Last week marked a long-awaited milestone: On April 24 the EU Parliament approved the Corporate Sustainability Due Diligence Directive, commonly referred to as the CSDDD, legislation that will require certain EU and non-EU companies to conduct environmental and human rights due diligence across their operations, subsidiaries, and parts of their value chains. While there were challenges around reaching agreement, it is widely seen as a significant breakthrough as it will incentivize companies to address environmental and social risks before they become liabilities, and ultimately enable individuals, groups, and states to hold, if needed, businesses accountable for their adverse impacts. It is anticipated that the introduction of accountability, and the potential for civil liability, will have global implications for responsible business conduct.

The approval of the CSDDD has been positively received by the Business and Human Rights (BHR) community, despite prevailing critiques that it is a heavily “watered down” version of previous proposals. The UN Guiding Principles on Business and Human Rights (UNGPs) are the inspiration behind the CSDDD and reflect the first comprehensive legal framework outlining a global standard for preventing and addressing the adverse impacts of businesses. The compromise text negotiated by EU member states largely aligns with the UNGPs, however, there are some fundamental differences...

A few of the [...] discrepancies are a cause for concern, especially: (1) the limitation on the number of companies that fall within the scope of the CSDDD, and (2) the exclusion of downstream activities (especially where financial firms are exempt from conducting mandatory due diligence on their business partners). Given reliable and complete information is essential to investors seeking to make rights-respecting, sustainable investment decision-making, such carve-outs will impact investors seeking to meet their own due diligence responsibilities. Fortunately, since both these aspects are addressed in the review clause, subsequent insertion of these obligations is anticipated. Notwithstanding these concerns, the compromise text of the CSDDD is robust and largely aligned with the UNGPs. Consequently, it is indisputable that the CSDDD will have significant impacts on responsible business conduct and can be seen as a positive development with possible global implications.