Supply Chain Due Diligence for Industrial Suppliers: CSRD & CSDDD
Whether you’re a small manufacturer, supplier or subsidiary operating in Europe, value-chain due diligence has become a core expectation in commercial relationships. Some industrial organisations report directly under CSRD; others prepare voluntarily using the VSME Standard to meet customer requirements. At the same time, the Corporate Sustainability Due Diligence Directive (CSDDD) introduces mandatory human rights and environmental due diligence for many EU companies — and suppliers across all sectors will increasingly feel its effects.
CSRD requires companies to disclose how they engage with value-chain partners, assess risks, and manage human rights and environmental impacts. The Directive emphasises that businesses rely on sustainability information from their suppliers to understand value-chain risks, impacts and dependencies, especially for human rights and working conditions .
The VSME Standard provides a proportionate pathway for SMEs: it includes disclosures on workforce conditions, business conduct and environmental practices that customers can use as part of their due diligence assessments. SMEs can describe their practices, policies and improvement measures under VSME B2, and provide relevant workforce information under B8 and B9 .
This guide explains how manufacturing suppliers can build practical due diligence systems aligned with CSRD and CSDDD expectations — without requiring complex audits or high-cost consultancy.
1. How CSDDD and CSRD Affect Manufacturing Suppliers
CSDDD: What it requires (in brief)
The Corporate Sustainability Due Diligence Directive obliges in-scope companies to:
- Identify, prevent, mitigate and end human rights and environmental harms in their own operations and value chains.
- Implement a risk-based due diligence system, including supplier screening and monitoring.
- Provide remediation when harm occurs.
- Integrate due diligence into policies and business strategy.
- Establish complaints procedures, training and stakeholder engagement.
- Report publicly on due diligence actions (partly through CSRD where applicable).
Although SMEs are not directly in scope unless they meet the thresholds, CSDDD will indirectly shape expectations for all manufacturing suppliers because large customers must demonstrate that their supply chains meet due-diligence standards.
CSRD: Why customers request information from SMEs
CSRD requires companies to disclose:
- Value-chain working conditions
- Human rights risks and impacts
- Supply-chain engagement and screening processes
- Business conduct policies and grievance mechanisms
To report this information credibly, CSRD-reporting companies routinely request documentation and declarations from their suppliers. SMEs able to provide structured, consistent information will be preferred partners.
2. What Due Diligence Means for Manufacturing SMEs
Manufacturing supply chains often include risks related to:
- Temporary, agency or subcontracted workers
- Chemical handling and unsafe working conditions
- Excessive overtime, shift pressure or low-wage risks
- Young workers or apprentices
- Migrant labour
- Environmental risks (waste handling, emissions, spills)
- Downstream usage of hazardous materials
Due diligence systems help SMEs demonstrate that they manage these risks responsibly.
A practical SME-friendly due diligence system includes:
- Basic policies
- Supplier and workforce screening
- Incident logging
- Risk assessment
- Remediation procedures
- Reporting and communication
These systems can be proportionate — small facilities do not need enterprise-grade software.
3. Core Components of a Due Diligence System (Aligned with CSDDD)
1. Policy commitment
Prepare a simple, public statement covering:
- Respect for human rights
- Non-discrimination and safe working conditions
- Zero tolerance for forced or child labour
- Environmental protection aligned with permits
- Commitment to investigate concerns and remediate harm
This aligns with CSDDD’s requirement for formal due diligence policies and CSRD’s expectations under business conduct (ESRS G1).
2. Risk screening and prioritisation
Use a risk-based approach, suitable for SMEs:
- Identify your highest-risk activities (e.g., chemical handling, night shifts, subcontracting).
- Consider worker groups potentially at risk (temporary workers, young workers, migrants).
- Evaluate geographical risks if sourcing materials internationally.
- Prioritise risks based on severity and likelihood.
CSRD and CSDDD both emphasise materiality and prioritisation, not exhaustive checks on all activities.
3. Supplier screening
Industrial suppliers should maintain a basic screening process for their downstream partners, especially if they subcontract or procure semi-finished goods.
Typical elements include:
- Supplier code of conduct
- Declaration on human rights and labour standards
- Health & safety compliance confirmation
- Environmental compliance confirmation (permits, waste documentation)
- Incident reporting expectations
- Basic ESG questionnaire aligned with VSME B2, B8, B9 requirements
Screening does not need to be burdensome; many SMEs use a one-page declaration supplemented by evidence when relevant.
4. Worker-related due diligence
Manufacturing SMEs can meet human-rights expectations by strengthening workforce practices:
- Transparent contracts and wage documentation
- Recording hours worked vs. legal limits
- Safety training and PPE logs
- Right-to-work checks
- Grievance mechanisms accessible to all workers
- Clear process for resolving complaints
Under VSME B8 and B9, SMEs disclose workforce composition, training and health & safety outcomes — all directly relevant to customer due diligence assessments .
