Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Due-diligence directive—key issues for final negotiations

Johannes Blankenbach and Saskia Wilks 14th June 2023

Corporate due diligence is not just about auditing. Key to sustaining people and planet, ambition is required.

diligence,corporate,directive
Underage or child labour dying garments and textiles by hand in baths of chemicals in Bangladesh—corporate purchasing practices in value chains are a critical issue (StevenK/shutterstock.com)

On June 1st, the European Parliament adopted its position on the landmark legislative initiative for an EU Corporate Sustainability Due Diligence Directive (CSDDD). Despite last-minute attempts to derail a cross-party compromise arrived at in the Committee on Legal Affairs (JURI), its report passed with a substantial majority.

MEPs thus approved a text which builds on the strengths of the European Commission’s original proposal while addressing some of the critical weaknesses in this draft and that generated by the Council of the EU. It is an important signal for a due-diligence law with the potential to insist companies do more to deliver shared prosperity and climate security.

Now all three EU institutions have reached their respective positions—the commission had published its proposal in February 2022 and the council its position last December—‘trilogue’ negotiations are under way among them and we could see a final text towards the end of this year.

International standards

The law is an historic opportunity to place sustainability and human rights at the heart of how companies and investors, based or active in the EU, do business. The file has however been under considerable political and industry pressure from the onset.

This has led to various departures, especially by the commission and council, from the internationally accepted standards: the United Nations Guiding Principles on Business and Human Rights and the (recently updated and strengthened) Guidelines for Multinational Enterprises from the Organisation for Economic Co-operation and Development. The parliament’s text goes a long way towards better alignment with these standards. This has been a key ask from many companies and investors and sets a more constructive tone for the trilogue. Yet serious loopholes remain.

Tangible change for people and planet must be the measure of success. Access to remedy and justice for those affected by corporate harms is a key indicator. And all three proposals foresee civil liability for damages resulting from inaction on due diligence, as well as non-judicial remediation and compensation, all of which still needs to be strengthened. The parliament’s position reduces some of the obstacles to gaining access to the mechanism for civil liability, including a limitation period of at least ten years to avoid expiry of a court’s jurisdiction.

The trilogue negotiations must address a remaining barrier to justice, by rebalancing the burden of proof in civil cases. As long as the onus remains wholly on victims, it will continue to be extremely hard for them to seek justice before European courts, as the information they need is often retained by the company. The legal, financial and emotional struggles victims face to bring legal cases make it always a last resort.

Providing effective access to justice would not bring a flood of vexatious lawsuits, as some fearmongering business associations suggest. It is rather a basic principle of the rule of law, which must not be undermined by any future ‘safe harbours’, such as treating membership of certain initiatives as compliance. Nor should it fail because of persistent hindrances—such as in the case brought by families of perished Pakistani textile workers which judges declared expired before even starting, or that of widows of executed Nigerian community leaders who withdrew their appeal after over 20 years of (unsuccessful) litigation.

Stakeholder engagement

Listening to the voices of affected workers, communities and human-rights and environmental defenders is crucial to identifying and assessing risks along value chains, defining and implementing the right measures and providing appropriate remedies. The international standards are clear that effective, safe and good-faith engagement with affected stakeholders is a core ingredient of due diligence—even moreso with the reinforced OECD guidelines.

The commission and council included initial points on stakeholder engagement but it appeared peripheral where it should be central. In contrast, MEPs voted for a stand-alone article mandating such engagement, with protection from retaliation, throughout the due-diligence process. This should be retained and built on.

Explicit inclusion of workers in value chains—not just formal employees—in the definition of ‘affected stakeholders’ was an overdue improvement introduced by the parliament, as well as mentioning worker representatives and trade unions, which the council also did. Taking the best definitions and provisions from the council and parliament texts should make for a strong consensus around the participation and protection of human-rights defenders too. Since 2015, we have recorded more than 4,700 attacks against them and they should be expressly defined as affected stakeholders in the final law.

