February 6, 2024

EU: Critical New Due Diligence Law Hangs in the Balance

Law Would Protect Rights and Environment While Advancing Climate Goals

(Brussels, February 6, 2024) – All European Union (EU) governments should adopt a groundbreaking law that will impose mandatory due diligence measures on larger companies, compelling them to address their impact on human rights, the environment, and climate change, Climate Rights International said today. A hard-fought consensus within the EU over the law has been put at risk by the announcement by Germany’s Free Democratic Party (FDP), the smallest member of the government coalition, that it is withdrawing its support for the new legislation.

Among other things, the companies covered by the law would be required to develop plans aligning their business strategies with the goal of limiting global warming to 1.5 degrees Celsius in line with the Paris Agreement.

“The EU and its member states represent the world’s largest internal market, and now they have the chance to establish a global benchmark for legally binding corporate human rights and environmental due diligence, and for robust, sustainable, and rights-respecting supply chains,” said Lotte Leicht, Advocacy Director for Climate Rights International. “The FDP’s opposition undermines the arduous negotiations and compromises made by other EU member states, institutions, and parliamentarians, jeopardizing a landmark consensus text. The German Chancellor, Olaf Scholz, should put his foot down and exercise his authority to provide direction on this critically important issue that concerns all of Germany’s EU partners.”

The draft EU’s Corporate Sustainability Due Diligence Directive (CSDDD) is the culmination of over two years of rigorous negotiations among EU member states, the European Commission, and the European Parliament. Although the text agreed upon in December 2023 was watered down on some critical points, it nevertheless represents a substantial leap forward in establishing legally binding human rights and environmental due diligence obligations for larger companies operating throughout the EU, said Climate Rights International.

The proposed CSDDD aligns with established international human rights law as well as United Nations and Organization for Economic Cooperation and Development (OECD) principles on business and human rights. It will require larger companies to identify, mitigate, and rectify adverse human rights and environmental impacts, both within their own operations and across their expansive supply chains. The directive would also provide victims of abuses with enhanced access to justice and remedies.

For years, the operations and supply chains of EU-based companies, and other multinational companies active within the EU, have been linked with serious human rights and environmental harms around the world. For example, a recent report by Climate Rights International found that some European automakers source nickel from Indonesia, where the mining and smelting of minerals is linked to serious harms to local communities and degradation to the environment. Another Climate Rights International report published in November 2023 documented how avocados grown for export to the international market, including Europe, are fueling widespread deforestation and water theft in the Mexican states of Michoacán and Jalisco, with dire consequences for the rights of local communities, and how indigenous leaders and other residents seeking to defend their forests and water have been threatened, attacked and killed.

“For too long, too many companies have prioritized profit over human rights, the environment, and climate, and the consequences are evident in serious rights violations, dangerous pollution, environmental destruction, and the climate crisis,” said Leicht. “Even many big companies agree that it is appropriate to legally obligate corporations to follow basic rules and be held accountable for violations. The EU’s Corporate Sustainability Due Diligence Directive is a pivotal step forward in this regard.”

The CSDDD will apply to EU companies and parent companies with over 500 employees and a worldwide annual turnover exceeding €150 million. It will also apply to companies with over 250 employees and with a turnover exceeding €40 million if at least €20 million are generated in certain specified sectors. The directive will also apply to non-EU companies and parent companies with equivalent turnover in the EU. The directive is expected to apply to roughly 12,000 companies inside the EU and 4,000 additional companies incorporated outside the EU.

The FDP’s position is baffling, given that Germany’s existing Supply Chain Due Diligence Act similarly holds German companies accountable for human rights abuses in their supply chains. Even with some differences in scope and legal obligations, an EU-wide law would help establish a level playing field for larger companies operating in the EU. The FDP’s arguments against the EU CSDDD, citing bureaucratic burdens and liabilities, are unfounded in the face of the broader benefits for society, the environment, and ethical business practices, said Climate Rights International.

Adoption of the CSDDD requires a “qualified majority,” where 55% of states, representing 65% of the EU’s population, vote yes.

“The stakes are exceedingly high, as a German abstention in Brussels could trigger a cascade effect that could sink the EU law altogether,” said Leicht. “The EU Corporate Sustainability Due Diligence Directive isn’t perfect, but it is a pivotal step forward, and we strongly urge all EU member states to support its adoption.

Photo Credit: EU Commission building. Photo by Christian Lue via Unsplash

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