5. Environmental risk management
Industrial suppliers must manage environmental risks that may constitute human-rights impacts under CSDDD (e.g., water contamination affecting communities).
Key practices include:
- Permits for emissions and wastewater
- Hazardous waste controls
- Pollution monitoring already required under national law
- Spill prevention systems
- Incident logs and corrective actions
Where pollutants are measured, VSME B4 requires SMEs to disclose them, supporting CSRD pollution reporting for customers .
6. Stakeholder engagement and complaints channels
CSDDD requires accessible complaint mechanisms. For SMEs, this can be as simple as:
- A designated email/mailing address
- A notice on worker bulletin boards
- Annual meeting with staff representatives
- Procedures for subcontractor workers to raise concerns
Engagement with workers and subcontractors supports CSRD disclosures on stakeholder involvement.
7. Remediation and corrective actions
If harm occurs, SMEs must take proportionate remediation steps, such as:
- Correcting wage errors
- Providing medical support after a workplace incident
- Updating safety procedures
- Replacing unsafe materials or equipment
- Working with suppliers to correct violations
Documentation is essential because large customers will expect proof of remediation.
4. How SMEs Can Document Due Diligence for CSRD-Reporting Customers
A simple documentation pack can satisfy most due-diligence requests:
1. Policies
- Human rights & labour policy
- Health & safety policy
- Environmental protection policy
- Supplier code of conduct
2. Procedures
- Risk assessment process
- Worker grievance procedure
- Supplier screening checklist
- Incident reporting process
3. Evidence
- Training logs
- Health & safety records
- Waste and emissions documentation
- Working-hours records
- Supplier declarations
- Investigations and corrective action logs
These documents help customers complete CSRD sections on value-chain impacts, human-rights risk assessment, workforce practices and stakeholder engagement.
For tracking broader sustainability data, SMEs may also find helpful the guide: Value Chain Mapping & Data Collection for CSRD SMEs
5. Practical Implementation for Manufacturing Suppliers
Example A — Metal fabrication supplier
Risks: agency labour, welding fumes, manual handling Actions:
- Introduces a PPE training log and monthly safety talks
- Screens subcontractors for health & safety compliance
- Implements grievance process for temporary workers
- Provides emissions data to customers for CSRD reports
Example B — Plastics processor
Risks: chemical exposure, migrant labour, hazardous waste Actions:
- Introduces chemical-handling training and SDS checks
- Creates supplier declaration covering labour rights
- Provides evidence of hazardous-waste handling
- Tracks working hours to prevent excessive overtime
Example C — Electronics component assembler
Risks: overtime during peak production, sourcing from high-risk countries Actions:
- Conducts supplier screening for conflict minerals and labour standards
- Maintains overtime logs and rest-period documentation
- Includes a whistleblowing email address for workers
- Publishes a policy referencing OECD Due Diligence Guidance
Frequently Asked Questions
Are SMEs legally required to comply with CSDDD?
Most SMEs fall outside the direct legal scope, but large customers are required to conduct due diligence on their value chains. This means SMEs will face contractual requirements to provide information, cooperate with investigations and meet minimum human-rights expectations.
Do SMEs need full human-rights impact assessments?
No. SMEs can conduct proportionate risk assessments focusing on their highest-risk operations and suppliers. CSRD and CSDDD both emphasise prioritisation rather than exhaustive auditing.
What is the easiest starting point for due diligence?
Begin with three things: a clear policy, a simple risk assessment, and basic supplier/worker screening. These steps allow SMEs to answer most customer requests.
What happens if an SME identifies a problem?
CSDDD expects corrective action, not immediate contract termination. Document how you remediate issues — customers value transparency over perfection.
Key Terms
- CSDDD: EU Directive requiring companies to conduct human-rights and environmental due diligence.
- Value-chain due diligence: Identifying and managing risks linked to suppliers and subcontractors.
- Human-rights risks: Risks affecting safety, wages, working conditions or exposure to harmful substances.
- Remediation: Actions taken to address harm and prevent recurrence.
- Supplier screening: Evaluating suppliers against labour, environmental and governance criteria.
Conclusion
Due diligence is becoming part of everyday business practice for industrial suppliers. With structured but simple systems, manufacturing SMEs can meet customer expectations under both CSRD and CSDDD, improve workforce safety and strengthen commercial relationships. Clear policies, risk-based assessments and basic documentation go a long way — and most can be implemented without external consultants.
With a clear structure and consistent effort, CSRD becomes an advantage — not an obstacle.