The Corporate Sustainability Due Diligence Directive beyond Europe

The recent adoption of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) has been highlighted as an important step forward in the effort to introduce legislation requiring business enterprises to adopt measures aimed at preventing impacts to human rights and the environment, including in relation to climate change. It is a game changer, that forces a large number of European States to level the legislative landscape with regard to corporate responsibility for human rights and environmental impacts, as well as in relation to liability and access to justice. And yet, its reach throughout global “chains of activities” will most likely bring important hurdles for implementation. This post will look at four elements that are critical to ensure the rights of people outside of Europe are respected in the context of transnational business activities, highlighting the legal complexities of implementing the CSDDD in contexts that are significantly diverse from different standpoints, including legal culture.

Limiting the Content of Human Rights in the Context of Transnational Business Activities?

One of the key elements that has been analyzed in the context of the CSDDD, including by Meyer and Patz in this series, is its substantive scope: which rights will businesses have to take into account in the context of their due diligence obligations. This is a fundamental aspect of any human rights due diligence legislation: it defines the type of situations companies will have to consider throughout their prevention or mitigation strategies. As it stands, the CSDDD detours significantly from international (business and) human rights standards, defining a closed list of rights that leaves specific rights outside of the scope of corporate obligations. This can lead companies to complex situations where they may have to make choices in terms of which standards should be applied, which will most likely change from country to country, and limit the prospect of respecting human rights.

An example can be used in this regard to demonstrate how a minimalistic approach may create more issues for companies than solve them. In the litigation against EDF before French courts for its conduct in southern Mexico, one of the main arguments was the lack of respect of the rights to free, prior and informed consultation and consent of indigenous peoples. Such a right is not covered by Annexes I and II of the CSDDD; however, any EU company operating in Latin America should be aware that it is a general requirement, stemming both from national legislation, large regional ratification of ILO Convention 169, and the case law of the Inter-American Court of Human Rights. How should a parent company covered by the CSDDD proceed in this regard? Should it ignore the existence of such rights because they are not covered by the CSDDD, or should it consider, in addition to the CSDDD, national standards applicable in the sites where it operates or has business relationships? While some companies may opt for an expansive approach in terms of rights to be considered in their human rights due diligence processes, there may be some who will follow a more legalistic approach and that will seek to only comply with the letter of the CSDDD.

In this regard, while the inclusion of the ICCPR and the ICESCR is an important normative basis that covers many of the internationally recognized human rights, it would be convenient for companies to adopt a more encompassing view that ensures that the specificity of some rights is duly considered despite the restrictive substantive approach of the CSDDD, particularly regarding women, persons with disabilities, indigenous peoples, etcetera. At the end of the day, this would be consistent with the general characteristics of human rights as recognized by the Vienna Declaration and Programme of Action of 1993, including the fact that they are interrelated, which is a feature that companies should duly acknowledge and act upon.

Capacity-building in Transnational Business Activities

A second set of issues relates to the capacity to undertake human rights due diligence effectively, particularly in complex chains of activities. While it is an issue of a more practical nature, it may pose significant challenges for the respect of human rights in the context of business activities. A first point that is prevalent in many countries and for many companies outside of the EU is the assumption of knowledge and capacity about human rights, and particularly about corporate human rights risk management 13 years after the adoption of the UNGPs. Indeed, whenever someone attends the global or regional UN business and human rights forums, or any of the OECD forums on responsible business conduct, human rights due diligence is the lingua franca. However, beyond leading companies, that is not necessarily the reality on the ground.

