EU due diligence could leave companies between a rock and a hard place

Decisive political negotiations on the EU’s Corporate Sustainability Due Diligence Directive start tomorrow

12 December 2023 - With EU co-legislators intending to close a deal on the Corporate Sustainability and Due Diligence Directive, BusinessEurope Director General Markus J. Beyrer said:

"We are still far from the workable and clear rules which EU businesses need to properly apply due diligence across their value chains, leaving companies between a rock and a hard place.

Once risks have been identified, companies will be obliged to terminate contracts with partners in value chains which diverts from UN principles and will be damaging for local communities in third countries. The solution to draw a list of reasonable exceptions would clearly be preferable.

The level of detail in the information European companies will have to require from their suppliers is not clear. This obligation can conflict with existing legislation in some third countries, like China. Companies could be subject to penalties and possibly criminally liable when conducting due diligence there. As a result, many businesses would be forced to withdraw from these key markets. This would jeopardise not only our competitiveness, but also Europe’s ability to access critical materials for our green transition and to address security concerns.

As it stands now, the EU will end up with 27 not 1 framework on due diligence leaving companies and authorities guessing which rules will apply in each situation."

BusinessEurope calls on EU legislators to:

• Ensure the rules are workable, more harmonised, and due diligence is done using a risk-based approach, following widely accepted international standards;
• Avoid making the EU a hub for mass litigation with unclear liability provisions and unrestricted litigation powers;
• Not interfere disproportionately in the fundamental principle of free enterprise, for example by micro-managing companies’ climate plans or remuneration policies;
• Ensure liability is triggered by the actions of companies and not the actions of others, and sanctions need to be proportionate.

European business continues to speak with one voice on this proposal, having issued key recommendations that are essential in this decisive phase of the process.