The CSDDD Showdown: Can the EPP Halt the EU's Green Agenda?

It is with several mistaken assumptions that the recent publication of the Corporate Sustainability Due Diligence Directive (CSDDD) is being greeted as a done deal. Celebrate getting that far by all means, but as Crowded House famously said, “don’t dream it’s over”. The CSDDD, after the choppy passage it had in both European Parliament and the Council of the EU, faces still yet more choppy waters and headwinds. Let’s look at the why, what, how of that proposition.

The CSDDD has now been formally adopted by the EU and published in the Official Journal, making it legally binding on the Member States. This marks a significant milestone in the EU's drive to embed sustainability obligations into corporate governance. ?And this is what we have seen all week being celebrated across LinkedIn.

However, this seems to miss the development that the European People's Party (EPP), the largest and most powerful party in the new European Parliament, has signalled its intention to make "halting" the CSDDD a priority in the next European Commission (the Commission) work program. It cannot be unexpected; it is entirely consistent with the EPP’s manifesto which is remarkable for the near absence of the EU’s sustainability agenda. The few references we do see all relate to trade, namely relations with the US and China, both of which trade partners want the EU’s green adventurism halted.

There are a great many dimensions to this discussion, so I hope you don’t find this analysis TL:DR, but we do need to canvas many of those angles to convey a comprehensive understanding of where the CSDDD will go.

The CSDDD's Adoption and Publication This conversation and my proposition that it is not all smooth sailing ahead were sparked by this week the CSDDD – after tortuously transiting the European Parliament’s committee process, and the trilogue with the Council – being published in the Official Journal of the European Union. Said publication means it has now entered into force. Remembering it is a Directive, not a Regulation, Member States now have two years to transpose the basics/minimums of the CSDDD into national law, after which the obligations will begin to phase in for companies based on size. With the CSDDD now officially adopted and published, the Directive's core requirements have been firmly established. Companies will be required to identify, prevent, mitigate, and remedy adverse impacts on human rights and the environment throughout their value chains. Failure to comply can result in civil liability, fines of up to 5% of global turnover, and other sanctions. Unless…..

The EPP's Stated Intent to Halt the CSDDD Despite the CSDDD's adoption, the EPP has signalled its intention to make "halting" the directive a priority in the next Commission work program. Along with the walloping of the Greens across the EU in the recent EU Parliamentary elections, we might see this as a part of a broader attempt to slow down the sustainability agenda of the EU.

As the largest group in the European Parliament, the EPP's opposition could pose a challenge to the CSDDD's implementation. Demonstrating precedent, the EPP's environment lead, Peter Liese, had already called for a two-year delay in implementing the EU Deforestation Regulation (EUDR), citing challenges for producers to comply. Liese made this call in June 2024, emphasising the need for postponement due to the complex bureaucratic demands and international pressures associated with the regulation. He mentioned that without a delay, the challenges posed by the regulation could not be adequately addressed. Liese expressed confidence that the Commission will move to postpone the EUDR's entry into force following pressure from the EPP and a warning letter from the US. So, the EPP’s threatened halting of the CSDDD can indeed be done, and probably in the same terms and on the same grounds in which Liese went after the EURD. The postponement of the EUDR by the EPP acts as a harbinger of their likely approach to the CSDDD, hinting at a preference for gradual implementation of environmental regulations to accommodate economic impacts; the obvious result of a slowing of the entire corporate sustainability agenda of the EU.

The EPP's Options: Halt or Repeal As I see it, the EPP faces two potential paths to progress its opposition to the CSDDD: a) halting its implementation, or b) attempting to repeal the Directive entirely.

Halting the CSDDD Halting the implementation of the CSDDD would likely be the EPP's more feasible option, as it would require less political capital than a full repeal. And does not require a new legislative process. Being the biggest party in the Parliament makes them powerful but does not make them an omnipotent King Kong. If they manage to form a caucus with other parties, though, things might look very different. But herein I am assuming they do not, or cannot, form a majority block on this.

Given their evident strengths, even acting alone, the EPP could pursue several tactics to delay or slow down the directive's entry into force. Let me briefly outline them here:

1.????? Influence the European Commission's Work Program: As the largest group in the European Parliament, the EPP could make "halting" the CSDDD a priority in the next European Commission work program. By exerting political pressure and leveraging its position, the EPP may be able to persuade the Commission to deprioritise the directive or delay its implementation.

2.????? Delay the Implementing Acts: The EPP could push for the European Commission to take a more cautious and gradual approach in developing the detailed rules and guidelines that will flesh out the CSDDD's requirements. By slowing down the implementation process, the EPP may be able to buy more time to build opposition to the directive.

3.????? Advocate for Phased Implementation: The EPP may argue for a more gradual phase-in of the CSDDD's obligations, especially for smaller companies, to ease the compliance burden. By delaying the entry into force for certain sectors or company sizes, the EPP could potentially undermine the directive's effectiveness and buy more time to challenge it more wholly.

4.????? Propose Targeted Amendments: If issues arise during the transposition and early implementation stages, the EPP could attempt to propose targeted amendments to the directive through the ordinary legislative procedure. While this would be more difficult given the directive's advanced stage, the EPP could try to chip away at the CSDDD's core obligations over time. We might expect, for example, the most contentious issues for numerous EUMS, such as mandatoriness and penalties, could well be fair targets for those member states, making stronger the position of the EPP to chip away. Remember the parties that drove the CSDDD are less well represented in the new Parliament, so new legislative process/es would be less problematic to trigger.

