Last Wednesday 23rd February, the European Commission published its proposal for a Corporate Sustainability Due Diligence Directive (CSDD). This is a transformative step forward to ensure that economic activities tied to the EU single market are conducted in a responsible manner. The PRI responded to the initial public consultation from the European Commission on Sustainable Corporate Governance in February 2021.

The PRI welcomes the due diligence obligations, particularly where aligned with international standards as the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises. There is a clear focus on harm reduction including consultation with stakeholders, collaboration with partners, capacity building in relation to SMEs and companies based outside the EU; and efforts to ensure accountability and consequence for noncompliance. This will support investor’s sustainability assessments, enhance risk analysis and processes for impact mitigation, and provide greater understanding of company operations, throughout the value chain. It will enable responsible investors to conduct better-informed engagement with investees, to respect human rights and give due consideration to environmental issues.

However, to ensure a positive impact throughout the value chain, and to enable investors to better manage their own exposure to sustainability issues, some improvements will be needed.

• Increased coherency between the CSDD and EU sustainable finance legislation is essential...
• The scope of the file is insufficient and will leave gaps for investors...
• Some language and terms should be clarified to avoid inconsistencies in transposition...
• The coverage of whole value chain is necessary but co-legislators must be cautious about “contractual cascading”...
• The articles relating to directors’ duties should be reinforced...
• The link between variable remuneration and sustainability performance must be strengthened...