Justice not profit must shape new rules for business

The European Union promotes itself as a leader in defending human rights and building a sustainable future. But a closer look at the activities of European companies often suggests otherwise. New rules for business could bring a fairer world into reach and deliver the products we need without harming people or the planet. But the EU must overcome corporate resistance to more robust rules, write Margarida Martins and Ruby Silk.

The European Union promotes itself as a leader in defending human rights and building a sustainable future. But a closer look at value chains of European companies suggests otherwise. New rules for business could bring a fairer world into reach and make the products we need

You may have heard of the Corporate Sustainability Due Diligence Directive (CSDDD) already. This new law to make businesses sustainable and fair has been making headlines for its potential to sure up human rights throughout global value chains and force businesses to do right by workers. It also has huge potential for environmental protection, a fact that has felt less of the heat from the spotlight but is equally encouraging. From deforestation to plastic production, from mining raw materials to the emission of greenhouse gases, business is behind an overwhelming part of environmental degradation and climate change. The CSDDD could help to tame the beast of unethical business practice and put consumers’ minds at ease when buying products and using services.

Timid beginnings

The directive was initially proposed by the European Commission in February 2022 and would require member states to introduce legislation to make companies responsible for violations of human rights and environmental safeguards along their entire value chain. Essentially, this means that companies will need to check for potential adverse human rights and environmental impacts from their own activities and that of their clients and suppliers, as well as how their services and products will be used and disposed of. They will also need to take steps to minimise the risks of causing these adverse impacts through their business conduct – this is known as conducting due diligence. The new rules would make it compulsory for companies to evaluate and address their actual and potential human rights and environmental impacts which, outrageously, is not the case at the moment. But better late than never… 

While it was a long-awaited and milestone moment, the Commission’s initial proposal for the law was not very broad in scope and presented several loopholes. In fact, it was only set to cover 1% of businesses: excluding small and medium-sized enterprises (SMEs) from any direct liability, despite them being crucial actors in some high-risk sectors, such as the textiles and mining industries.

General Approach Jenga

The Council’s position is also expected to limit the potential of this law. The Czech Presidency of the Council of the EU set an abrupt December 1st deadline for ministers in the Council to come up with their version of the directive in a General Approach. But rather than working harder to fix issues, ministers have been playing jenga with the text – battling it out to come up with a version of the directive that leaves their member states’ business interests intact – and by consequent, leaving people and the planet exposed to harm. 

To this end, a number of member states are pushing to narrow the scope of the directive so that rather than covering the entire value chain of a company, it only covers the supply chain, or what is now being termed, the “chain of activities”. Limiting due diligence to these upstream activities (where materials for products are sourced and manufactured) would leave out downstream activities (the use and disposal of products) that are tied to many of the most severe impacts and would mean that companies’ ability to address their true actual and potential impacts is jeopardised. This would hugely limit the directive’s capacity to safeguard human rights and environmental protection, as it would let companies and financial institutions off the hook for the damage their products and investments cause, even when they are put to very harmful and/or illegal use, such as digital surveillance tools being used for illegal surveillance and investments being used in the destruction of the environment and the harassment or even murder of environmental defenders.

As ministers remove brick upon brick from the jenga tower of the directive, there is real concern among civil society that the resulting directive will be skeletal, not fit for purpose and prone to come crashing down when it meets practical resistance.

New rules’ potential to protect climate and environment

While there are references to climate and environmental impacts throughout the directive, the way this legislation would be implemented is currently very weak. At the moment the CSDDD is far more driven towards human rights protection. This is essential, but it is hardly an argument for excluding a strong approach to climate and the environment, the damages to which can have immense negative impact on human rights at all levels. 

Following the recognition of the right to a clean and healthy environment by the UN and its reaffirmation at COP27, the EU cannot afford to lag behind. It should use the CSDDD as an opportunity to help realise this right.

The directive provides a major opportunity to support climate change mitigation and reduce environmental degradation by holding companies accountable for damages. This could be realised – to give just one example – through holding companies responsible for the emissions they produce. However, currently, climate due diligence is absent from the directive. This can and must be fixed by introducing an immediate duty for companies to address climate change risks and impacts in their value chains, just like other human rights and environmental impacts, recognising the urgency of the climate crisis emergency. Companies should also have concrete, enforceable obligations to develop and implement an effective transition plan in line with the Paris Agreement, including absolute emission reduction targets for the short, medium and long-term.

Legislators should introduce an effective and robust obligation to prevent and end adverse environmental impacts across the entire value chain (not just the supply chain), to include not only an upstream focus but also a downstream one.

The definitions of “adverse environmental impacts” need to be broadened to cover all environmental impacts. The current proposal limits the environmental impacts for which companies must carry out their due diligence to a list of related obligations under international agreements. However, this limits the impacts companies need to assess, as an exhaustive list of multilateral environmental agreements that cover all potential impacts that a company can have does not exist. Crucially and alarmingly, the annex does not cover any climate-related international agreement, such as the Paris Agreement, meaning the proposal does not recognise climate as an adverse environmental impact!

It is also important to strengthen access to justice for victims of corporate harm in the due diligence proposal, and not introduce obstacles to it. Instead of requiring victims to prove companies’ intent in causing harm, which would be unreasonable, the directive should clarify that business enterprises can fail their due diligence through both actions and omissions and that, in court, the company must be the one to prove whether it acted appropriately or not. After all, the company is the one with access to the necessary information and means to investigate the claim, not the victims or civil society.

Defending environmental defenders

The UN Special Rapporteur on environmental defenders under the Aarhus Convention, Michel Forst, stated in a meeting with NGOs and Government representatives on November 23 that he will make full use of the scope of his mandate, including investigating instances where businesses are at the origin of intimidation, harassment and persecution of environmental defenders. Forst sees the importance of protecting environmental defenders from all over the world, even outside of the Aarhus region, in cases where the threats and harm they face are related to the activities of companies based in a state party to the Convention. Remarking upon the transboundary nature of climate change, the Special Rapporteur has said that the future directive on CSDDD can be a tool to help protect defenders worldwide. He has also said that he envisions an inclusive and progressive approach of who is an environmental defender – defenders are defined not by who they are, but for what they do.

Where to next

With the December 1st deadline for a General Approach looming large, we are calling on the Council to deliver what over half a million citizens, civil society organisations and trade unions are expecting and so badly need: a Corporate Sustainability Due Diligence Directive that makes companies respect human rights and the environment, and take decisive climate action.

You too can demand better rules for businesses. Sign the petition led by Justice is Everybody’s Business and add your voice to the tens of thousands of voices calling on the EU to ensure corporations do right by people and the planet.

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