Repealing the CSDDD Repealing the CSDDD entirely, while technically possible, would be a much more challenging task for the EPP, as it would require a higher bar of political support. I have my doubts they have the political capital to make this happen. To successfully repeal the directive, the EPP would need to:

1.????? Secure a Qualified Majority in the Council: Repealing an already adopted directive would likely require unanimous opposition from all Member States in the Council. Given the political momentum behind the EU's sustainability agenda, and assuming the new Commission and Parliament maintain that momentum, this appears to be an unrealistic prospect for the EPP.

2.????? Rally a Majority in the European Parliament: The EPP would also need to form a stable majority coalition in the European Parliament to overturn the directive. This is feasible. But the party's ability to do so is constrained by the?incoming?Parliament. It is not drawing a long bow to say the new Parliament will be more polarised, more centrist, and more fragmented than in the past. The?many compromises that?traditionally?settled?policy feuds among?parliamentary?groups will?be harder to?reach. The EPP has power, but it is not absolute unless they can build a caucus around what to do with the green agenda.

3.????? Overcome the European Commission's Resistance: Even if the EPP could secure the necessary political support in the Council and Parliament, the European Commission, as the initiator of the directive, can resist efforts to repeal it, further complicating the EPP's task. Again, the eventual identity of the President and the Commissioners will play a big role in this calculus.

The EPP's Most Likely Tactic: Halting the CSDDD Given the significant challenges the EPP would face in repealing the CSDDD, the party is more likely to focus its efforts on halting the directive's implementation through the tactics outlined earlier. It would take less political capital and far less energy.

As to the rather vexing question of how the EPP could halt the CSDDD, the leading way of those indicated above is to influence the Commission in taking the CSDDD forward. They can certainly exert political pressure on the European Commission in several ways to try to influence the implementation of the CSDDD, but the legality and effectiveness of these tactics are questionable:

1. Informal Lobbying: As the largest political group in the European Parliament, the EPP has close ties to many Commissioners and Commission staff. The party can engage in informal lobbying through meetings, letters, and other communications to make its position known and urge the Commission to take a certain course of action. And remember, although we don’t yet know who the responsible Commissioner would be for Directorate General for Justice and Consumer (DG JUST), into which portfolio the CSDDD sites, we do know that Ursula von der Leyen herself is EPP. So, we might expect some rather effective and high-level sympathy and lobbying by the President of the Commission herself. It would get even more interesting for the EPP – and potentially life-threatening for the CSDDD - if the Commissioner for DG JUST turns out also to be from the EPP.
2. Questioning and Hearings: The European Parliament has the power to hold hearings and ask questions of the Commission. The EPP can use these tools to publicly pressure the Commission and raise doubts about the CSDDD implementation. There are at least 4 Parliamentary committees that could be used to question the CSDDD; the EPP having of course members in all. If the EPP can build a bloc of the same mind, then we might see this format for halting the CSDDD heavily used, and effectively so.
3. Threatening Non-Cooperation: While not an explicit threat, the EPP could imply that it may be less cooperative on other Commission priorities if it does not get its way on the CSDDD. However, this would be a risky strategy - borderline extortionate - that could backfire, and I would count this as unlikely.
4. Calling for a Delay in the Work Program: The EPP can make "halting" the CSDDD a priority in the next Commission work program, but the Commission is not legally bound to follow through.

However, I would opine that the legality and effectiveness of several of these tactics are questionable:

• The Commission is (supposed to be) independent from political pressure and act in the EU's general interest.
• Outright delaying or deprioritising an adopted directive would be difficult for the Commission to justify legally. Not impossible, but difficult.
• The Commission may be reluctant to bow to pressure from a single political group, especially on a high-profile issue like the CSDDD. But from a caucus or bloc? I wouldn’t venture to say at this point.
• The EPP would need to maintain pressure over an extended period to significantly alter the directive's implementation timeline.

Wrapping up, the EPP's options to halt or repeal the CSDDD are limited, if we assume that the next Parliament and Commission will continue with the same political momentum behind the EU's sustainability agenda as the previous Parliament. It is too early to say absolutely this will be the case but, as I mentioned earlier, the huge swing against the Greens says it is entirely plausible the wind will be taken from the corporate sustainability sails in this Parliament’s 5 years. Green is not the colour of the month.

Outright repealing the directive would likely require unanimous opposition from all Member States in the Council, which seems highly unlikely. As a result, if the EPP is serious, it is more likely to focus its efforts on halting the CSDDD's implementation through tactics such as influencing the European Commission's work program, delaying the implementing acts, advocating for a more gradual phase-in, and proposing targeted amendments.

These “chipping away” approaches – a salami strategy - may allow the party to slow down or undermine the directive's effectiveness, even if it cannot achieve a complete repeal. However, the EPP's ability to significantly alter or block the CSDDD will be defined by the new political landscape, including the more fragmented Parliament and the degree of support for the EU's sustainability agenda across Member States.

Commission leadership can influence the Commission’s prioritisation of the CSDDD, so EPP positional strength there could aid the Parliamentary EPP in committing to their manifesto. With all the foregoing in mind, it would be my assessment that companies should continue preparing to comply with the new due diligence obligations, as I do think that the EPP’s efforts are going to be slow to have impact on the agenda.

I expect there will be a continuation in the coming two years of big business and trade partners lobbying against the EU’s sustainability measures like the CSDDD, and including the Corporate Sustainability Reporting Directive (CSRD), the Carbon Border Adjustment Mechanism (CBAM), and the EUDR. But, despite all of these forces, I do optimistically predict the CSDDD, once it has navigated these further rough waters, is still poised to become an effective part of the EU's sustainability framework in 2 years. But the ride will be something to see.

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