Promising yet flawed: EU Law on corporate sustainability faces key challenges
After lengthy negotiations, in December 2023 European legislators reached a provisional deal on the much-anticipated Corporate Sustainability Due Diligence Directive (CSDDD)...
This deal is welcome, and the law could have a seismic effect on business practices around the world... The new obligations have the potential to affect human rights on a global level in a positive way if companies engage meaningfully with the due diligence process, rather than resorting to “checkbox compliance”.
However, there are some critical omissions which could jeopardise the law meeting its objectives...
Following intense lobbying, the deal only requires the financial sector to do due diligence on its own operations and its supply chain, rather than being required to consider the impacts of investments, loans, insurance or other financial services. As it is these areas where the financial sector has the most risk of negative human rights and environmental impacts, this is a critical shortcoming of the deal and a missed opportunity to include a key player in the transition to a more sustainable global economy...
The deal only requires companies to consider impacts arising from distribution, transport, storage and disposal, rather than impacts which arise from the use of products or services. These limitations mean that the EU’s flagship law on due diligence immediately lags behind the efforts of leading companies which are already conducting due diligence in the downstream. For some sectors, such as tech and finance, the most significant negative impacts occur in this part of the value chain meaning that these businesses are effectively excluded from the law...
[T]he deal only requires that companies make best efforts, without a strong enforcement mechanism to ensure that climate plans are implemented effectively...
[T]here are some limitations in the deal which could restrict litigation on environmental or climate change harms, missing another valuable opportunity to encourage companies to take effective action on the climate crisis...
In spite of its shortcomings, the deal is incredibly positive and has huge potential to have a significant impact...