As we enter crunch time for political agreements on the EU law on corporate due diligence, there is a need to avoid alarmism, rise above narrow national interests and thinly veiled political agendas, and focus on the actual purpose and logic for its introduction.
The negotiations on the EU Corporate Sustainability Due Diligence Directive (CSDDD) have been ongoing now for almost four years – the European Commission publicly committed to this back in April 2020.
Since then, there have been any number of events, briefings, statements and press coverage, as well as large numbers of businesses, investors and stakeholders across Europe expressing their support for this law. Indeed, many businesses and investors have already spent time and effort preparing for it to come into force.
Unfortunately, as we run out of time to find a deal before the European Parliament elections in June, this has created a dangerous space for the naysayers to emerge and disrupt years of careful negotiations and forging of consensus.
Why? Well, not because of what it is intended to do, but due to the misinterpretation of what some claim it might do. It is critical to address these misconceptions and dispel the myths.
Logical continuation
First, CSDDD is not a new concept, rather it is a logical continuation of the mainstreaming of the UN Guiding Principles on Business and Human Rights (UNGPs), whereby it was always foreseen that the UNGPs would be translated into national laws.
In addition, we have seen the successful development of the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct to give further detail for the practical application of supply chain due diligence.
World Benchmarking Alliance (WBA) benchmarks show there are already a significant number of the most impactful companies, on both sides of the Atlantic, that are already operating in the spirit of CSDDD.
This in itself is proof that shareholder value and stakeholder value are not mutually exclusive, and that companies are already recognising that embedding these due diligence processes into their operations is in fact consequential to their business success.
We have clearly passed the era in which upholding human rights or environmental standards was considered the sole responsibility of the state.
It has been recognised that companies impact the social and environmental fabric of our planet. For states to live up to their obligations, they must clearly outline how companies are responsible and accountable for how they contribute to these goals.
This balance between state duties and private sector responsibilities is often referred to as the “smart mix”. All CSDDD does is outline this differentiation of responsibility clearly, setting the baseline expectation that companies do no harm and helping close the corporate accountability gap.
Corporate governance rules
Coupled with this, it is important to be clear that CSDDD will not rewrite corporate governance rules, whether in the EU or elsewhere – these proposed measures were explicitly thrown out by EU members states at an early stage of negotiations.
CSDDD does not have the regulatory capacity nor mandate to alter local rules in far-off places. In that sense it should be viewed not as a threat to jurisdictional sovereignty, but rather as a response to the global nature of supply chains and the resulting global impacts of business.
Being subject to a law in any jurisdiction, in particular if you are headquartered or operating there, is the basis of a rules-based market.
So what will it do? CSDDD is not re-inventing the wheel. All of the globe’s major economies have signed up to implement both the UNGPs and OECD Guidelines, while both France and Germany have implemented national due diligence laws.
CSDDD will help them to fulfil these commitments, not rewrite the rule book. Companies and governments should think of it as codifying voluntary requirements to create a level playing field for sustainability considerations for companies and ensure fair competition.
At its core, this law intends to introduce a standardised level of legal expectations to make a company’s impact on people and planet consequential to its success, essentially enabling companies to contribute to fulfilling the Sustainable Development Goals. Again, this is not scary for any company currently living up to existing international standards.
Empowering governments
CSDDD is not a threat but a unique opportunity. It will empower all governments – EU and non-EU – to leverage the mandatory nature of the rules to push laggard companies and sectors to respect human rights and the environment.
Instead of looking at the perceived threat to the current order, people would be better served examining the future opportunities and beneficiaries.
To sum it up – is the CSDDD a silver bullet? No, but that was never the intention.
CSDDD is a vital step needed to empower governments, stakeholders and investors to hold companies accountable for their sustainability impact. It will empower and mainstream existing corporate sustainability efforts.
Therefore, our call to governments, and indeed the corporate community, is clear – if you care about sustainable business practices then you should care about making CSDDD work in the way it was intended and see it as the natural evolution of corporate accountability for human rights and the environment.
Rebecca DeWinter-Schmitt is associate director at the Investor Alliance for Human Rights
Richard Gardiner is head of EU public policy at the World Benchmarking Alliance
