What Does the New CSDDD Mean for Original Equipment Manufacturers?

Article Highlights:

• The CSDDD sets legally binding due diligence duties that reach deep into your supplier network and downstream distribution. With ESG compliance already top-of-mind, CSDDD raises the bar by requiring active identification and mitigation of human rights and environmental harms across your full “chain of activities.”
• Compliance obligations for CSDDD are being phased in on a rolling basis. Large EU companies and non-EU companies with significant EU turnover will face requirements first. Even OEMs headquartered outside the EU will eventually fall in scope if their EU turnover exceeds specific thresholds (typically around €450 million).
• There are a number of steps businesses can take right now to prepare for CSDDD compliance, including mapping their value chain and identifying their highest-risk suppliers; updating supplier contracts to include due diligence clauses; integrating systems that facilitate supplier traceability and continuous monitoring; and training internal teams and assigning governance roles. 

The Corporate Sustainability Due Diligence Directive (CSDDD) is reshaping how original equipment manufacturers (OEMs) think about supply chains, risk, and ESG compliance. Many businesses are now asking: “What does CSDDD actually require from OEMs, and how does it connect to existing frameworks like CSRD and EUDR?” This article explains why OEMs should care now, what the directive covers, how it compares to other regulations, and the practical steps OEMs can take to comply.

Why OEMs Should Care About the CSDDD Now

If you’re an OEM trying to understand what the CSDDD means for your business, there’s a concise way of understanding your regulatory obligations:

• The CSDDD sets legally binding due diligence duties that reach deep into your supplier network and downstream distribution. With ESG compliance already top-of-mind, CSDDD raises the bar by requiring active identification and mitigation of human rights and environmental harms across your full “chain of activities.”

Before diving in further, here’s a quick set of definitions in simple terms:

• CSDDD: The EU’s due-diligence law requiring companies to manage adverse environmental and human rights impacts across their operations and supply chains.
• ESG compliance: A term referring to efforts to meet internal and external environmental, social, and governance expectations and regulations.
• CSRD: The Corporate Sustainability Reporting Directive, which mandates sustainability reporting.
• EUDR: The EU Deforestation Regulation, an EU directive that targets commodities linked to deforestation.

This article walks through the scope of CSDDD, its impact on OEMs, its links to preexisting regulations, key obligations, and the challenges and opportunities that lie ahead for in-scope businesses. 

What Is CSDDD? Understanding the Directive in an OEM Context

The CSDDD is the EU’s landmark due-diligence directive. It requires companies to identify, prevent, mitigate, and remediate adverse human rights and environmental impacts. The implementation of CSDDD signals a shift from voluntary ESG policies to mandatory due diligence.

Timeline and Applicability

Compliance obligations for CSDDD are being phased in on a rolling basis. Large EU companies and non-EU companies with significant EU turnover will face requirements first. Even OEMs headquartered outside the EU will eventually fall in scope if their EU turnover exceeds specific thresholds (typically around €450 million).

Links and Differences with the CSRD and the EUDR

The CSDDD is not interchangeable with the CSRD. The CSRD is primarily a reporting directive, while the CSDDD is an operational due-diligence directive. You can think of CSRD as chiefly framed around “what you report.” The CSDDD, on the other hand, is framed around “what you must actually do.” The CSDDD also interacts with EUDR, especially when OEMs source components containing raw materials like rubber, wood, soy, or palm oil. EUDR focuses on deforestation-free supply chains, and the CSDDD covers a broader range of human rights and environmental risks.

Why OEMs Are Impacted by the CSDDD

OEMs rely on large, global, multitier supply chains—precisely the networks the CSDDD aims to regulate. Typical OEM value chains include upstream raw materials suppliers, component manufacturers, assembly sites, contract manufacturers, and downstream distributors.

Chain of Activities: Why It Matters

The CSDDD applies not only to direct suppliers (tier 1) but also to “established business relationships” across the entire chain of activities. For OEMs, this includes relationships central to the extraction of raw materials, parts manufacturing, logistics, distribution, and in some cases product disposal.

ESG Compliance Is Central for OEMs

‍OEMs typically manage thousands of suppliers, many of them small or located in regions with limited regulatory oversight. This makes ESG compliance—particularly environment and labor practices—central to mitigating risk. As search data shows, the term OEM itself signals an ecosystem with high compliance complexity.

Risk of Non-Compliance

‍Non-compliance can lead to legal penalties, suspension of operations, compensation payments, reputational damage, product delays, and disruptions in critical supply chains.

Key Obligations for OEMs Under CSDDD

OEMs must adopt a structured due-diligence approach. Key obligations include:

Due Diligence Actions

‍OEMs must identify, prevent, mitigate, and remediate human rights abuses and environmental harms. This could include forced labor, unsafe working conditions, chemical hazards, biodiversity impacts, and greenhouse gas emissions.

Scope of Operations

‍CSDDD covers the OEM’s own operations, subsidiaries, suppliers across multiple tiers, logistics partners, downstream distributors, and—for some sectors—the disposal or recycling phase.

Governance and Policy Requirements

‍To comply with CSDDD, OEMs must implement board-level oversight, adopt due-diligence policies, establish grievance mechanisms, and integrate ESG criteria into procurement procedures.

Thresholds and Phasing

‍Large companies face the earliest compliance requirements. OEMs should review headcount and turnover thresholds aligned with EU definitions to determine when obligations take effect.

How CSDDD Intersects With ESG Compliance, CSRD, and EUDR

‍CSDDD, CSRD, and EUDR are interconnected, and OEMs need to understand how they overlap.

