The Corporate Sustainability Due Diligence Directive and the Right Way Forward

One of the panels during the Business Human Rights Lawyers Association annual conference in London on February 4 and 5 addressed the developments around and transposition of the Corporate Sustainability Due Diligence Directive (CSDDD). Five high level experts from various backgrounds, Heidi Hautala, Gabrielle Holly, Siobhan McInerney-Lankford, Martijn Snoep and Michaela Streibelt, have provided their insights on the topic. The session was moderated by Martijn Scheltema.

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Considering the ambitious Green Deal of the previous European Commission sustainability perspectives and laws in Europe are shifting like a tide. The current Commission aims to enhance competitiveness of Europe. Apparently, it feels too stringent sustainability rules hamper competitiveness. On the other hand, the CSDDD was designed to level the playing field in Europe and enhance the internal market. One would expect a level playing field also enhances competitiveness. Moreover, competitive advantages derived from human rights or environmental abuse seem to be at odds with the European approach and fundamental rights. However, the suggested changes to the CSDDD may sustain the current unlevel playing field in Europe. Diverging due diligence laws have been implemented, which do reach beyond the first tier of suppliers and liability for insufficient due diligence (beyond the first tier) is accepted in various legal systems in member states. Larger companies governed by the CSDDD usually operate throughout Europe and will feel the consequences and financial burdens of such unlevel playing field. Beyond this, other regulations like the Deforestation Regulation, Batteries Regulation, Conflict Minerals regulation and Forced Labor Regulation, are or will require due diligence (beyond the first tier) as well. Finally, many companies undertake due diligence on a voluntary basis already.

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Heidi Hautala and Gabrielle Holly have discussed the current unprecedented situation around the CSDDD. The directive has come into force on 25 July 2024, has not been transposed yet and should be transposed by 26 July 2026, but the European Commission is already proposing to adapt it in connection with its Omnibus proposal as suggested in the compass it has published to enhance competitiveness of Europe. The current process around (very limited) consultation and development of the Omnibus proposal seems to be at odds with the EU Better regulation framework. Amongst other things the compass suggests simplification and lowering of burdens around sustainability due diligence and reporting. The Omnibus proposal will, as things stand now, encompass revision of the CSDDD, the Corporate Sustainability Reporting Directive and the Green Taxonomy. The Sustainable Finance Disclosure Regulation will because of the Omnibus development be adapted in a later state (presumably the third quarter of this year). To date it is uncertain which adaptations will be made to the CSDDD, but various changes have been mentioned. It is suggested that the scope may be changed, due diligence may be limited to first tier suppliers, climate change plans may be removed, as well as the liability provision. Furthermore, implementation may be postponed. However, some member states have started the transposition process of the CSDDD and may continue to adhere to their already communicated timetables. This creates unwarranted legal uncertainty in Europe and may be disadvantageous to companies which are preparing for the CSDDD.

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Although it has to be seen how the CSDDD will be adapted the Danish Institute for Human Rights has published a guide on transposition. It’s core recommendations for the transposition process are to ensure that transposition laws: clarify core due diligence concepts to ensure that they are accurately captured in line with the expectations in the recitals and are as far as possible aligned with the UNGPs and OECD Guidelines; and resolve ambiguities in the language of the Directive (e.g., in respect of the material scope, the civil liability regime and the due diligence required on downstream impacts) including those which arise from local law translations. The guide also offers recommendations for how National Human Rights Institutions and other stakeholders should engage with the design of Supervisory Authorities and implementation guidance.

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Regarding public supervision Martijn Snoep and Michaela Streibelt discussed supervisory strategies. It was noted that supervisory authorities may proactively, even before all transposition laws are in force and all supervisors have been appointed and established, may informally gather, discuss and align their policies. This assists meaningful and effective implementation of European legislation. As an example of such proactive collaboration the implementation of the Digital Service Act was elaborated. Furthermore, it was emphasized that supervision should not only focus on sanctions, but also on capacity building with the companies under supervision. In Germany public supervision is in place in connection with the German supply chain act. The lessons learned in Germany have been discussed. It was emphasized that the capacity building or helpdesk function to support business as well as guidance plays an important role in improving corporate due diligence practices of companies. That said, it was observed that several companies still implement the German law in a rather formalistic manner.

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The last part of the panel addressed the work of the EU Agency for Fundamental Rights (FRA) on business and human rights and in connection with CSDDD and broader human rights due diligence. Siobhán McInerney-Lankford elaborated FRA’s role in supporting research on core elements of the CSDDD including legal and policy coherence, the process of HRDD, the need for reliable human rights data as well as FRA’s role in supporting the development of guidance and its future support to supervisory authorities.

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