The European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), soon to be formally confirmed by the European Council, reflects an important step in corporate accountability for human rights abuses. The directive is the result of tireless work by trade unions, civil society organisations and progressive MEPs. That said, following the significant weakening of the final text by some EU member states, we have considerable doubts as to whether the CSDDD is sufficiently ambitious for it to deliver meaningful results for the world’s workers and trade unions. It will therefore be critically important that member states pass national legislation which builds on the provisions of the CSDDD when they transpose the directive.

Below are just some of our concerns and observations:

Subject matter

The CSDDD sets rules for companies with respect to their own operations, the operations of their subsidiaries and the operations carried out by their ‘business partners in the companies’ chains of activities’. While this provision broadens the scope beyond Tier 1 suppliers, the term “chain of activities” fails to incorporate critical downstream business partner activities, including product disposal and recycling, among other things. This marks a significant deviation from the UNGPs, which cover impacts across a company’s full value chain including downstream business relationships.

Scope

The CSDDD establishes a minimum threshold of 1,000 employees on average and a global net turnover of over €450m. This results in less than 0.05% of EU-based companies being covered by the Directive. The scope of the CSDDD goes well beyond merely carving out SMEs, as many large enterprises will also be excluded. Of significant concern is the limited scope of application of the Directive to the finance industry. This approach is not only inconsistent with the UNGPs, but also helps shield companies with woeful track records, including banks, from accountability. One notable improvement is the inclusion of franchise or licencing agreements.

Severity of harm

Companies will be required to map their operations, and those of their subsidiaries and business partners “in order to identify general areas where adverse impacts are most likely to occur and to be most severe.” Despite the definition of severe adverse impact being broadly in line with the UNGPs, it is unclear whether companies will consider potential and actual violations of the right to freedom of association and to collectively bargain as “most likely” to occur and to be “most severe”. It is also unclear whether a national authority or court would find the failure to identify and assess that risk to these enabling rights constitutes a violation of the CSDDD. Trade unions will need to push to ensure trade union rights are considered a regular part of all due diligence.

Stakeholder consultation and Trade Unions

Whereas the Commission Proposal encouraged companies to engage with stakeholders “where relevant”, the final draft makes clear that companies undertake effective engagement, including with trade unions, at all steps of the due diligence process. Trade unions can also file complaints with the relevant national supervisory authority and bring claims on behalf of right-holders under the proposed civil liability regime.

Prevention

Perhaps one of the most meaningful additions to the CSDDD is the requirement of companies, where relevant, to make necessary modifications or improvements to their purchasing practices. Purchasing practices can be a major contributor to the labour abuses ultimately committed by a business partner in a supply chain. If this provision is effectively transposed into national law, this could have a meaningful impact on labour rights compliance.

Outsourcing responsibility

New to the CSDDD is a provision that companies may develop their preventive and corrective action plans in cooperation with industry or multi-stakeholder initiatives. Similarly, contractual assurances sought from business partners may be verified via “independent third-party verification”. We note there is a very wide range in the quality of MSIs in the business and human rights space with many having either limited or no trade union representation. As such, we are deeply concerned the Directive will have breathed life into a failed CSR model. Trade unions will have to be extremely vigilant, as there is a high risk of dilution of efforts to monitor a company’s compliance with its human and environmental rights obligations.

Civil liability

The civil liability regime under the CSDDD is unfortunately even more limited in its reach than the Commission draft. A company can only be held liable for damage caused if the company intentionally or negligently failed to comply with its HRDD obligations and as a result of that failure, damage to a victim’s legal interest protected under national law was caused. The article adds a proviso the company cannot be held liable if the damage was caused only by its business partners in its chain of activities.

Conclusion

The threat of significant pecuniary penalties and the ability of states to take punitive public support and procurement measures against offending companies gives the CSDDD some teeth. The Directive’s in-built review mechanism also offers hope for progressive future amendments. However, the shortcomings highlighted above and other major omissions, including directors’ duties and just transition measures for workers, among others, represent major normative gaps. It will be critical that in the transposition of the CSDDD into national law, member states take advantage of the flexibility allowed to create stronger rules that will be more effective in protecting the rights of workers and trade unions.

Jeffrey Vogt is the Rule of Law Director of the Solidarity Center and co-founder and Chair of the International Lawyers Assisting Workers (ILAW) Network; Ruwan Subasinghe is Legal Director at the International Transport Workers’ Federation (ITF) and Paapa Danquah is Legal Director at the International Trade Union Confederation (ITUC).

*A full legal analysis of the CSDDD from the authors is forthcoming in the Cornell International Law Journal.