Despite the longstanding and well-documented failure of social audits, certifications and related initiatives, the approach has so far largely evaded legal accountability. In the context of the EU Corporate Sustainability Due Diligence Directive (CSDDD), their role has come under renewed debate. What does this mean for due diligence practice and legislation?

In an effort to explore both alternatives to the model and the more comprehensive approach due diligence requires, Business & Human Rights Resource Centre and Enact Sustainable Strategies brought together a roundtable of experts from academia, civil society and business to discuss more effective ways to tackle value chain risks and impacts.

1. No reliance on auditing

The CSDDD must provoke best efforts to assess and address risks if it is to succeed. Existing analysis and emerging good practices in line with the international UN and OECD standards, including a risk-based approach, adjustments to purchasing and pricing practices, proactive engagement with affected rightsholders and worker-driven models, all recognise that a tick-box compliance approach based on audits fails to move the needle on human rights.

Nevertheless, current EU drafts to a varying degree risk cementing the failed audit approach. The European Commission and Council’s proposals in particular rely heavily on contractual assurances from business partners, third-party auditing and industry initiatives as prominent measures through which companies may implement their responsibility to respect human rights and the environment in their value chains. Our roundtable experts, however, were clear: no overreliance on audits in due diligence legislation.

2. MSIs cannot replace a company’s own responsibility

It is also vital that the final CSDDD takes into account the limitations of industry and multistakeholder initiatives (MSIs) in promoting genuine due diligence and remedy. All current proposals risk overplaying their role, albeit to varying degrees, which could lead to companies outsourcing their due diligence despite questionable effectiveness and accountability.

Standard-setting initiatives and certifications often rely on audits to verify compliance with a standard or set of criteria. Narrow standards and weak criteria focused on supplier compliance overlook root causes of abuse in global value chains. Research has also shown that industry initiatives by design fail to protect rightsholders and secure remedy. While the strongest initiatives may serve as learning, experimentation and relationship-building platforms, they can never replace genuine, ongoing due diligence by companies. A formal safe harbour shielding members of certain initiatives and certifications against civil liability for damages would maximise the design flaw, given not just the practical shortcomings but also inherent systemic limitations of initiatives. It would risk rendering the law meaningless and removing access even to existing remedies. Standard-setting bodies and initiatives themselves agree that they should not be used as a liability shield.

3. Moving forward: talk to rightsholders and tackle underlying causes

There is growing recognition of the importance of meaningful and safe stakeholder engagement, responsible purchasing practices and the pitfalls of overreliance on top-down policing of suppliers, including by many businesses. A tick-box, tier-by-tier compliance logic can also hinder a sense of shared responsibility in value chains and lead to flawed assumptions regarding the ‘impossibility’ of full value chain due diligence and presumed centrality of audits.

The European Parliament’s report, while not without loopholes, includes several improvements compared to the Commission and Council positions, such as a stronger emphasis on stakeholder engagement throughout the due diligence process. Unfortunately, it stops short of expressly recognising human rights defenders as affected and legitimate stakeholders, but the best definitions and provisions across the drafts should provide a solid basis for their explicit recognition as such in the final law. Effective and safe engagement with potentially affected rightsholders, including defenders, is the key element for human-centric and worker-driven due diligence. This was also highlighted by participants in our session: talk to rightsholders, they know the issues and how to address them.

Building on promising elements in the Commission and Council proposals (e.g. regarding support to SMEs), the Parliament’s report goes some way towards better reflecting support, collaboration and shared responsibility among value chain partners. Our research has shown how brands’ purchasing practices create and sustain the conditions e.g. for widespread gender-based violence in fashion supply chains. Adjustments to problematic business models and purchasing and pricing practices must therefore be an essential part of the CSDDD. Company representatives in our roundtable saw this as powerful tool.

A Directive that is conceived as yet another auditing standard passed onto suppliers will miss out on much of its historic potential. With trilogue negotiations between Commission, Council and Parliament underway, it is crucial that the final legislation maintains and strengthens elements that move due diligence beyond the auditing paradigm.

Mandatory due diligence is not a universal remedy, but if designed effectively, the CSDDD can transform and future-fit the way companies do business, and tangibly improve the lives of workers and communities along global value chains. We have known for years, if not decades, that audits, certifications, and industry initiatives and MSIs are not fit for purpose. This was one of the reasons behind the push towards mandatory regulation in the first place, and the law should therefore not unduly incorporate and endorse them as instruments companies may use – or worse, rely on - in their due diligence.