Comments on the EU Commission proposal for a Corporate Sustainability Due Diligence Directive (CSDDD)
Submitted 24. May 2022
By Sune Skadegaard Thorsen, Attorney at Law at GLOBAL CSR
GLOBAL CSR appreciates for the opportunity to provide feedback on the proposed Corporate Sustainability Due Diligence Directive (CSDDD). During our 26 years of practice in business and human rights we appreciate that business need a level playing field to ensure that commercial activity do not hamper, but contributes to, social sustainability. In the current climate and bio-diversity crisis it is equally important that businesses diligently manage their adverse impacts on environmental sustainability and contribute to finding sustainable solutions. Finally, having a global financial system building on market economies require that business activities are undertaken in a manner that do not harm economic sustainability. This last element appears not to be part of the CSDDD.
Having worked closely with businesses over decades, GLOBAL CSR realises that voluntary initiatives may enable some change; however, obviously not in a scale that will enable sustainable development. To date few businesses have taken the lead and have made the necessary investments in systems and capacity development to demonstrate – and document – responsible business conduct. Before 2011 businesses yearned for solid ground for their efforts in achieving their social license to operate. Hence, when the former UN Secretary General’s Special Representative on Business and Human Rights, late Prof. John G. Ruggie, from 2005 to 2011 solved the gordian knot of defining a global authoritative minimum management standard for how business should respect human rights, this work was not only unanimously endorsed in the UN, but highly appreciated by businesses.
The UN Guiding Principles on Business and Human Rights (the UNGPs) from 2011 represented the first globally agreed corporate management standard from the UN ever. As highlighted by Prof. Ruggie during his mandate human rights forms the bedrock of social sustainability; and his mandate was restricted to cover social sustainability only. When the OECD in late 2010, based on the draft of the UNGPs, decided to update the OECD Guidelines for Multinational Enterprises (hereinafter referred to as the OECD), the organisation turned to Prof. Ruggie, who wisely advised to apply the carefully drafted UNGPs, Pillar 2, word by word for the OECD update. Hence, the UNGPs forms the source of the OECD, although the OECD update chose to apply the carefully drafted system for managing impacts on the key elements of social sustainability to include adverse impacts on environmental and economic sustainability as well.
Whereas the OECD are voluntary by nature, the UNGPs, as a new construct in international law, is more ambiguous. UNGPs Pillar I, the State Duty to Protect, represents the authoritative interpretation by the UN of existing hard law obligations on member states. Hence, when it is argued that UNGPs are ‘soft law’ there is an important caveat to this proposition; that member states under existing international human rights hard law obligations are bound by the authoritative interpretation of such obligations offered by the UNGPs. UNGPs Pillar I clearly expect states to regulate businesses with their jurisdiction or territories the ‘respect human rights’ as defined by Pillar II.
With the proposed ‘Corporate Sustainability Due Diligence Directive’ (the CSDDD) the European Union has taken laudable steps to ensure that member states meet their existing obligations under international human rights law. Appreciating the Green Deal and the urgency in addressing environmental degradation, not least in relation to climate change and biodiversity, it is applauded that the CSDDD also set out to establish mandatory environmental due diligence requirements as defined by the OECD. However, GLOBAL CSR is curious, why the EU, in regulation that deals with sustainability, refrained from including economic sustainability, i.e., the requirement to establish management to prevent or mitigate risks of adverse impacts to economic sustainability (anti-corruption, anti-trust, fraud, embezzlement, tax evasion).
Considering that the UNGPs form the global minimum standard for responsible business conduct, the initiative by the EU Commission holds promising perspectives considering the economic importance of the EU market and its corporations. However, it is equally important for the EU to fulfil such potential, that the EU does not deviate too drastically from the globally agreed standard. Whereas all states have agreed to the definitions and requirements to businesses to respect human right as outlined by the UNGPs, the EU may well short circuit the positive, although nascent, developments that we have noticed internationally, if the EU seek to push or alter the definitions and scope envisioned by the UNGPs. Furthermore, deviations may have severe consequences for the ‘principled pragmatism’ under which the UNGPs were presented by Prof. Ruggie in 2011.
