INTRODUCTION

Environmental degradation has become a global problem and is not a respecter of borders. Climate change has become a major concern for the international community, companies, and policymakers, amongst others because climate action is number 13 of the United Nations Sustainable Development Goal.[1] There is no doubt that companies have a pivotal role to play in the environment and in shaping the world generally. Thus, in business operations, the protection of human lives and the environment must be the central focus of all organizations. Investors, suppliers, and consumers demand that businesses comply with the present sustainability trends. Hence, companies must not only be focused on operation activities and profit maximization but must take environmental, social, and managerial issues into consideration in their daily activities. This, if not done, can expose such companies to financial risks and distress.[2] Initially, requests for transparency and in-depth data regarding a company’s environmental risks, and mitigating actions, coupled with audits to enhance its reliability which have been in demand from companies globally, were initially treated as a reputational risk in the corporate world. However, this has now been strengthened by new regulatory standards and practices.

Environment Social and Governance (ESG) has become extremely important for both the demand and supply aspects of investment. The supply of sustainable assets has made an impression and caught the attention of companies.[3] This yardstick is mostly used to appraise the environmental risks the company is likely to face and how those risks are being managed by the company. Also, assurances are created by companies where it does not partake in unlawful business practices, especially in the appointment of their board members.[4] To further champion the observance and adherence of the ESG principles, the European Union (EU) parliament introduced the Corporate Sustainability Due Diligence Directive (‘CSDDD’ or the ‘Directive’) in December 2023. This article gives an overview of the EU CSDDD and suggests how regional collaborations can drive compliance with the ESG principles.

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