By Elizabeth Garland, Chief Program Officer, Verité
The European Union (EU) reached a historic deal on the Corporate Sustainability Due Diligence Directive (EU CSDDD). For the first time, large companies and those in high-risk sectors will be required to implement risk management systems to address their adverse impacts on people, communities, and the environment if they wish to do business in the EU market.
While the final text of the EU CSDDD will not become official until 2024, the announcement already signals a significant shift in the regulatory landscape facing many major multinational enterprises.
Notably, the CSDDD includes substantial enforcement teeth. Companies found to be noncompliant may face administrative fines of up to 5% of a company’s net turnover for egregious violations. And companies will face civil liability as well, with victims able to seek damages in the European Court of Justice for harms suffered as a result of inadequate corporate due diligence. The text also makes clear that companies will be held accountable for social and environmental impacts up and down their value chains, not just in their own operations.
The EU Directive instructs companies to implement comprehensive due diligence frameworks such as the OECD Due Diligence Guidelines for Responsible Business Conduct, which require embedding due diligence in all levels of business management systems, systematically assessing risks and harms, ending damaging business practices, mitigating and preventing risks, remediating any harms identified, and tracking and reporting transparently about progress.
Embedding corporate due diligence within a company’s fabric
Such a holistic formulation of due diligence aligns well with the model Verité has honed over nearly thirty years of collaboration with companies to improve labor practices in global supply chains. At the heart of Verité’s approach is our understanding that meaningful corporate due diligence requires integrated, permanent, systemic changes in the fundamental way companies do business, not just isolated corrective actions, piecemeal projects, or one-off programs. Embedding corporate due diligence deeply within a company’s fabric is the key – as a part of internal capability building, external affairs, procurement practices, supplier engagement, enterprise-level performance indicators, policies, executive incentive structures, and more.
Corporate due diligence must do more than rectify harms – though it must also do that! Companies must cultivate responsible business practices that prevent harms from occurring in the first place, continuously improving their performance on human rights and environmental issues, and always being mindful of the needs and priorities of workers and other affected stakeholders. The CSDDD regulation is an important advance for global governance and corporate accountability – a step forward that warrants genuine celebration.
About the Author
Dr. Elizabeth Garland, Chief Program Officer of Verité, is a senior labor rights professional with expertise in the prevention and remediation of child labor, forced labor, and human trafficking in complex global supply chains.
Photo credit: Paopano, Adobe Stock