ECCJ welcomes new EU legislation for a fairer corporate landscape

SRT grantee partner the European Coalition for Corporate Justice (ECCJ) has welcomed a political agreement made by EU legislators on the Corporate Sustainability Due Diligence Directive (CSDDD), though regrets it being significantly watered down from its original proposal. Under the legislation, large multinational corporations operating in the EU will have to address risks to people, communities, and the environment linked to their operations, subsidiaries and business relationships. In addition, victims will be able to hold companies liable if they are harmed through the companies’ operations.

The historic agreement is seen as an important milestone in setting requirements and expectations for corporations to respect human rights and the environment. The mandatory due diligence includes companies having to identify and prevent, bring to an end, mitigate, and remediate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, such as pollution and biodiversity loss. The legislation also includes obligations for companies to adopt and put into effect a climate transition plan to ensure their business strategy is compatible with limiting global warming to 1.5 °C.

Specifically, the deal was celebrated for including access to justice measures for victims of corporate abuse. This comprises easier access to evidence and reasonable time limits for filing claims, establishing a five-year period to bring civil claims. It also allows claimants to seek injunctive measures and ensures that cost of proceedings are not prohibitively expensive for claimants.

For more than a decade, the ECCJ has advocated for binding EU rules that align with international human rights standards. The organisation was involved at all stages of the directive’s development; from public campaigns and working closely with Parliamentarians and Commissioners to put the issue on the legislative agenda, to drafting model legislation and contributing during the consultation phase.

However, the triumph was bittersweet, with the legislation being significantly scaled back from the original agreement concluded in December after Germany abstained from the vote and Member States, including France and Italy, threatened to abstain from the vote. Originally, the CSDDD impacted companies with 500 employees and a turnover of €150 million. However, in February, Member States decided to unilaterally re-open the agreement found with the European Parliament. As a result, those numbers have been raised to 1,000 employees and a turnover of €450 million.

The new deal also removes the high-risk sector approach, which would have expanded the scope to include companies that do not meet the employee or turnover requirements but operate in industries with a high likelihood of facing human rights or environmental conflicts.

It is estimated these changes will cut the number of impacted companies to 30% of the original scope. That translates to about 0.05% of the total number of businesses operating in the EU. The CSDDD will also be phased in over a longer period so that it will only be fully implemented for all in-scope companies five years after coming into force.

These changes have come after the deal had already been diluted to appease industry lobbies and EU capitals, notably that the financial services sector had secured exemption from due diligence on clients. This is potentially damaging given the financial sector’s pivotal role in the EU’s Green Transition. Such behaviour from the Council is damaging to the EU democratic policy-making process.

Nele Meyer, the ECCJ Director, recognised the legislation’s significance but issued a cautionary note; “Today’s endorsement of the CSDDD is a significant landmark recognition toward regulating businesses to uphold human rights and environmental standards… But it is far from a resounding victory for victims and advocates: the endorsed compromise falls short of the ambition of the original trilogue agreement due to last-minute, undemocratic manoeuvres by Member States, who have once again betrayed those they should protect from corporate harm.”

The final legislation will proceed to a final vote in the European Parliament, where lawmakers are expected to support it ahead of the EU June elections.