For the past two years, the CORE team has advised businesses on implementing the German Supply Chain Act, a corporate sustainability due diligence law. This recent practice in setting up human rights risk management systems has shown that companies can successfully meet their human rights and environmental due diligence obligations while maintaining economic success.
Drawing from this experience, many companies have endorsed the EU Corporate Sustainability Due Diligence Directive (CSDDD), even when a political majority was at stake.
I was asked to provide my input to a comprehensive opinion piece for Forum Nachhaltig Wirtschaften which will be published in mid-June. Here, I intend to summarize the key takeaways in short and this time in English.
In essence, implementing the CSDDD requires companies to:
- Thoroughly understand their human rights risk exposure.
- Develop targeted measures to prevent and address the most salient risks based on this understanding.
- Engage meaningfully with stakeholders, including those potentially affected, throughout the due diligence process.
- Provide individuals potentially affected by the company’s activities with a grievance mechanism to communicate concerns directly to the company.
- Report annually on the identified risks and the measures being implemented to mitigate such human rights risks.
Three key factors to keep in mind when preparing for the EU Corporate Sustainability Due Diligence Directive (CSDDD)
1. A risk-based approach to due diligence:
Companies are not required to address all identified risks simultaneously. Instead, they can prioritize the most significant ones using a risk-based approach, which considers the severity and likelihood of each risk. The goal is to identify the groups most likely to be impacted and the rights that are most at risk (i.e., salient risks) and address these specifically. This approach is also recommended by international standards such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights, which many companies have been voluntarily following for years.
2. The obligation to make reasonable efforts:
Companies must demonstrate genuine and reasonable efforts to comply with their human rights due diligence obligations. They are not expected to guarantee the prevention of adverse human rights in all circumstances. For instance, a chocolate manufacturer may find it challenging to ensure that all cocoa is produced without child labor. However, the expectation is not for the company to eradicate child labor throughout the entire cocoa industry, but rather to identify the risk of child labor within its own operations and supply chain and take appropriate measures to address this risk. Such measures might include providing regular training to employees and suppliers on child labor risk factors, conducting risk assessments of high-risk suppliers, and collaborating with local communities, policymakers, and civil society organizations. Tackling these structural issues requires collaboration with stakeholders, including competitors. The CSDDD provides incentives for a concerted approach to these challenges.
3. Risks to people – and the business:
A risk-based approach to human rights due diligence emphasizes assessing risks to people, but human rights adverse impacts also pose significant risks to companies. These risks include operational disruptions, financial losses from investor withdrawal, legal liabilities and substantial reputational damage. Implementing a human rights risk management system not only protects the rights of potentially affected individuals but also shields the company from various business-related risks. It enables companies to gain a deeper understanding of their supply chains and business partners, thereby enhancing overall resilience.
The CSDDD presents an opportunity to standardize expectations across the EU, providing greater reliability for large and medium-sized businesses as they work towards sustainable economic transformation. In alignment with the Paris Climate Agreement and the Sustainable Development Goals (SDGs), achieving a “just transition” necessitates global cooperation. The CSDDD empowers Europe to play its part in this collaborative effort.
[The blog post is a condensed version of the article titled „CSDDD – warum es machbar ist. Ein Kommentar aus der Praxis nach zwei Jahren deutschem Lieferkettengesetz.“ authored by Theresa Gigov (Senior Business and Human Rights Advisor, theresa@thesocialimpact.eu) and Lisa Szeponik. It was published on LinkedIn.]
