European Council Votes Yes on CSDDD

At last.

After several tumultuous weeks and nailbiting postponements, members from the European Union’s national governments finally voted in favor Friday of a watershed supply chain due diligence law to hold big businesses legally liable for environmental and human rights violations under their watch.

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But the victory, for many of the legislation’s proponents, is a pyrrhic one. Despite a provisional agreement that the European Council and Parliament struck in December, the corporate sustainability due diligence directive, or CSDDD as it’s better known, came close to being torpedoed by last-gasp arguments by Germany, France, and Italy that the rules would be too financially, administratively and legally burdensome for corporate actors. To push through what it could, the European Council’s Belgian presidency negotiated a stripped-down compromise, one that will now apply to a fraction of the sliver of companies it would have covered.

Instead of taking aim at EU and parent businesses with more than 500 employees and a net global turnover of 150 million euros ($163 million), the European Council now proposes targeting companies with more than 1,000 employees and a net global turnover of 450 million euros ($490 million).

“Under the proposal presented to the Council today, we estimate that nearly 70 percent of companies captured by the political deal of December 2023 would not face accountability for harm to people and the environment,” the European Coalition for Corporate Justice, a coalition of the continent’s 480 civil society groups, wrote in a statement. “Disappointingly, the CSDDD will now only apply to roughly 0.05 percent of EU companies and business activities that typically bear risks for the environment and human rights. This proposed change is even more scandalous considering the European Commission’s initial proposal would have covered just 1 percent of all EU companies.”

On X, the Dutch Labour Party posted a video of Lara Wolters, the Member of the European Parliament who led negotiations for the CSDDD, jumping and laughing as she received the news of the vote. Wolters virally called out European leaders Emmanuel Macron, Giorgia Meloni and Christian Linder last month following a closed-door vote by diplomats that failed to muster enough votes. “If I sound angry now it’s because I am. We had a deal,” she said at a plenary session. “But business lobbies would not give up and here we are.”

Wolters posted red and green heart emojis on her personal X account, adding. “Due Diligence passed in Council! People and planet prevailed over cynicism. Thanks so much to the Belgian Presidency for all its efforts.”

Still, some are accusing the 11th-hour naysayers of purposeful derailment of the agreed-upon benchmarks. Higher thresholds aside, the new draft removes civil liability provisions that would allow trade unions to haul offending firms to court. The high-risk sector approach of phasing in non-EU companies that generate at least 20 million euros ($22 million) in the EU market from the manufacturing or wholesale trade of textiles, clothing and footwear, agriculture, food manufacturing and construction, is similarly gone.

“We are very concerned to see the extent to which the CSDDD text has been watered down in the latest version,” said Muriel Treibich, lobby and advocacy coordinator for the Clean Clothes Campaign, the garment industry’s largest coalition of trade unions and civil society groups. “This greatly diminishes the impact the law will have in factories and countries of production and will keep irresponsible companies into operation with no legal possibility to sanction or prevent their behavior.”

Others think that the diluted deal is still better than nothing. Without a harmonized, single-market law, businesses risk wrestling with a patchwork of slightly different requirements. It’s not without some measure of irony that France and Germany have their own mandatory due diligence regimes.

“Supply chain legislation is crucial to galvanize responsible business conduct, equitable buyer-supplier partnerships, decent work, and sustainable development,” Alexander Kohnstamm, executive director of the Fair Wear Foundation, a multi-stakeholder group that works with brands such as Filippa K and Ganni to improve working conditions in the garment industry, told Sourcing Journal. “Working conditions in our sector must improve drastically and for that to work, businesses need coherent regulation and clarity as to what good really looks like.”

It’s a sentiment echoed by Andrew Martin, executive vice president of Cascale, the multi-stakeholder organization formerly known as the Sustainable Apparel Coalition, who hailed the move as a “significant step toward safeguarding human rights and the environment, both within the EU and globally.”

“While the CSDDD, in its current form, may not provide a fully harmonized set of due diligence rules, the decision today is a strong affirmation of European member states’ commitment to responsible business practices and environmental stewardship,” he said. “Cascale supports the timely final adoption of the text and therefore urges the European Parliament to follow the Council and adopt the proposal before the end of the parliamentary term.”

That’s right. It’s not over. The rules still need to be greenlit by the European Parliament, ideally next month but most certainly before EU elections in June, before it can be the law of the land.

“Despite this sabotage by the FDP party in the German government, Italy, France, Finland and others, the core of the directive remains intact,” Finnish politician and Member of the European Parliament Heidi Hautala wrote on LinkedIn.

“The UN Guiding Principles on Business and Human Rights will be, for the first time, codified in EU law, and businesses will be obliged to conduct environmental and human rights due diligence in their value chains,” she added. “Beneficiaries of CSDDD will be the millions of people in modern slavery and other victims of corporate negligence and abuse. Responsible companies will also benefit from a level playing field and businesses will finally get more engaged in the fight against climate change.”

Jasmine O’Connor, CEO of the nonprofit Anti-Slavery International took the same measured view. Everyone, she said, deserves to “live, and work, in freedom.”

“While today’s developments are very positive, we know that the quality of the law has been eroded by these post-agreement challenges,” O’Connor said. “However, despite these losses, we applaud this progress and urge lawmakers to remain united and usher through CSDDD as swiftly as possible. Workers all around the world are looking to the EU to see the leadership and direction that is needed to truly prevent forced labor in supply chains.”