Paradigm shift

Over a decade ago, the UN guiding principles and OECD guidelines established a paradigm shift: sustainability due diligence is about addressing risks to people and planet, not just to companies. Yet there has been a tendency in policy and legislative discussions to take what seems/is perceived to work best for business as the starting point.

This includes conflating due diligence with a mechanical ‘policing’ of suppliers through social audits. This has proved ineffective in tackling abuse and is too clumsy for full-value-chain due diligence, as many companies can confirm. The stances of all three EU institutions include elements that go beyond such box-ticking solutions but there is excessive confidence in top-down, contractual cascading and auditing in the commission and council proposals, which the parliament sought to address. For instance, the parliament’s text includes adjustments to problematic purchasing practices and business models, among a broadened, non-exhaustive set of appropriate measures. As our own research shows, exploitative purchasing practices and corporate strategies can be a key driver of abuse from the very top of supply chains.

Vested interests sought exemptions from the law, particularly for climate-related obligations (where loopholes persist in the parliament text, despite improvements), directors’ duties, and the due-diligence obligations and accountability of financial services. Board involvement is vital for going beyond box-ticking—directors’ oversight of due diligence should therefore be explicitly included. (The removal of a related article from the JURI compromise was the only successful conservative amendment in plenary.)

On finance, the council, mainly driven by France, suggested mandatory due diligence for the sector should be entirely up to member states. The parliament reached a cross-party (if imperfect) compromise to keep finance in, including further outlining requirements for asset managers and institutional investors. Considering the key role financial actors, as the owners of capital, can play in driving abusive or responsible business models and conduct, co-legislators must not give in to lobbying and instead secure a true European level-playing field, within and across sectors.

The same holds true for continuous attempts to limit the parts of the value chain companies need to include in their due diligence, notably the downstream use of products and services. The council proposal is the most restrictive in this regard. The directive’s importance in holding to account high-risk sectors such as technology downstream cannot be overestimated.

Historic moment

Europe is at an historic moment in shaping markets fit for the future. Corporate abuse remains a curse undermining the rights of workers and communities, hollowing out commitment to democracy and threatening action on climate. Since the start of this year alone, the Business & Human Rights Resource Centre has approached European companies more than 200 times in response to allegations of abuse.

Meanwhile, our benchmarks continue to highlight glacial progress on due diligence by most companies, as well as a gap between corporate policy and real impact. Climate change is an imminent threat but Shell just said more oil and gas investments were needed to increase shareholder value. And human-rights and environmental harms in the sourcing of transition minerals endanger the urgently needed green transition.

The CSDDD is no panacea, but it can go a long way towards ensuring a more sustainable economy and planet. EU legislators should seize this opportunity and produce the strongest possible law.

Johannes Blankenbach
Johannes Blankenbach

Johannes Blankenbach is senior EU/western-Europe researcher and representative at the Business & Human Rights Resource Centre in Berlin. Previously, he was a researcher at the (now) German Institute of Development and Sustainability (IDOS) in Bonn.

Saskia Wilks 1
Saskia Wilks

Saskia Wilks is EU/western-Europe researcher at the Business & Human Rights Resource Centre, based in Belfast. She carries out research on the human-rights impacts of European companies and related policy and legislative developments at national and EU levels.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u421983ae 3b0caff337bf 0 Europe’s Euro Ambition: A Risky Bid for “Exorbitant Privilege”Peter Bofinger
u4219834676b2eb11 1 Trump’s Attacks on Academia: Is the U.S. University System Itself to Blame?Bo Rothstein
u4219834677aa07d271bc7 2 Shaping the Future of Digital Work: A Bold Proposal for Platform Worker RightsValerio De Stefano
u421983462ef5c965ea38 0 Europe Must Adapt to Its Ageing WorkforceFranz Eiffe and Karel Fric
u42198346789a3f266f5e8 1 Poland’s Polarised Election Signals a Wider Crisis for Liberal DemocracyCatherine De Vries

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641