Shift – the leading non-profit centre of expertise on the UN Guiding Principles on Business and Human Rights (UNGPs) – welcomes the provisional political agreement reached this week between the European Commission, Council and Parliament on the final outline of the EU Corporate Sustainability Due Diligence Directive (CS3D)...

Throughout the debate, Shift and many other stakeholders have CONSISTENTLY HIGHLIGHTED key features of a final Directive that are central to alignment with the international due diligence standards – the UNGPs and OECD Guidelines for Multinational Enterprises. The positions of the institutional negotiators have increasingly built on those standards as the process has moved forwards. This political agreement now ensures that the new due diligence duty will be grounded in a risk-based approach...

The duty will be enforced through both civil liability – which will require a causal connection between the company’s actions or omissions and a harm – and administrative supervision. The agreement provides that the Directive will include access to justice measures in relation to representative actions, limitation periods and disclosure of evidence. It also provides that companies will be required to put in place climate change transition plans that align with the Paris Agreement.

EU Member States and the Commission are expected to adopt accompanying policy measures and issue authoritative guidance. These should draw on the past decade of interpretation and practical implementation of the international standards to ensure that the CS3D delivers on its promise of better outcomes for affected stakeholders and the environment.

However, there are some critical gaps between the Directive and the UNGPs where there is a need to improve alignment in the coming years. In these areas, it will be important that companies continue to look to the international standards to inform their approach. In particular:

• while the duty covers all impacts arising in a company’s ‘upstream’ business relationships (including design), it covers some but not all ‘downstream’ impacts. It does cover those arising from distribution, transport and waste management, but impacts arising from sale are not explicitly covered;
• while the duty applies to companies across all sectors of the real economy, it will not apply to any downstream business relationships in the financial sector. However, a review clause requires this to be revisited in due course and financial institutions will be expected to adopt climate plans;
• while the duty will apply to the largest companies headquartered or operating in the EU, and additional companies in some higher-risk sectors, this is only a sub-set of the companies that are already required by new EU reporting standards to disclose how they are managing their sustainability impacts.

It will be essential for the EU to revisit these aspects of the scope of the legislation in the coming years; at the same time, they do not negate the significance of the political agreement on the core of the new due diligence duty.