Industry’s Reaction Mixed to Corporate Sustainability Due Diligence Directive

The introduction of the Corporate Sustainability Due Diligence Directive (CSDDD) has generated a spectrum of reactions from various industry stakeholders, reflecting the complexities and challenges associated with its implementation.

Positive Responses and Support

Many large companies and industry leaders have welcomed the CSDDD, seeing it as a necessary step towards promoting sustainable and responsible business practices. For instance, over 100 large companies and networks, including Maersk, Nokia, and H&M Group, have publicly endorsed the directive, highlighting their own commitment to human rights and environmental standards. They view the CSDDD as a tool to create a level playing field, ensuring consistent standards across the EU, which is particularly advantageous for companies operating in multiple member states​.

Proponents argue the directive will enhance corporate reputation and stakeholder trust, attracting sustainability-oriented investors and consumers. They also see potential for driving innovation and the development of sustainable business models, positioning companies as leaders in sustainability and corporate responsibility​​.

Concerns and Criticisms

Despite the support, there are significant concerns, particularly regarding the financial and administrative burdens the directive imposes. Small and medium-sized enterprises (SMEs) are especially worried about the increased compliance costs, fearing they may lack the necessary resources to fully comply with the directive, potentially putting them at a competitive disadvantage​​.

The broad scope of the CSDDD, which includes liability for actions of non-contractual business partners, has also raised alarms. Companies argue it is unreasonable to hold them accountable for the behavior of entities over which they have limited or no control, especially in complex global supply chains. This aspect of the directive is seen as particularly challenging and could lead to excessive liability for companies without substantial control over unrelated entities​​.

To others, excessive compromises and unfounded fears of disproportionate impacts on SMEs rendered the law ineffective and toothless. According to Uku Lilleväli, Sustainable Finance Policy Officer at the World Wildlife Fund’s European Policy Office, the directive is now “bare bones, with an already weak framework that now covers only a fraction of all large companies.” In addition to disregarding the obligation for companies to financially incentivize managers to implement and achieve climate targets, Lilleväli adds that “restricting robust transition plans to only a small share of companies and neglecting to link managers’ paychecks to these plans undermines the integration of sustainability into firms’ DNA and hinders their ability to address long-term impacts and risks.”

A Consensus Around Preparation

In response to the CSDDD, many companies are proactively preparing for compliance by reviewing their supply chains, enhancing due diligence processes, and investing in new technologies for monitoring and reporting on sustainability efforts. They are also engaging with industry peers to develop best practices and collaborative approaches to meet the directive’s requirements. Early engagement with business partners to negotiate contractual clauses related to CSDDD obligations is recommended, as waiting for official EU Commission guidance could delay necessary adjustments​​.

To learn more about CSDDD, read our whitepaper here.