Corporate Sustainability Due Diligence Directive

Introduction to CSDD Directive

The European Commission recently released its proposal for corporate sustainability due diligence, which aims to address the negative impacts on human rights and the environment that may occur within a company's supply chains. This proposal takes inspiration from various national laws. Still, it takes it to a new level with broader coverage of companies, including smaller ones, and the implementation of costly obligations and severe penalties and liabilities. Many European companies view this initiative positively, as they strive to act responsibly and contribute to a more sustainable economy. Moreover, a unified EU approach would prevent the development of disparate regulations across Europe. Hence, making CSDDD robust in addressing all elements of ESG (environmental, social, and governance) compared to other existing directives.

The scope of the obligations

"According to Article 2 of the CSDD, both EU and non-EU companies will be subject to its regulations based on their revenue and employee count," stated Nicolas J.S. Lockhart. "While the Council is advocating for higher thresholds to limit the reach of the law, Parliament is pushing for lower thresholds to broaden its coverage." Companies that fall under the jurisdiction of the directive will be required to take measures to identify, prevent, eradicate, and rectify any potential adverse effects on human rights and the environment, including issues like forced labor, inadequate workplace safety, emissions of greenhouse gases, loss of biodiversity, and proper waste disposal.

As outlined in Article 4 of the directive, companies are instructed to conduct human rights and sustainability due diligence by implementing the following steps:

• Integrating due diligence into their corporate policies and establishing a relevant policy.
• Recognizing any actual or potential adverse impacts on human rights and the environment.
• Taking measures to prevent or minimize such impacts.
• Bringing an end to or reducing any actual impacts.
• Setting up and maintaining a complaints process.
• Monitoring the effectiveness of the due diligence policy and measures.
• Communicating publicly about their due diligence efforts.

Perspective on the regulations

However, for the proposal to be effective, the rules must be clear, practical, and grounded in realistic expectations. It's important to distinguish that companies are not sovereign states and may not have complete control over their numerous business suppliers, let alone over foreign states. As currently written, the proposal lacks clarity. Instead of treating due diligence as a process, as recommended by long-established principles from the UN and OECD, the proposal takes an aggressive approach to companies. To create a positive outcome, it's essential to engage companies as part of the solution. With well-designed rules, Acquis can assist companies in spreading European values globally. This is a crucial proposal for companies, and the business community is eager to collaborate with the European Parliament and Council to make it a reality.