The European Parliament, Commission, and Council reached a ‘ground-breaking’ political agreement last week on new Corporate Sustainability Due Diligence Directive that once adopted will create ‘new and far-reaching mandatory human rights and environmental obligations for EU and non-EU companies operating in the market.
For the first time in political history, companies will be required to adopt and put into effect a plan ensuring their business model and strategy are compatible with limiting global warming to 1.5C.
Representing a significant shift from what have so far been voluntary only frameworks, the CSDDD will impose new mandatory obligations. In particular, companies in scope will be required to identify and prevent, bring to an end, or mitigate the adverse impacts of their activities on human rights. This includes child labour and exploitation of workers, and pollution and biodiversity loss.
The CSDDD will apply to companies’ own operations, their subsidiaries, and their upstream and downstream business partners.
Failure to comply risks fines of up to 5% of global turnover, claims under a new civil liability regime and potential disqualification from participating in public tenders.
However, while the directive will help transition to net zero, some groups – including WWF – have chastised the requirements on due diligence for failing to meaningfully address corporate abuses on the environment, labelling the agreement ‘disastrous’ for allowing the financial sector ‘to keep violating human rights and harming the environment.’
“Today is a dark day. Despite the historic opportunity, the negotiators agreed that financiers must be allowed to freely violate human rights and worsen the already poor health of the ecosystems,” said Uku Lillevali, sustainable finance policy officer at WWF European Policy Office.
“The deal is an insult to people and communities suffering from the severe harms that EU financiers are contributing to globally. By fully exempting financial activities from due diligence obligations, the agreement completely ignores finance as a key driving force of today’s economy, thereby severely weakening the impact of the Directive.”
While the deal foresees that managers of larger firms must be financially incentivised to implement the transition plan, it offers no public enforcement to ensure the effecitiveness of the implementation, leaving, says the WWF, ‘room for grave greenwashing and suboptimal performance.’
The main point of criticism targets the definition of impact areas such as climate change, biodiversity, and pollutions as ‘violations of a narrow set of international treaties,’ which according to WWF exclude some of the fundamental agreements, including the Paris climate agreement.
‘It means firms can ignore emissions outside the mid- to long-term transition plans in their daily decisions,’ argues WWF.
“The list of conventions cover only a fraction of all possible adverse environmental impacts. Even so, most of these are already restricted or banned, begging the question of the added value of the due diligence law,” said Uku.
“Drastically restricting the environmental scope makes it difficult, if not impossible to address, for instance, air, water, or soil pollution from chemicals used in the fashion, textile, mining, agriculture, or other industries.
“This will also create an unfair playing field as some sectors are more affected than others, and add inconsistencies with sustainability reporting laws, increasing the burden for companies. This is another issue, among many, which must be reviewed and tightened as soon as possible in the next Commission’s mandate.”
