10 June 2024

New Wine in Old Bottles

Environmental and Climate Aspects of the EU’s Corporate Sustainability Due Diligence Directive

The CSDDD requires companies to carry out due diligence on actual and potential human rights and environmental adverse impacts. This means companies have to identify harmful impacts in their value chains and take appropriate measures to prevent and mitigate them, or, bring them to an end. The directive also requires companies to adopt and put into effect “a transition plan for climate change mitigation”.

In this two-part blog post, we will look at which environmental impacts are covered by the CSDDD and how they are addressed. Our intention is to provide a starting point for the debate by summarising the outcome of the legislative process. We explain how we got there, and offer some thoughts on where we might go next. This first part of the post will describe which environmental impacts are covered by the CSDDD while the second part will explain how the negotiations influenced the design of the CSDDD’s environmental scope, as well as the missed opportunities, and examine four crucial points for the successful transposition and implementation of the CSDDD’s environmental provisions.

What environmental impacts are covered by the CSDDD?

Considering the numerous cases of environmental pollution and degradation caused by companies’ activities in their value chains, the inclusion of corporate due diligence obligations for adverse environmental impacts in the directive is a positive step towards ensuring companies address their environmental risks and improving corporate environmental accountability. This approach builds on existing due diligence legislation in Germany and France. It also cements the CSDDD’s contribution to the achievement of the European Green Deal’s environmental goals. However, while requiring companies to avoid and address adverse environmental impacts goes beyond the UN Guiding Principles’ human rights-focused approach, the CSDDD falls short of aligning with the environmental standards outlined in the OECD Guidelines for Multinational Enterprises.

The CSDDD addresses environmental impacts in two ways. First, companies must conduct due diligence on “adverse environmental impacts” that result from violations of international environmental obligations and prohibitions, or from environmental degradation that interferes with human rights. Second, companies must adopt and implement transition plans to tackle climate change mitigation.

Preventing and mitigating adverse environmental impacts

Article 3(1)(b) defines an “adverse environmental impact” as “an adverse impact on the environment resulting from the breach of the prohibitions and obligations listed in Part I, Section 1, points 15 and 16, and Part II of the Annex”. One must therefore turn to the Annex to understand what an “adverse environmental impact” is. The CSDDD’s Annex restates prohibitions and obligations from sixteen widely ratified international environmental conventions while also specifying the role of environmental degradation in interfering with the enjoyment of human rights.

International environmental prohibitions and obligations

An adverse environmental impact is an “adverse impact on the environment” potentially resulting from the breach of the prohibitions and obligations listed in Part II of the Annex. Part II contains a limited number of prohibitions and obligations derived from international environmental instruments, which can be divided into three main categories: biodiversity and habitat protection; chemical and waste management; and pollution prevention.

In relation to biodiversity and habitat protection, companies will have to ensure respect for the obligation to avoid or minimise adverse impacts on biological diversity (in line with the Convention on Biological Diversity and its Cartagena Protocol on Biosafety and Nagoya Protocol on Access and Benefit-Sharing), on natural heritage properties (World Heritage Convention) and on wetlands (Ramsar Convention); as well as the prohibition on the import and export of endangered species (CITES).

Companies will also be required to conduct due diligence to prevent adverse environmental impacts that could result from infringing chemical and waste management prohibitions. Those include prohibitions relating to: mercury trade and waste management (Minamata Convention on Mercury); the production, use and waste management of persistent organic pollutants (Stockholm Convention on Persistent Organic Pollutants); the import and export of hazardous chemicals (Rotterdam Convention); the unlawful production, consumption or trade of substances depleting the ozone layer (Montreal Protocol); as well as the specific exports and imports of hazardous waste (Basel Convention).

Finally, adverse environmental impacts may result from the failure to comply with pollution prevention obligations, particularly the obligations to prevent pollution from ships (MARPOL 73/78) and to prevent, reduce, and control pollution of the marine environment by dumping (UNCLOS).

For all prohibitions and obligations, companies must consider relevant national legislation, especially national rules, that further develop the standard of conduct of those international prohibitions and obligations. Additionally, some of these prohibitions and obligations should be interpreted in line with applicable host state legislation or specific EU legislation (e.g., Regulation 2019/1021 on persistent organic pollutants).

In almost all cases, the CSDDD incorporates only the most limited and specific provisions of said international instruments – often those already requiring member states to legislate business behaviour in their domestic orders. To take the example of UNCLOS, only the prevention, reduction, and control of pollution of the sea by dumping is included (Article 210, which requires states to adopt laws and regulations to this effect). Meanwhile, Article 194, which contains a more general requirement to address marine pollution, has not been included.

Linking environmental degradation to human rights and well-being

At the same time, the CSDDD recognises that environmental or natural resource degradation can impede the enjoyment of specific human rights and well-being, building on the approach of the German Supply Chain Act and in line with the right to a clean, healthy, and sustainable environment.

The CSDDD provides for two types of situations when it comes to the interaction between human rights and environmental adverse impacts which – while retaining an anthropocentric approach – require companies to examine a wide range of harms that might lead to impacts on humans.

