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CS3D: how to enable a workable due diligence approach

AmCham EU

14 Jun 2022
Responsible Business Conduct

The extent of due diligence

Let’s say a consumer wants to know what’s in the granola bar that he or she is about to eat. Easily enough, one can flip the packaging around and read through the information, ranging from the number of calories to the list of ingredients and their micros and macros. If this same customer learns that he or she is allergic to wool, it’s simple to learn which clothes are made of cotton, synthetic fibre or wool, and to what percentage. But what is not so easy to figure out is where all of these raw materials come from.

Has the sugar in the granola bar been harvested on an illegal plantation after intensive use of water and polluting pesticides? Are the cotton clothes produced in factories that use forced labour halfway across the world? Information of this sort is not transparently included on product labels the same way other information is. This is because it is not the consumer’s responsibility to know where every bit of raw material comes from or under what conditions it is produced – making sure these processes are sustainable is the responsibility of the government and the business sector.

Corporate Sustainability Due Diligence Directive

In February 2022, and in addition to mandatory due diligence requirements in sectoral laws such as batteries, minerals and deforestation, as well as industry initiatives such as the Responsible Business Alliance, EU Justice Commissioner Reynders announced the release of the Corporate Sustainability Due Diligence Directive (CS3D) proposal.

This Directive aims to foster sustainable and responsible corporate behaviour across value chains by introducing a common set of binding legal requirements on human rights and environmental protection for all sectors. It establishes corporate due diligence duty and duty of care by company directors. While these requirements are mainly targeted to European companies, they are also extended to third-country businesses that have a net turnover in Europe surpassing €150 million or that operate in high-impact sectors and have a net turnover in Europe higher than €40million.  

The CS3D aims to serve important objectives that cannot be ignored. But it must also serve to combat internal market fragmentation and become a successful tool to improve human rights and environmental protection without overburdening companies. This week Member States will meet once again to discuss the CS3D proposal, and ahead of these discussions it is essential to keep in mind the concerns of a key stakeholder in this transition: the private sector.

Making the CS3D workable

In recent years, a number of Member States have introduced or are in the process of introducing national laws that have different mandatory due diligence requirements from that of the CS3D. This growing internal market fragmentation has become unworkable for business. The CS3D is a legal instrument that must be harmonised across the Union to ensure that Member States do not introduce requirements that go beyond EU legislation, thus ensuring a level playing field.

The Directive should apply a risk-based approach and align as far as possible to international standards such as the UN Guiding Principles on Business and Human Rights, the OECD’s Guidance for Multi-National Enterprises and other relevant International Labour Organization core conventions. By doing so, we can also clarify vague definitions in the CS3D proposal, such as ‘established business relationship’.

Additionally, the relationship between the new due diligence directive and its sister Directive on Corporate Sustainability Reporting must be clarified, as should the inter-relationship between the CS3D and other EU sectoral laws like batteries, responsible minerals and deforestation.

When the CS3D negotiations are concluded, it is imperative that strong sectoral guidance is introduced to revise what due diligence efforts have been put in place, often over several decades, in order to help business comply with – and even go beyond –  the legally binding requirements.

For these measures to be successful, a smart mix approach should be applied. And, in order to establish legislation that is practical for companies to comply with and Member States to enforce, it should also be complemented by accompanying measures such as collaborative partnerships (eg, the highly successful European Partnership for Responsible Minerals [EPRM]).

With coordinated efforts like these we can ensure that consumers can purchase products with peace of mind, knowing that they are contributing to the protection of human rights and the environment.