The Fight Over the CSDDD, Explained
It was supposed to be a sure thing, a done deal, a slam dunk: a piece of legislation, forged and honed over two years of impassioned discussions and negotiations, that would hold big businesses accountable for social and environmental abuses happening under their watch. The European Council and European Parliament had hammered and sanded away at the corporate social due diligence directive, or CSDDD, to their mutual satisfaction in December. All that remained before it entered into force circa 2027 were a few more sign-offs—simple formalities, really.
Not so simple, as it turned out.
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On Wednesday, the Belgian presidency of the European Council postponed its vote for the second time after Germany and Italy stuck fast to 11th-hour declarations that they would be abstaining. Other member states, including Sweden and Finland, have reportedly been getting wedding-day jitters, too, but Germany and Italy’s de-facto “nays” carry the biggest weight because they boast the largest and third-largest populations in the European Union, respectively. For the measure to pass, a “qualified majority” of 15 countries representing at least 65 percent of the 27-member bloc’s population must be in favor. A “blocking minority” of at least four countries representing more than 35 percent of EU citizens, on the other hand, is enough to scupper the whole thing.
“This is pure mathematics,” German politician Anna Cavazzini, a Member of the European Parliament, said at a “last-minute urgent expert Q&A” organized by the European Coalition for Corporate Justice (ECCJ), which represents 480 civil society groups across the continent; the law firm Frank Bold; and the European Trade Union Confederation (ETUC), a group of 93 trade unions; on Thursday morning. “You need either Germany or Italy.”
France, home to the EU’s second-largest population, is in support of the text, which would apply to member-state companies with more than 500 employees and a net global turnover of more than 150 million euros ($162 million). Non-EU firms would have to comply if they generate 300 million euros ($323 million) from the bloc, albeit three years after the directive kicks into gear. For sectors classified as “high risk,” textiles and footwear included, the threshold is lower, obliging EU and non-EU firms with more than 250 employees and a net global turnover of more than 40 million euros ($43 million) if they make at least half of their profits from the aforementioned sector. Offenders that fail to “identify, assess, prevent, mitigate, bring to an end to and remedy” can be fined up to 5 percent of their worldwide turnover.
As the CSDDD hangs in the balance, the miasma of misinformation and “fake news” that surrounds it is far from helping, the organizers of the online session said. Much of this stems from dissenters from Germany’s pro-business Free Democratic Party (FDP), the minority party in the country’s coalition government that’s chiefly to blame for the blockade.
“A very important distinction is that it was the FDP reaching out to other member states and not the German government,” said Nele Meyer, director of the ECCJ. “I think there”s a huge misunderstanding around this fact.”
The FDP, echoing language from German business groups, such as the Confederation of German Employers’ Associations and the Federation of German Industries, has denounced the CSDDD as financially, administratively and legislatively burdensome, with considerable liability risks for companies that breach their supply chain obligations. This was a surprise for people like Cavazzini because the FDP was previously against a national supply chain act, which went into effect last year, but amenable to an EU-wide one. Plus, “all but one” of its concerns—a “safe harbor” clause that would provide exemptions for some liabilities—were incorporated into the text, she said, because “no one else in the parliament wanted that.”
In the end, Cavazzini said, it was the FDP who pushed the German government into abstaining and then tried to convince other member states to do the same, or at least push the vote until after the European Parliament election in June, which would mean “killing the law because we don’t know what will happen after the election.”
“For me, that shows a little bit that it is not about specific content points so much, but it’s more about just really destroying the law right now,” she said. “And this I find quite frustrating.”
One myth the panel is keen to bust is that the rule would hurt the competitiveness of EU companies with onerous demands. But OECD and European Commission studies have shown that companies with a robust due diligence posture are more economically resilient and better equipped to avoid unexpected risks such as wars, disease and other major disruptions. Liability isn’t applied automatically, either. A business can be held liable only if certain conditions are cumulatively met, in line with current German liability law. Any procedural rules applying to how liability is enforced will also largely depend on member states’ national laws.
“For liability to be triggered, there has to be gross negligence or intent,” said Bart Devos, vice president of public policy at the Responsible Business Alliance, an industry coalition dedicated to responsible business conduct. “There are very clear and specific conditions that severely and strictly limit [how] a company can be held liable.”
