The EU Corporate Sustainability Reporting Directive (CSRD) is being phased into application for European companies between 2024 and 2028, and the Corporate Sustainability Due Diligence Directive (CSDDD) will be transposed into national law in EU member states between 2026 and 2028. Neither directly targets Japanese companies, but because European trading partners will be required to collect sustainability information across their entire supply chains and conduct human rights due diligence, these obligations cascade in practice as requirements on Japanese suppliers.
The Basic Structure of CSRD and CSDDD — What Is Being Mandated
CSRD (Corporate Sustainability Reporting Directive) requires EU companies to disclose non-financial information in compliance with ESRS (European Sustainability Reporting Standards). ESRS covers multiple themes including climate change, biodiversity, social matters (workers, communities, etc.), and governance — requiring a broader scope of disclosure than ISSB standards.
CSRD application schedule:
- 2024: Application begins for large companies (500+ employees)
- 2025: Expansion to medium-sized companies
- 2026: Expansion to small listed companies
- 2028: Application to non-EU companies (EU sales exceeding €150 million)
Japanese large companies with EU sales exceeding €150 million may fall under direct CSRD application from 2028. Companies approaching this threshold need to begin preparation now.
CSDDD (Corporate Sustainability Due Diligence Directive) imposes an obligation on EU companies to conduct human rights and environmental due diligence across their entire supply chain. The primary targets are EU companies with 1,000+ employees and €450 million+ in sales, with thresholds expected to be progressively lowered.
The core of CSDDD is "an obligation to address confirmed risks." When a European company identifies human rights or environmental risks in its supply chain, it is obligated to develop and implement plans to address those risks. As part of that response, suppliers may be requested to provide information, undergo audits, or receive improvement recommendations.
Three Channels Through Which CSRD and CSDDD Reach Japanese Companies
CSRD supplier information collection
European companies are obligated to disclose emissions and social impacts across their entire value chain under ESRS standards. This cascades to Japanese suppliers in the form of questionnaires requesting activity data, ESG evaluation results, and human rights situation information. Questionnaire responses typically require information provision in EcoVadis, proprietary formats, or GRI-standard formats.
CSDDD due diligence compliance
European companies are obligated to identify, assess, and address human rights and environmental risks across their supply chains. Cases are increasing where Japanese suppliers are asked to provide information about their human rights policies, labor conditions, forced labor practices, and environmental management systems. Companies with subcontractors in emerging markets such as Southeast Asia in particular may need to demonstrate awareness of second- and third-tier supplier conditions.
Additions to contract terms
Cases are increasing where new and renewed contracts with European trading partners include ESG data provision obligations, audit acceptance obligations, and contract termination clauses for failure to meet standards. Caution is required to avoid overlooking these clauses during contract review. Where ESG provisions are added, new compliance risks may emerge, requiring confirmation with legal departments.
Application Schedule and Impact Timeline for Japanese Companies
The impact on Japanese companies will be most acute in 2025–2026. This is the period when major European customers will be ramping up supplier information collection in earnest for CSRD compliance. Automotive parts, electronics, chemical, and steel manufacturers with many European trading partners are advised to finalize their response framework by end of 2024.
Priority Actions for Japanese Companies
Confirm CSRD applicability status of European trading partners
Confirm whether major European customers fall under CSRD reporting obligations, and forecast when supplier information collection is likely to begin. As application expands to large companies between 2025 and 2026, proactive contact is effective. Directly contacting the ESG procurement lead at trading partners or reviewing supplier engagement policies in their annual reports serves as the starting point for information gathering.
Build human rights due diligence infrastructure
CSDDD requirements largely overlap with Japan's human rights DD guidelines (Ministry of Economy, Trade and Industry; Ministry of Foreign Affairs). Establish the foundations of a human rights policy, stakeholder engagement, and grievance mechanisms aligned with international human rights standards (UN Guiding Principles). In particular, labor conditions for foreign technical intern trainees and emerging market suppliers are high-scrutiny areas from Western perspectives — prioritize status reviews and infrastructure development.
Prepare ESG information in English and standardize formats
Information provision to European trading partners often requires English-language responses. Advance information organization in alignment with international disclosure frameworks such as ESRS, GRI, and SASB, and build the capacity to respond centrally to questionnaires from multiple European customers. Managing internal ESG data in a standardized database reduces the cost of responding to questionnaires in different formats from multiple trading partners.
Preparing ESG Information in English — Practical Steps
The first barrier in responding to questionnaires from European customers is "providing information in English." For companies that publish CSR reports only in Japanese, the following steps are realistic starting points:
1. Create a summary English ESG report: Rather than translating the full document, produce a 1–5 page English summary covering key metrics (Scope 1, 2, 3; major social indicators; governance structure). 2. Build an ESG metrics English data sheet: Create and annually update an English data sheet aligned with GRI Content Index or SASB indicators. 3. Build a questionnaire response template database: Convert past EcoVadis, CDP, and custom questionnaire responses into an internal database that can be referenced when completing new questionnaires.
CSRD and CSDDD impacts can reach even companies with low direct EU export ratios, through global value chains. In particular, suppliers of products whose end users are in Europe — for example, Tier 2 suppliers providing components to a Tier 1 exporting to Europe — may find themselves subject to due diligence even without being a direct target of EU regulations. As European regulations enter full implementation between 2026 and 2028, early action represents not only compliance but an opportunity to strengthen relationships with trading partners.