If the EU fails to adopt the CSDDD, everyone loses out

After four years of intense negotiations, the European Union seemed to have reached a landmark agreement on the Corporate Sustainability Due Diligence Directive (CSDDD) last December. This directive obliges large companies to identify, mitigate and, where necessary, remedy actual and potential adverse impacts on the environment and human rights for the value chains in which they operate. However, due to obstructions led by Germany, severe concessions have been made to the agreed proposal of last December. With a final vote scheduled this week for the last plenary sessions of the current Parliament, the adoption of the directive has become a true nailbiter. Should the EU fail to adopt the CSDDD, all parties will lose out.

In December 2023, the European Parliament and the Council reached an agreement on a proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). The directive would require large companies (500+ employees and a global annual revenue of € 150 million or more) to conduct human rights and environmental due diligence (HREDD) to identify and mitigate actual and potential environmental and human rights risks in the value chains in which they operate. Should such adverse effects occur, companies are expected to provide access to remedy in line with the UN Guiding Principles on Business and Human Rights.

Despite this agreement, however, formal approval by the Council was only achieved after making severe concessions in terms of the law’s scope of application: companies with 1000+ employees and a global annual revenue of € 450 million or more. As these concessions were unilaterally adopted by the Council, it remains yet to be seen whether the Parliament will swallow these modifications. While the CSDDD certainly is no panacea for all supply chain woes, the European Union itself, as well as corporations, consumers and workers, lose out without the directive.

European Union will lose out

Should the EU fail to adopt the CSDDD, it would undermine the legitimacy of the so-called “trilogue” procedures by which the three main bodies in the EU come to agreements. Most European lawmaking follows the rules of the Ordinary Legislative Procedure (OLP) in which a legislative proposal initiated by the European Commission is followed by amendments from the Parliament and the Council. In this process, often a “trilogue” will be held to reach a provisional agreement between the Parliament and the Council, mediated by the Commission. While the trilogue outcome is an informal agreement, the formal adoption after trilogue agreement is usually a formality. By obstructing the adoption of the CSDDD after trilogue agreement was reached, the Council last month undermined both its own credibility as well as that of the EU’s legislative procedures in general.

This also undermines European values, which are deeply entrenched in human dignity, freedom, equality, and human rights. The CSDDD is directly related to the protection of the rights of workers and local communities all over the globe, where they are affected by the activities of big European corporates. Abandoning the CSDDD would be a stain on these European core values, which are grounded in Article 1A of the Treaty of Lisbon.

As a consequence, the EU risks severely undermining the union’s negotiating power on these important topics when conferring with other countries whose regard of human rights is more precarious. As an expert of the European think-tank CEPS has argued, ‘’in a tense geopolitical context, Team Europe’s values-based offer to the world justifies its wider mandate in sustainability policy’’. Indeed, not following through on the CSDDD would deflect from the Union’s moral leadership and could undermine the EU’s authority on sustainability issues in global geopolitics.

European corporations will lose out

Those who think that corporations are merited by a rejection of the CSDDD stand to be corrected. Rather than being freed from responsible business requirements, the European private sector will (remain to) be subjected to a complex jigsaw landscape of national due diligence policies. While France and Germany already have implemented national due diligence regulations, parliamentary legislative proposals are put forward in Austria, Belgium, Denmark, and the Netherlands. In addition, CSOs have initiated legislative proposals in Finland, Italy, Ireland, Luxembourg, Spain, and Sweden, as mapped by the Business & Human Rights Resource Centre. No wonder that the CSDDD proposal is met with large support from the private sector, according to the Environmental Justice Foundation, Business and Human Rights Resource Centre, VOICE Network, and the World Business Council for Sustainable Development.

European consumers will lose out

Currently, consumers who wish to buy responsible products on the European internal market are subjected to a plethora of voluntary certification schemes. Logos on products such as those from Fair Trade, Fair Wear Foundation, and Rainforest Alliance should guide European consumers in purchasing sustainable goods and commodities. However, the efficacy of certification schemes is contested. As highlighted in an earlier expert view, certification alone does not suffice to guarantee socially and environmentally sustainable production, as evidenced by Profundo's research in 2018 and 2020.

In this wild certification jungle, characterised by imperfect information, it is difficult for consumers to navigate their way. To aid the EU public, the Parliament has adopted a new anti-greenwashing law, setting out to ban the use of environmental claims without providing adequate proof to back those claims. However, the anti-greenwashing law only focuses on environmental sustainability claims. No similar policy frameworks exist for social sustainability, and while EU institutions last month reached a trilogue agreement on a ban on products made with forced labour, other human rights risks are not addressed by the regulation, such as those related to freedom of association and the right to a fair income or the right to Free, Prior and Informed Consent (FPIC), to name but a few.

With European Corporate Sustainability Due Diligence rules, EU consumers can be assured that goods and commodities on the internal market are produced in a way that identifies, mitigates, and remedies environmental and human rights risks throughout production networks. In this way, the CSDDD helps to shift the responsibility of ensuring the sustainability of products from consumers to corporations, where it belongs.

Workers in global value chains will lose out

Most importantly, if the EU fails to adopt the CSDDD, workers in global value chains will lose out. Time and again, Profundo research has pointed towards the necessity to perform effective HREDD to identify violations of the rights of workers and local communities in global supply chains:

·?????? In July 2022, Profundo research on human rights controversies in the extractive industries indicated the need for binding HREDD legislation at both the Dutch national as well as European level;

·?????? In April 2023, Profundo experts explained how ten years after the collapse of the Rana Plaza, labour conditions and worker wages have little improved;

·?????? In November 2023, Profundo research explored the toxic legacy of Glencore’s footprint in Colombia & Peru, disgracing collective rights of indigenous people and severely contaminating water sources with toxic heavy metals;

·?????? In January of this year, a case study on human rights impact assessments in the berry sector ?in Huelva, Spain, underlined that companies ‘’should be required to conduct meaningful engagement with rightsholders to mitigate negative impacts’’, underpinning the need of binding legislation on human rights and environmental due diligence.

This list is far from exhaustive, but it serves to illustrate how vital binding HREDD is to safeguard the rights of peoples all over the world who are in one way or another involved in the production of the goods and commodities that are being consumed on the EU market.

No panacea

To be sure, the CSDDD would not be a panacea for all supply chain woes. In an earlier expert view, we wrote about the shortcomings of the CSDDD proposal including ‘’its?gender-blindness [and]?its failure to adequately consider?vulnerable rightsholders’’. Notably, with respect to the financial sector, the current proposal only covers the upstream value chain related to financial institutions’ internal operations. This means that their core activities of providing financial services currently fall outside the scope of the directive. Additionally, in response to the obstructions in the Council last month, the scope of application is now limited to cover only the largest businesses operating on the EU market.

Nonetheless, it is crucial that the Parliament will adopt the legislation later this week. With European elections on the agenda for June, and a far-right tide rising in Europe, we should not take for granted this window of opportunity for installing mandatory HREDD. Despite the shortcomings of the current proposal, the alternative - no directive on corporate sustainability due diligence - would certainly be worse for all parties involved.

For further information, please contact Debbie Schepers, Policy Researcher at Profundo, [email protected]

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(Photo: Marius Oprea on Unsplash)