due to a delay of key implementation guidance by the Commission.
amfori continues to advocate for a seamless implementation of these requirements and is closely monitoring the essential support from the European Commission to ensure this outcome.
The implementation requirements of the Corporate Sustainability Reporting Directive (CSRD) being debated with the new “Omnibus” regulation
The Corporate Sustainability Reporting Directive (CSRD) requires large companies, as well as some SMEs, to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment.
It entered into force on 5 January 2023. The application of the CSRD will be progressively phased in, which means that not all companies will come into scope at the same time. It will come in 4 phases:
- EU companies already required to report (reporting in 2025 for the 2024 financial year)
- Large EU companies (reporting in 2026 for the 2025 financial year)
- EU-listed SMEs (reporting in 2027 for the 2026 financial year, with an option to delay by 2 years)
- Large non-EU companies (reporting in 2029 for the 2028 financial year)
The CSRD updates and strengthens the previous rules set by the Non-Financial Reporting Directive (NFRD). The European Commission estimates that 50 000 companies will be affected by the CSRD, compared to just 12 000 companies under the NFRD rules.
What is the “Omnibus" Regulation?
In November 2024, the European Commission announced plans to simplify company reporting requirements with a new "omnibus" regulation. This regulation could combine rules from the CSRD, CSDDD, and the EU Taxonomy to reduce overlap and bureaucracy. However, there is still considerable uncertainty about what exactly will change. More information is expected in early 2025, and we are closely monitoring the situation to keep you informed.
What is amfori position on CSRD?
The CSRD and the CSDDD are part of the same Responsible Business Conduct framework and, as such, they are designed to work in combination. This is what amfori calls ‘reporting with impact’: leveraging the company’s due diligence to build a coherent narrative and capitalising on the advantages of the reporting exercise to strengthen the due diligence system and, last but not least, communicate about it.
The value of the CSRD goes beyond reporting. Ultimately, the CSRD will be as valuable as the continuous improvement it triggers in companies, and as effective as the benefits it delivers for businesses, people and the planet.
amfori has been actively involved in the development of the EU Sustainability Reporting Standards (ESRS) for SMEs and participated in the consultation of the first set of sector-agnostic ESRS (Set 1) adopted in July 2023 as well as the subsequent implementation guidance for the Materiality Assessment and Value Chain reporting.
amfori continues to support its members in adapting to the ESRS through its Sustainability Policy Group and monitoring the situation at the national transposition level and across the different set of standards to be developed.
Get ready for 2025 with amfori solutions
amfori solutions such as amfori BSCI, amfori BEPI, or the newly launched amfori SustainaPass, align with internationally recognised principles that underpin the EU Due Diligence legislation. Despite some remaining uncertainties (EU Commission’s guidelines not there yet, Omnibus regulation discussions), amfori encourages its member companies to act proactively. This means enhancing supply chain visibility, fostering meaningful supplier relationships, building capacity, monitoring progress, addressing issues as they arise and ultimately, exercising due diligence.
To support companies navigating the ESG regulatory landscape smoothly, amfori has recently launched a new reporting solution: amfori Sustainapass.