First, under Point 15 of Part I, Section 1 of the Annex, an adverse environmental impact will result from causing any measurable environmental degradation (e.g., harmful soil change; water or air pollution; harmful emissions; excessive water consumption; degradation of land), or other impact on natural resources (e.g., deforestation) that negatively affect the enjoyment of specific rights. Borrowing some of the German Supply Chain Act’s language, Point 15(a) to (d) refers to situations where the rights to food, water, sanitation, health, and safety, as well as the right to use land and lawfully acquired possessions are jeopardised by environmental degradation or impacts on natural resources. Contrary to the German Supply Chain Act, the CSDDD defines those not just as human rights impacts, but also as environmental impacts. Furthermore, Point 15(e) refers to the situation where environmental degradation or impact on natural resources “substantially adversely affect ecosystem services” that an ecosystem provides directly or indirectly to human wellbeing. This approach is analogous to the logic behind the right to a clean, healthy, and sustainable environment, as recognised by the UN General Assembly in 2022, which identifies the interdependence between human rights and the environment. Point 15 captures a wide range of types of environmental degradation, and Point 15(e) goes beyond a focus on specific human rights standards by emphasising the protection of “human well-being”, a much broader concept, instead.

Second, under Point 16 of Part I, Section 1 of the Annex, an adverse environmental impact will result from the breach of the prohibition to unlawfully evict or take land, forest, and waters when acquiring, developing, or otherwise using land, forest, and waters, including by deforestation, the use of which secures the livelihood of a person. This breach will be considered to adversely impact the “right of individuals, groups, and communities to lands and resources”, as well as “the right not to be deprived of means of subsistence”.

This provision acknowledges the link between unlawful eviction or the taking of land and other natural resources in the context of corporate activities and the negative impact on all peoples’ right to freely dispose of their natural wealth and resources, as well as their right to their own means of subsistence (Article 1(2) ICCPR & ICESCR). Point 16 must also be interpreted in accordance with Article 11 ICESCR, which protects the right to an adequate standard of living. Importantly, it emphasises the collective dimension of these impacts, explicitly naming the right of groups and communities to land and resources and referring to human rights standards intended to protect groups, particularly minorities who are more vulnerable to human rights violations (Article 27 ICCPR). Implementation of Point 16 will be particularly relevant in situations such as the EACOP project, which involves the French oil multinational TotalEnergies, where land grabbing has seriously jeopardised local communities’ rights to their natural resources and their own means of subsistence in Uganda and Tanzania.

Both Points 15 and 16 clearly identify deforestation as a situation where companies may deny individuals or communities the enjoyment of their rights or threaten their well-being. In practice, companies that identify deforestation in their chains of activities should therefore assess whether they may be involved in abuses of the human rights protected through Points 15 and 16.

Tackling climate change

Article 22(1) of the CSDDD requires companies to adopt and put into effect “a transition plan for climate change mitigation”. In essence, this builds on pre-existing company practices in response to the climate crisis, as well as CSRD disclosure requirements. Transition planning is an iterative exercise that requires companies to identify their most important contributions to climate change (in terms of GHG emissions), take action on them, and track the results of measures taken. Therefore, it bears some similarities to doing due diligence. However, transition plans as defined in the CSDDD are a more forward-looking planning tool, and they overlook important aspects of mitigation such as carbon sinks, fall short of addressing climate adaptation, and do not cover remediation.

The climate transition plan aims to ensure that the company’s business model and strategy are compatible with the transition to a sustainable economy, as well as with the objectives of limiting global warming to 1.5 °C and achieving climate neutrality as established in the European Climate Law. In terms of content requirements, companies must include a minimum set of information in their transition plan, including time-bound climate change targets for 2030 and in five-year steps up to 2050 based on conclusive scientific evidence. In line with best practices and other EU regulatory frameworks, the vast majority of cases will require absolute emission reductions across scopes 1, 2 and 3.

To capitalise on synergies with the Corporate Sustainability Reporting Directive (CSRD), companies disclosing a plan under the CSRD will not be required to prepare an additional plan for CSDDD purposes, but they will retain CSDDD’s obligations to put said plan into effect and update on their progress.

This recognition of CSRD plans does not reduce climate obligations to mere reporting, as national supervisory authorities will be required to supervise the transition plan’s adoption, design, including implementing actions, and updates. They may also potentially impose penalties in the event of non-compliance (see, to this effect, Article 25(1)). Moreover, the CSDDD clarifies key elements of transition plans (namely alignment to 1.5ºC decarbonisation trajectories, targets to the effect, and detailed explanations of implementing actions), whereas the CSRD, as a disclosure framework, does not impose behavioural obligations on companies. The additional requirements under the CSDDD are a welcome step forward.

The first part of this blog post covered the CSDDD’s main environmental and climate elements. In the second part, we will discuss how to interpret the CSDDD outcome to ensure a coherent application and implementation of its environmental and climate obligations.

 

 

Acknowledgments

The authors thank Nele Meyer for her useful comments.