It’s also already possible to sue any European company for overseas harms under the Rome II and Brussels I regulations, said Christopher Patz, policy officer at ECCJ. In 2015, four Pakistani nationals filed a civil lawsuit at Dortmund regional court against German clothing retailer KiK following a garment factory fire that killed 250 workers. Last year, a group of civil society organizations employed Germany’s Supply Chain Act to file complaints against Amazon, Ikea and Tom Tailor for what they said was a “failure” of corporate due diligence in their own and direct suppliers’ operations.
“What this directive does is clarify those rules for what exactly companies have to do, what exactly they’re liable for,” Patz said. “The idea that this makes it possible for the first time to sue German companies for their overseas harms is not the case. NGOs have been already bringing these claims for several years.”
When the European Parliament will meet again over this is unclear. It could be tomorrow. Or next week. What’s certain is that the bristling German business associations appear to be outliers in their lack of desire for a unified standard. One consistent concern from many trade groups and industry coalitions is that a CSDDD defeat will result in member states’ recreating their own versions on the national level, resulting in a splintering of requirements from different markets.
“This directive is a much-needed and powerful tool to harmonize the current fragmented practices and level the playing field for respecting human rights and the environment,” said one recent letter from 250 business and human rights practitioners. “It will provide the legal certainty that the companies are calling for and that is needed to identify, assess, prevent, mitigate and remedy adverse human rights and environmental harm.”
Last week, 20 Nordic businesses, including Bestseller, Lindex and Nudie Jeans, wrote a letter calling their governments to back the CSDDD, which they said has a “unique opportunity” to “harness the transformative power of the UN Guiding Principles on Business and Human Rights” and “further strengthen the relationship between business and society and the realization of sustainable development.”
“A mandatory human rights and environmental due diligence law that is applicable throughout the EU would serve as an international benchmark for advancing responsible business conduct,” they said. “It would also create a level playing field across the EU to drive much-needed action.”
The idea that small and medium-sized businesses will find the directive too much work doesn’t jibe with reality, Alexander Kohnstamm, executive director of the multi-stakeholder group Fair Wear Foundation, told Sourcing Journal in a separate conversation.
“In our daily practice with Fair Wear member brands, we see the opposite is true,” he said of labels like Filippa K and Ganni. “Another thing businesses really like about due diligence is that it is risk-based, meaning you should focus your CSR efforts on where the risks are, which serious companies already know is the most effective way to spend their money and time anyway.”
The CSDDD has one Hail Mary play. Cavazzini said that in theory, German Chancellor Olaf Scholz could “basically overrule the FDP,” simply because so much is at stake. “I still hope that he will make use of this veto power,” she said. “I think this is the only chance.”
Scholz has expressed his support for the regulation. Speaking to reporters earlier this month in Brussels, however, he also emanated resignation.
“I have to admit that there is no consensus that the agreements we have reached in Europe are adequate,” he said. “Sometimes progress is a snail’s pace.”
Could literal sweet talk make a difference? On Valentine’s Day, the day the rescheduled vote was supposed to occur, the ECCJ sent Scholz a box of chocolates, along with a card that read: “Unfortunately, we don’t know whether this chocolate was produced with the help of child labor—maybe, may not. There is no legal regulation that obliges companies to respect human rights. We call on Germany to support the EU supply chain law…so that you can enjoy chocolate with good conscience in the future.”
There was also a letter, co-signed by Anti-Slavery International, the Clean Clothes Campaign, ETUC, Frank Bold, Solidaridad and others.
“With its national Supply Chain Act, Germany has initially taken on a pioneering role in the fight for respect for human rights in Europe and worldwide,” it said. “However, the announced abstention on the European directive would turn Germany from a pioneer into a laggard. Such a stance would violate Germany’s international human rights obligations and would be at odds with the interests of workers in Europe and worldwide.”
Volker Türk, the United Nations high commissioner for human rights, weighed in the day before, saying that the CSDDD’s adoption would “show historic leadership by the EU at a time when global leadership in support of human rights is needed more than ever.”
“For the directive to fail now would be a massive blow,” he said. “The agreement on the directive is reported to be substantially aligned with the UN Guiding Principles on Business and Human Rights and other relevant international human rights standards. I am convinced the directive can make a positive contribution to respect for human rights, and its adoption would send an important message of solidarity to those at risk from business activities.”
During the online discussion, Isabelle Schömann, deputy general secretary at the ETUC, was more blunt.
“I think here we are clearly fighting against workers being a commodity,” she said. “Human rights being a burden—that’s nonsense in itself.”
