The "EU Directive on Corporate Sustainability Due Diligence" (also known as the Corporate Sustainability Due Diligence Directive, CSDDD, EU Supply Chain Directive or EU Supply Chain Act) sets out human rights and environmental due diligence obligations as well as requirements for a climate plan. Its aim is to ensure that companies in the EU fulfil certain due diligence obligations in order to prevent negative impacts of their business activities on human rights and the environment in their supply and value chains within and outside Europe. The directive must be transposed into national law by the EU member states by 26 July 2026.
New obligations under the EU Supply Chain Act
The directive stipulates that companies within the scope of application must in future identify risks in their own business area and with regard to their subsidiaries and business partners, take preventive and corrective measures and report on them. Companies must pay attention to both the upstream and downstream chain (e.g. transport to the end customer).
Companies must monitor and optimise their own activities and those of any of their direct and indirect business partners with regard to issues such as child labour, exploitation of workers, safe working conditions, loss of biodiversity and environmental pollution.
Affected companies - large and small
Companies with more than 1,000 employees and a worldwide net annual turnover of 450 million euros are covered by the scope of the directive. Companies from third countries may also be affected. What about the EU Supply Chain Act and SMEs?
Small and medium-sized enterprises (SMEs) do not fall directly within the scope of the directive. Nevertheless, they should familiarise themselves with the EU Supply Chain Act in good time. This is because the companies concerned will pass on their due diligence obligations to their contractual partners if these are part of their upstream or downstream "chains of activity" - without the threshold values mentioned being relevant!
This is because large companies will require their suppliers (often SMEs) to comply with human rights and environmental standards in order to act in accordance with the law themselves. This could mean that SMEs will have to fulfil new due diligence obligations in order to maintain their business relationships.
The "chain of activity" refers to all activities in the upstream supply chain, the company's own business area and in the downstream supply chain - insofar as they are involved in the distribution, transport and storage of products.
What obligations will be passed on to affected SMEs?
SMEs will be required to carry out risk assessments: They must ensure that their suppliers do not commit human rights violations or breach environmental standards.
SMEs need to take corrective action: If problems are identified in their supply chain, SMEs may need to take corrective action.
SMEs have a reporting obligation: Many large companies will require reporting on the fulfilment of due diligence obligations in the supply chain.
Challenges - Supply Chain Act and SMEs
SMEs may need to introduce systems to monitor and report on their supply chains, which requires additional resources.
Compliance with due diligence obligations can be associated with additional costs, e.g. for the adaptation of contracts, supplier assessments or training.
SMEs need to better understand and manage risks in their supply chains, which is particularly challenging in complex, global supply chains (risk management).
Accompanying measures
The Supply Chain Directive provides for various measures to support SMEs in fulfilling the new requirements. The form in which Austria will organise this will be determined as part of the transposition of the EU Supply Chain Act into national law. Parliament has until 26 July 2026 to do so.
Specifically, the Supply Chain Directive sets out the following requirements for member states to "protect" SMEs, which seem rather abstract and unrealistic and can probably be characterised as a further outgrowth of Brussels bureaucracy:
To support SMEs, the Member States, with the help of the Commission, should set up user-friendly websites, portals or platforms to provide information and assistance. They can also support SMEs financially and help with capacity building. This support can also be made available to economic operators in third countries.
Companies are encouraged to support SMEs in the fulfilment of due diligence obligations and to apply fair and proportionate requirements.
Obligated companies should offer SMEs that are their business partners targeted support, such as access to training or modernisation, and provide financial assistance where necessary. This can take the form of direct financing, low-interest loans or guarantees to prevent SMEs from becoming insolvent.
Contractual conditions with SMEs must be fair and non-discriminatory. The company should assess whether contractual assurances from SMEs are accompanied by suitable measures. The company bears the costs of audits by independent third parties. The SME can make the results of such reviews available to other companies.
Step-by-step application
In 2027 (three years after entry into force), the directive will apply to companies with more than 5,000 employees and more than 1.5 billion euros in turnover; in 2028 (four years after entry into force), the thresholds will be reduced to 3,000 employees and more than 900 million euros in turnover; in 2029 (five years after entry into force), companies with more than 1,000 employees and more than 450 million euros in turnover will be covered in the final step.
Securing a competitive advantage for SMEs
Initially, the EU Supply Chain Act means additional difficulties for small and medium-sized companies. However, SMEs that take measures to comply with human rights and environmental standards at an early stage can use the new regulations as a competitive advantage, as many large companies prefer to work with compliant suppliers. It can also strengthen consumer confidence. Seek advice in good time to ensure that your company is supply chain fit.
Lawyer commercial law
Dr Simon Harald Baier LL.M. advises on matters of business law, commercial law and European law.