GT10 – EU Corporate due diligence proposal: game changer or paper tiger?

With the European Commission’s proposal on corporate sustainability due diligence, the EU has entered new territory: regulating business internal practices to minimize environmental risks while financial risks until now have been the predominant reason for setting rules on corporate governance. Full transparency of business practices can be one of the European Union’s (EU) key levers to make its economic and trade relations with the rest of the world greener by putting in place more sustainable value chains. But will the proposed directive deliver on two fundamental principles ? Prevent first, and redress firmly if necessary ?

This paper focuses on the issue of environmental due diligence, which until now has received less public attention than other issues. A close examination of the proposal shows that it is unlikely to deliver on its stated aims. First, it takes a narrow and conservative approach to the negative environmental impacts to be prevented and outlines too general reporting requirements. Second, the provisions on contractual responsibility and civil liability newly imposed on companies may not be effective. Finally, the proposal does not sufficiently harmonize EU rules.

As the way forward, we propose that:

- Environmental adverse impacts should be more broadly defined.

- Companies should receive more specific guidelines to carry out their risk assessments.

- Loopholes regarding contractual relationships with suppliers and reporting obligations need to be closed.

- The public’s interest to report damages through complaints and access to justice should be ensured in a similar way across EU legislation.

- A greater degree of harmonization of checks performed and penalties applied by national market surveillance authorities should be ensured.

- Engagement with trade partners is necessary for bringing about systemic change in a spirit of reciprocity.