In the context of the “Just and sustainable economy” package, the European Commission published on 23 February 2022 its Proposal for a Directive on Corporate Sustainability Due Diligence (CSDDD) 2.
The CSDDD’s objective is to ensure that respect for human rights and the environment are further embedded into corporate governance by imposing far-reaching due diligence obligations on the companies falling within its scope. Such obligations cover the whole supply chain of the concerned companies, namely their operations, the operations of their subsidiaries and of their (direct and indirect) business relationships. In addition, the CSDDD lays down rules for directors, making them responsible for putting in place and overseeing their companies’ due diligence actions and policies. Furthermore, the CSDDD adds on top of a sanction system a civil liability regime making companies potentially liable for damages if they fail to comply with their due diligence obligations.
There is no doubt that this legislative initiative is needed to ensure that an EU legal framework deals with the important objectives of the protection of human rights and the environment in business. However, many are the concerns raised by this proposal, especially in the current economic and geo-political scenario.
First, the Covid came. It is true that Luxembourg industry managed to remain active during the pandemic, though this was not without struggles and slowdowns, where border closures blocked workers and created lack of supply of products and components. When, finally, lockdown measures were eased, energy prices started running up and up to unprecedented figures. This development was aggravated by the Russian invasion of Ukraine. Rising energy prices as well as increasing food prices and continuing high prices for raw materials posed more and more difficulties to companies, also caused by disruptions in global transport connections. On top of that, the EU has tabled a set of reforms under its “Fit for 55”
package which are certainly posing additional harsh and expensive challenges to them.
It goes without saying that adding on companies’ basket another heavy package of unfeasible obligations can only aggravate this complex situation. It is therefore crucial that the competitiveness of EU companies is constantly taken into account in this delicate scenario and that the legislative works related to the CSDDD aims at:
imposing proportionate, workable and enforceable rules on companies to effectively contribute to sustainable business conduct,
ensuring uniform rules in all Member States and adequate standardisation tailored to the specific sectors as well as consistency with existing frameworks,
guaranteeing the necessary level playing field as regards third country competitors and not leaving them valuable market shares,
mitigating any elevated risks associated with the implementation of the proposal, such as additional price inflation, continuous serious disruptions in certain supply chains and more critical product shortages.
The co-legislators are called upon to roll up their sleeves and do a hard work guided by pragmatism and reasonableness and not only by political ideologies. The noble objectives of the CSDDD must be achieved, but in a way that is business-friendly which also means economy-friendly and, by extension, EU-friendly.