Germany Threatens to Sink EU’s Supply Chain Due Diligence Legislation
As the European Union’s corporate sustainability due diligence directive (CSDDD) hurtles toward the finish line, the landmark supply chain due diligence legislation has hit a major snag: abstention from a critical vote by Germany on Friday, a move that could jeopardize what many have regarded as nothing more than a formality following an accord between the European Council and Parliament last month.
But Social Democrat labor minister Hubertus Heil told Reuters Tuesday that the co-ruling—and pro-business—Free Democratic Party has rejected any compromises that would avoid what is tantamount to a “no” vote for the law, which would require businesses of a certain size and profitability to address harmful practices such as child labor, forced labor, rampant pollution, deforestation, excessive water consumption and ecosystem damage.
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“I believe this is wrong, also because a German abstention will be met with incomprehension among other partners in Europe,” he said.
Several German business groups, such as the Confederation of German Employers’ Associations and the Federation of German Industries, have criticized the rule, calling its requirements “neither practicable nor proportionate.”
Last month, finance minister Christian Lindner, leader of the Free Democrats, criticized the CSDDD for creating new bureaucratic burdens and legal ambiguities, saying that “now is not the time for an additional supply chain directive.”
Germany’s own Supply Chain Act, which went into effect in 2023, already imposes on companies due diligence obligations aimed at preventing or eliminating certain human rights or environmental violations, though the CSDDD is expected to go further.
Writing on LinkedIn on Tuesday, the European Coalition for Corporate Justice, which comprises 480 civil society groups across the continent, said that while Germany’s abstention doesn’t mean the CSRDDD won’t go through, its refusal to take part in the process is a “betrayal of its past leadership on sustainability due diligence and a blow to global efforts for corporate accountability.”
If other countries follow Germany’s lead and decline to back the measure, it may not garner enough support to gain approval.
“This abrupt reversal jeopardizes essential protections for human rights, workers and the environment, allowing private corporate interests to trump justice and sustainability,” the coalition said.
More than 260 business and human rights practitioners have also added their names to an open letter urging EU governments to support the legislation, which they said “represents an unprecedented opportunity to shape a sustainable future for all.”
“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,” the letter said. “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.”
A slew of investor groups, including the Institutional Investors Group on Climate Change, the Principles for Responsible Investment, the Interfaith Center on Corporate Responsibility and the Investor Alliance for Human Rights similarly released a statement on Tuesday reiterating their support for the deal reached between the European Council and Parliament.
“We encourage EU member states to maintain their commitment to support this directive at this week’s COREPER meeting,” they said, using an acronym for Committee of Permanent Representatives. “The CSDDD offers a unique opportunity to establish a level playing field for sustainability due diligence across the EU. This will support financial and non-financial companies’ risk assessment and impact analysis, address gaps in the EU legislative framework and bring greater certainty in the future EU policy framework.”
The requirements in the final text, the organizations said, are “clear, proportionate and manageable,” with a risk-based approach that allows companies to prioritize their efforts where they have the most impact and a civil liability regime that clarifies that requirements are an “obligation of means, not results.”
“This is in line with international standards, notably the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights, which many companies and investors already apply,” they added.
