From Awareness to Action: European Parliament Approves CSDDD
On June 1st, the European Parliament approved the Corporate Sustainability Due Diligence Directive. In addition to other powerful instruments like the EU Taxonomy and CSRD, this directive is an instrumental force in driving the objectives of the EU Green Deal in addressing human rights. What are the implications and next steps for businesses in their corporate sustainability journey?
In a significant development, the European Parliament recently passed the Human Rights and Environmental Due Diligence Directive (#CSDDD), marking a crucial milestone in corporate accountability. Expected to take effect in the coming years, this directive introduces a comprehensive system aimed at addressing and mitigating issues pertaining to human rights and the environment across the entire value chains of companies and their subsidiaries. Tripartite negotiations involving the European Parliament, European Council, and the European Commission are scheduled to further shape the directive, with the inclusion of financial services and institutions poised to be a pivotal point of discussion.
‘‘Due diligence requires companies to prevent and mitigate human rights and environmental issues’’
Overview of the CSDDD
Following the UN Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises, the directive requires companies to have due diligence integrated throughout their policies, as well as systems to identify and mitigate actual and potential issues. This includes the following steps:
- Embedding due diligence into company policies
- Identifying& assessing adverse impacts
- Providing grievance mechanisms and cooperating in remediation of issues
- Ceasing, preventing or mitigating adverse impacts
- Tracking the results of mitigation efforts
- Communicating the impacts and process on mitigation measures
- Having a plan for staying within the 1.5-degree limit
The perspectives of affected stakeholders are an essential part of due diligence through the consultation of workers representatives. By requiring companies to communicate openly about any problems that were found and how they were mitigated, the directive creates a level playing field for companies with transparency at the forefront.
Benefits and Challenges of the CSDDD
The passing of the directive is an important step in the right direction towards more transparency and accountability. Especially as it takes on a risk-based approach, meaning that companies must focus on the actual most salient issues that arise from continuous insight in their value chain. Moreover, the inclusion of responsible purchasing practices in the directive means that companies are encouraged to prevent causing harm through their operations. The directive also includes obligations for directors of the EU companies in scope. This includes setting up and overseeing a due diligence process and integrating it into the corporate strategy. In addition, directors must make human rights, climate change and other environmental impacts part of their decision making. Nonetheless, the inclusion of the financial sector in the directive is a topic still up for debate. This could affect the credibility of the directive. It is also crucial that victims of human rights or environmental abuses get access to effective grievance mechanisms and that companies can face civil liability for their actions. Without these measures in place, this directive may not be as effective as it could be.
Moving towards corporate transparency
We hope this is a push for companies to include responsible purchasing practices throughout their business operations and policies, making sure that the human rights of affected stakeholders are protected, and the 1.5-degree threshold of global warming is not crossed. We will continue to monitor the development of the directive and hope it will include financial institutions in its’ scope, as well as effective mechanisms for victims to get access to remediation.
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