In our analysis of the proposal for a CSDDD, GLOBAL CSR is pleased to ascertain that the businesses, that we have advised in implementing the UNGPs/OECD over the past ten years will be able to document both governance and due diligence as expected by the CSDDD up to 90%. The remaining 10% represent elements where the EU, in our opinion, propose formal requirements that extend beyond the requirements of the UNGPs/OECD and that may represent a host of legal uncertainties for businesses. In brief, these areas are foremost: Extraterritorial civil liability, where businesses are merely linked to adverse impacts; requirements to list ‘established business relationships’; requirements to contract clauses with such business relationships; and requirements to the ‘Due Diligence Policy’.
GLOBAL CSR has followed closely UNGPs implementation efforts by both large and medium-sized companies over the past decade. Whereas many companies claim to implement the UNGPs, we find that many such companies may have some way to go still. The requirements from the UNGPs to conduct and document regular operational-level human rights impact assessments is met by very few companies only.
The practice observed with many multinational enterprises to conduct bi- or even tri-annual human rights assessments, whereby the companies seek to identify the ‘salient’ human rights risks across all their global operations and value chains, may enable such companies to deal with some inherent risks to their business model. GLOBAL CSR appreciates that in the early years following the global endorsement of the UNGPs, such assessments could serve the purpose of making the companies aware that human rights were relevant to their business. However, it should be underlined that such assessments do not fulfil the requirements for human rights due diligence under the UNGPs.
Should the EU Commission find interest in engaging with companies that display best practices in conducting regular operational-level social, environmental, and economic sustainability due diligence (internally) and require due diligence from their business relationships, the EU Commission is welcome to reach out to the Nordic companies mentioned in Annex A, below.
GLOBAL CSR is particularly pleased that the EU Commission in the CSDDD proposal abandoned the challenging approach that was represented in the EU Parliament’s draft directive, that businesses should map and/or disclose their full value chain. Such requirement would represent a major waste of resources and threat to economic sustainability for SMEs forming part of value chains, confer our recent discussion paper on the subject.
Overall GLOBAL CSR in brief applauds the following features of the CSDDD:
- Claims full alignment with the UNGPs/OECD
- Requires Due Diligence – also internally – for all companies in scope
- Has abandoned ‘mapping the value chain’
- Establishes accountability measures:
- Penalties proportionate to turnover
- Civil liability for impacts
As addressed above and in line with the comments from several other experts in the field GLOBAL CSR strongly recommends that the CSDDD is further aligned with the text and intentions of the UNGPs. For this purpose, GLOBAL CSR notes that the terminology and definitions applied by the CSDDD in central areas deviate from the UNGPs.
Our comments, that shall not be viewed as exhaustive, centre on seven such deviations:
- The Scope is very limited: >500 employees and > 150 MEUR turnover
- (4 years) >250 / > 40 MEUR – high impact sectors (textiles/agriculture/extractives)
- Conflates own due diligence (cause/contribute to) with due diligence in business relationships
- Conflates UNGPs Policy Commitment requirements with Due Diligence Policy requirements, including challenges in relation the concrete requirements to such ‘Due Diligence Policy’
- Has no clear use of adverse impacts, severe adverse impacts, gross adverse impacts as defined by the UNGPs.
- Introduces that business (beyond contributing to gross impacts) can ‘violate’ human rights.
- These deviations lead to the challenge that the CSDDD conflates due diligence (management process) with legal compliance.
- Introduces responsibility to provide access to remedy, where a company is merely ‘linked to’ adverse impacts and adds civil liability.
- 58 leaves the challenge of dealing with liability, where companies are merely linked to adverse impact to national law.
- Misses the explicit requirements from the UNGPs for communication of the results of due diligence to, at minimum, impacted stakeholders, and business relationships.
- Introduces the term ’Established Business Relationships’ departing from the UNGPs terminology of crucial- and non-crucial business relationships.