Sustainability Initiatives and the EU CSDDD
The European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), adopted in 2024 and later narrowed in scope by an Omnibus simplification package that entered into force in March 2026, imposes obligations on large companies and financial institutions, including investors, operating within the EU — as well as non-EU companies doing business in the EU — to identify, prevent, and mitigate adverse human rights and environmental impacts in their operations, value chains, and investments.1 This means that investors and companies must conduct due diligence to ensure that their investments are not contributing to human rights abuses or environmental harm, and they must take appropriate action if they identify any such risks.
Paragraph 52 of the EU CSDDD positions independent third-party verification of multi-stakeholder initiatives, including those with certifications, as an element of a company’s due diligence plan “to the extent that such initiatives are appropriate to support the fulfilment of the relevant obligations.”2 Human rights and labor groups had campaigned for the law to contain language explicitly stating that third-party audits alone would be insufficient and for a strict liability regime whereby the social auditors or the certification scheme itself would bear liability for insufficient audits.3
Article 20 (Accompanying Measures) sets out the importance of their independence and human rights competencies:
Article 20 — Accompanying Measures
Independent third-party verifiers shall act with objectivity and complete independence from the company, be free from any conflicts of interest, remain free from external influence, whether direct or indirect, and shall refrain from any action incompatible with their independence. Depending on the nature of the adverse impact, they shall have experience and competence in environmental or human rights matters and shall be accountable for the quality and reliability of the verification they carry out.4
These requisite qualities of independent third-party verification, which appear again in Article 3 (Definitions), are addressed in this tool.
Notably, the Directive indicates that further EU guidance is forthcoming in July 2027: Paragraph 52 directs the Commission together with Member States to issue guidance “setting out fitness criteria and a methodology for companies to assess the fitness of third-party verifiers” to “address the shortcomings of ineffective audits.” It also stipulates that companies are subject to liability for breaches of the law regardless of whether they use these initiatives.
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GO TO THE CHECKLIST ↗Footnotes
1 Directive (EU) 2026/470 of the European Parliament and of the Council of 24 February 2026 amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as regards certain corporate sustainability reporting requirements and certain corporate sustainability due diligence requirements, Official Journal of the European Union, February 26, 2026, https://eur-lex.europa.eu/eli/dir/2026/470/oj/eng.
2 Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, Official Journal of the European Union, entered into force July 25, 2024, https://eur-lex.europa.eu/eli/dir/2024/1760/oj/eng.
3 “CSOs and labour unions call for the EU to confront systemic flaws of private social auditing and glaring accountability gaps,” Sherpa, September 13, 2021, https://www.asso-sherpa.org/....
4 Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, Article 20(5).
