The Directive on Corporate Sustainability Due Diligence would oblige companies to identify, prevent, and mitigate human rights and environmental violations in their value chain. But there is debate over whether companies can be reasonably expected to control their entire value chain, down to the smallest suppliers.
Last week, EU commissioners Thierry Breton and Didier Reynders presented the European Commission's proposal for a Directive on Corporate Sustainability Due Diligence — a plan that would oblige companies to identify, prevent, and mitigate human rights and environmental violations in their value chain. The Directive will apply to EU companies with more than 500 employees and a net worldwide turnover of more than €150 million; for companies headquartered outside the EU, there is only a turnover threshold.
Reynders told Euractiv that the Directive came in response to public demand across Europe.
“This proposal comes in response to the citizens’ request that the services and the goods that we use in Europe are provided in full respect of human rights and do not harm the environment,” he said.
The Commission hopes that the new rules will give businesses legal certainty and provide a level playing field across the European Union; EU countries that already have laws on corporate accountability — including France and Germany — will have to adapt their national legislation to bring them in line with the new EU rules. Reynders said engagement on development of the Directive has been high — with more than 500,000 comments during the public consultation process.
EU lawmaker Lara Wolters, author of a 2021 Parliament report on corporate sustainability due diligence, told Euractiv the scope should go beyond large enterprises.
“In this instance, size doesn’t matter, what matters is your activities. It’s not who you are, it’s what you do,” she said.
“If you are a small diamond trader in Antwerp you can still be involved through your value chain in child labour in Congo.”
But the Commission argued that many small and medium-sized enterprises (SMEs) will indirectly be affected because they often form part of a larger company’s value chain. The Directive will include support to alleviate SMEs of the bureaucratic burden.
While the Commissioners hailed the proposal as a way to strengthen businesses as well as sustainability, Business Europe president Pierre Gattaz questioned the feasibility of the proposal.
“It is unrealistic to expect that European companies can control their entire value chains across the world, including ‘indirect,’ third-party suppliers or even customers,” he said.
But more and more companies in the EU and around the world have committed to do just that, in the form of climate action plans to eliminate their greenhouse gas emissions — including indirect, Scope 3 emissions.
Talk of the Directive began in 2020, with Reynders asserting unequivocally at the UN Forum on Business and Human Rights that Europe would put one in place. The proposed plan comes just months after the release of the UN’s roadmap for business and human rights — and the assertion of stakeholders across sectors that companies should now consider environmental and human rights to be inextricably linked.
Holding companies accountable for their impacts on society is a principle that’s been practiced in India since 2013, thanks to a mandate that all companies direct a small portion of profits into social improvement projects.