Adverse Impact

An adverse impact is a negative effect on people or the environment resulting from a company’s own operations, its subsidiaries, or through its value chain relationships. Under the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the European Sustainability Reporting Standards (ESRS E1–S4), companies must identify, prevent, mitigate, and account for actual and potential adverse impacts. The CSDDD (Directive (EU) 2024/1760) distinguishes between: actual adverse impacts (harm already occurring) and potential adverse impacts (harm that may occur if not prevented). Adverse impacts span environmental harm (e.g., GHG emissions, biodiversity loss, water pollution) and social harm (e.g., forced labour, unsafe working conditions, violation of human rights).

EU Corporate Sustainability Due Diligence Directive (CSDDD) (EU) 2024/1760, Articles 3 and 7–8; ESRS S1–S4; OECD Guidelines for Multinational Enterprises (2023 edition).

Manufacturers, importers, and large retailers must establish due diligence processes to identify adverse impacts in their supply chains. Under the CSDDD, companies above defined thresholds (under Omnibus I: proposed revision to >1,000 employees and net turnover >€450M) must integrate due diligence into corporate policies, map supply chains, implement corrective action plans, and engage with affected stakeholders. The Omnibus I provisional agreement (December 2025) also delayed CSDDD application by one year.