Proposal for a Directive on corporate sustainability due diligence (CSDD) - BusinessEurope comments

Key messages

• Business supports the aim to have an EU due diligence framework that is effective, workable, creates a level playing field and does not hold European companies responsible for factors beyond their control. Unfortunately, the current proposal would not deliver on these goals.
• By extending the scope of the legal obligations to the whole value chain including the financial sector (triggering spill over-effects), expanding disproportionately civil liability, and unjustifiably mixing due diligence with corporate governance, the proposal sets an inefficient system based on unrealistic expectations on companies harming their competitiveness. In line with the most ambitious national laws in the EU, due diligence obligations should not be extended to downstream activities such as customers and users and should remain primarily focused on first-tier direct suppliers.
• Better regulation principles must be upheld. The Commission’s own Regulatory Scrutiny Board pointed to serious flaws in the impact assessment, twice, which have not been appropriately addressed upon publication of the proposal.
• There needs to be a shift from the apparent punitive nature of the provisions to a more engagement- and learning-oriented one which recognizes that companies want and can be catalysts for the positive sustainability transition by building a due diligence system, within the limits of a supply chain approach on a risk-based model. A system of “stay and behave” rather than “cut and run” must be incentivised.
• The proposal needs to target a better level playing field in its different dimensions. It leaves too much room for Member States to add-on, which could lead to a patchwork of rules undermining one of the initiative’s main objectives: fighting legal fragmentation. If we want European companies to remain competitive on a global arena, while at the same time enabling them to promote sustainability and human rights in an impactful manner, the framework needs to be more harmonised between Member States and ensure a better level playing field in relation with third-country companies.
• The material norms listed in the Annex which could be violated by adverse impacts, and make up a key element of the proposal, should be redrafted to make them applicable and to avoid mixing the role of states and companies.
• The Commission proposal includes a lot of complex, unwieldy, unclear and, to some extent, completely new terminology compared to existing international frameworks and guidelines (UN/OECD) that companies have worked with the last ten years. Legal certainty and a clear view on legal responsibilities and expectations are essential to enable companies to work for sustainability and keep applying a long-term perspective to their operations.
• Although small and medium-sized companies (SMEs) are formally not in the scope, they will be largely impacted in many ways which makes it paramount to get the framework right.
• References to flanking supporting measures and to sectoral schemes are welcomed but more emphasis, clarity and recognition should be given to these important tools.
• The proposed rules around a general directors’ duty of care rely on wrong premises and risk leading to unnecessary and adverse interference with national company law systems, breaching the principle of subsidiarity. These rules are neither justified by the Commission’s own impact assessment, nor do they fit a general due diligence framework.