CSDDD vs. CSRD

‍CSRD is about disclosure. CSDDD is about action. But there’s also synergy between the two regulations: data gathered to meet CSDDD obligations will support CSRD reporting, and CSRD disclosures must include information on due-diligence processes required by CSDDD.

EUDR’s Role for OEMs

‍If OEMs source rubber, leather, wood, paper, cocoa, palm oil, or soy, EUDR applies. Even if OEMs don’t buy these goods directly, they may appear in the components they manufacture. CSDDD reinforces the need for traceability and supplier assessments, while EUDR dictates specific geolocation requirements.

Practical Implications

Manufacturers will need to achieve deep visibility into their tier 2 and tier 3 suppliers, rely more on traceability tools, and use better ESG data to reduce single-sourcing risk. Many OEMs are turning to third-party data aggregation platforms, such as Z2Data, to help consolidate supplier ESG information, automate regulatory monitoring, and identify gaps across multi-tier supply chains

Strategic Advantage
Companies that build robust due-diligence systems can attract capital, improve customer trust, and reduce supply chain disruptions—turning compliance obligations into a competitive advantage.

What OEMs Should Do Now: Practical Implementation Roadmap

1. Step 1: Map Your Value Chain and Identify High-Risk Suppliers
   In-scope organizations should document operations across all tiers, prioritizing sectors with known human rights or environmental risks.
2. Step 2: Update Policies and Supplier Contracts
   Businesses should then integrate due-diligence clauses into procurement contracts, establishing clear expectations for corrective actions with noncompliant suppliers. 
3. Step 3: Integrate ESG Metrics and Monitoring Systems
   Because OEMs often manage tens of thousands of parts and suppliers, they need systems that enable supplier visibility, traceability, and continuous monitoring. Automated data tools like Z2Data can help manage volume and complexity in order to support continuous monitoring and reduce the manual workload.
4. Step 4: Align CSDDD Work With CSRD to Avoid Duplication
   Harmonize data collection, governance structures, and disclosures to satisfy both frameworks efficiently.
5. Step 5: Train Internal Teams and Assign Governance Roles
   Procurement, engineering, compliance, and legal teams all need role-specific training.
6. Step 6: Monitor, Audit, Report, and Prepare for Enforcement
   OEMs should establish escalation pathways, corrective action tracking, and periodic audits. Regulators will enforce CSDDD more strictly than prior voluntary initiatives.

Challenges and Opportunities for OEMs

Common Challenges

‍OEMs face limited visibility beyond tier 1 suppliers, inconsistent or missing ESG data, legacy procurement processes, and the administrative burden of multi-framework compliance.

Opportunities

‍Dedicated due-diligence systems can streamline operations, reduce risk, improve supplier performance, and strengthen the OEM’s sustainability story. The payoff includes cost savings from better forecasting, reduced disruption, and stronger customer trust.

Future Changes

‍The EU Parliament recently proposed narrowing the scope of its sustainability regulations, applying CSRD only to companies with over 1,750 employees and €450M turnover, and CSDDD to those with over 5,000 employees and €1.5B turnover. Large firms that are still responsible for adhering to these directives must use a risk-based approach for due diligence, cannot overburden smaller partners, and may no longer need climate transition plans. As these regulations move deeper into the implementation phase, the reinforcement burden shifts to member states. They’ve proposed an EU portal that will centralize reporting resources. The council is expected to finalize the legislation by the end of 2025.

The Importance of the CSDDD—and How Z2Data Can Help

For OEMs, the CSDDD is more than just another ESG regulation: it’s a mandate to fundamentally rethink value-chain responsibility. It expands due-diligence obligations across the chain of activities, elevates governance expectations, and strengthens the link between ESG compliance frameworks like CSRD and EUDR.

Organizations that start their compliance measures early—including mapping suppliers, modernizing procurement policies, improving visibility, and aligning due-diligence workflows—will manage emerging compliance risks more effectively. Over time, these CSDDD adherence efforts will yield broader, more systemic benefits, translating into long-term strategic value for the company. 

For businesses that want to comply with the EU’s expanding package of ESG regulations, but may not have the internal bandwidth to carry out all the necessary supply chain actions, supply chain risk management (SCRM) tool Z2Data offers a range of compliance capabilities. Z2Data’s compliance offerings include:

• Supplier Surveying/Campaigning: Z2Data can reach out to suppliers to obtain all the required compliance and regulatory information in order to comprehensively carry out compliance analysis.
• Compliance Workflow Platform: Z2Data’s software serves as a workflow platform, allowing team members to track outreach status and progress; automate escalations, emails and other correspondence; and providing customers with maximum visibility into outreach campaigns. 
• White-Glove Approach to Suppliers: In order to obtain the best possible results, Z2Data works closely with suppliers, providing them with the attention and guidance often required to help them share data and documentation as efficiently as possible. The goal is to obtain as much information and coverage as possible, allowing Z2Data teams to make the most accurate possible compliance determinations. 
• Compliance Risk Assessment: Once statuses are assigned for all covered parts, Z2Data compliance experts work with customers to examine the threat levels of components with no definitive status. Z2Data brings its unique expertise to bear in these situations, assigning experienced compliance professionals to work with businesses and help them understand what “No Status” parts pose the greatest risk, and which are lesser concerns. 

To learn more about Z2Data and its full suite of compliance, sustainability, and ESG features, schedule a free trial with one of our product experts.

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