EU Corporate Sustainability: Europe Takes the Lead as an Example for a More Sustainable Planet

SustainabilityESG

Mar 17

Despite many controversies, on March 15th, the CSDDD final compromise text was endorsed and if adopted by the European Parliament at its first reading will surely soon come into existence. CSDDD stands for Corporate Sustainability Due Diligence Directive and establishes a corporate due diligence duty for businesses. With the coming of these new rules businesses can no longer afford to ignore sustainability (people and the planet).

Companies till now could take responsibility for sustainability in a non-committal way. They could resort to vague self-commitments to sustainability for reputation and marketing purposes, without necessarily following through on their promises. Or they could commit to the United Nations Guiding Principles on Business and Human Rights for exercising human rights due diligence or the OECD Guidelines for Multinational Enterprises which extends the application of due diligence to environmental and governance topics. Rabobank e.g. (a prominent Dutch Bank) has come under fire for financing that has been linked to deforestation in Brazil, despite a self-proclaimed zero-tolerance policy on deforestation.

The purpose of CSDDD is to ensure that companies actively contributes to a sustainable economy and society through the identification, prioritisation, prevention, mitigation, make ending, minimisation and remediation of potential or actual adverse human rights and environmental impacts (including limiting global warming) connected with companies’ own operations, operations of their subsidiaries and their business partners in the companies’ chains of activities.

The "chain of activities" concept within the CSDDD is not applied across the entire supply chain but has limitations in its definition. For example, in the case of regulated financial undertakings, downstream business partners receiving their services and products are not included in the 'chain of activities'. Consequently, only the upstream portion of their chain of activities falls under the scope of the CSDDD.

Those negatively impacted by a company's failure to respect this obligation will have legal options available to them.

Directors will in addition have specific duties under the CSDDD. They will be responsible for setting up and overseeing the implementation of the due diligence processes and integrating due diligence into the corporate strategy.

Read the full draft legal text here.