While it is impossible to give an accurate picture of how all businesses address human rights issues, there is an important challenge (at least) in Latin America in terms of knowledge about human rights due diligence, let alone implementation. For example, there is a persistent view (granted, with some exceptions) that it is a topic that should be addressed by CSR or sustainability departments, or in any case, that it is the same (or at least very similar) as anti-corruption compliance, relying on third-party questionnaires to ask if any issues have been identified by suppliers or contractors. In some instances, companies allege that they respect human rights because they have diversity and inclusion policies, or because they respect labor rights, or even because they are members of the UN Global Compact. This, of course, is not enough to comply with the CSDDD, even if such an instrument doesn’t apply directly to companies outside of the EU. In this regard, the inclusion of a rule that requires the insertion of human rights due diligence clauses in contracts is a step in the right direction. However, it should be treated as a minimum basis that should be accompanied by serious and industry-wide capacity building efforts, that leads business partners to effectively understand and implement HRDD instead of treating it as a declaratory commitment with no actual effects. This includes recognizing the need to develop tailored tools and capacity-building efforts for micro and SMEs, which conform a large percentage of the business sector across the world, including 99.5% in Latin America.

The Need for Political Engagement and Economic Support by EU Countries

One of the key criticisms of the CSDDD and other related instruments, such as the Deforestation Regulation, has been the lack of engagement by the EU with third countries where such instruments would produce practical effects. Indeed, the adoption of the EU Deforestation Regulation led to a strong negative response by several States, including the largest economies in Latin America, calling it an unfair, punitive and discriminatory imposition of standards that failed to take into account both the reality on the ground and the efforts already undertaken to address some of the concerns covered by the Regulation. The same scenario will most likely take place in this context, particularly if this implies an economic impact for companies (and States) that form part of the chains of activities covered by the CSDDD (or the new Forced Labor Regulation). It is not just an argument about a lack of consultation, but also, as it has been explored by Caroline Lichuma, a potential situation of neo-colonialist regulation that some States may decide to bring forward.

Whether that is the case or not, it becomes evident –and certainly more pressing– that the EU will need to adopt a more intense strategy of engagement with its partners to ensure clarity in terms of the standards and practices required by the Directive, and how it may impact businesses along the chains of activities if they fail to take measures in that regard. This is a political challenge on its own, and an example may be relevant to show how, without clear strategies with the right incentives, the CSDDD may face significant hurdles. In 2019, the EU launched its Responsible Business Conduct in Latin America and the Caribbean (RBCLAC) project, that destined € 9 million to promote responsible business conduct in nine countries in Latin America, within the span of four years. The project was at least partially successful, as it facilitated the creation of networks and an increased visibility of the agenda, while also generating other results, such as the adoption of National Action Plans in Peru and Argentina, capacity-building with judiciaries from all covered States, and more familiarity of companies across those countries with human rights due diligence. Familiarity, however, does not necessarily mean implementation. A second phase of the RBCLAC project is expected to start soon; however, the EU has reportedly not increased the budget in comparison to the first phase, which may limit the possibility of reaching many of the companies that would need to take measures to ensure that the parent companies covered by the Directive comply with it.

This is a reality: third countries may not have a clear incentive to devote their own resources to contribute to the application of a legal instrument that they did not adopt and that is not legally binding in their territories. Furthermore, it could be the case, as explained earlier, that some States may adopt the view that companies operating in their territory are subjected to their domestic laws exclusively, which would force them to go beyond the limited scope of rights included in the CSDDD.

State Compliance with International and Regional Human Rights Law?

A final point should be made about the approach taken by the EU in the CSDDD and its consistency with international and regional human rights obligations. Indeed, States that have ratified the core UN human rights treaties, in addition to regional human rights conventions, generally have positive obligations to ensure human rights, including in the context of human rights abuses caused by non-State actors. Thus, in a hypothetical scenario where a State failed to properly regulate a business actor (e.g. by requiring it to undertake human rights due diligence), because it was a type of industry that was not covered by the CSDDD, or where it was not required to take measures in relation to specific rights, and an adverse impact on human rights occurred, such a failure could lead to State responsibility for its own omission to ensure (or protect) human rights. This potential situation should be duly considered by national legislatures when transposing the CSDDD and should lead to decisions that ensure consistency with their existing obligations under international and regional human rights law.

It will also be interesting to see the reaction of UN human rights treaty bodies vis-à-vis the transposition of the CSDDD and the coherence with existing State obligations by EU member Stated, both in the concluding observations regarding periodic reports presented by them, as well as in the context of individual communications, without speaking about potential cases before the European Court of Human Rights. It may perhaps become another front to push for normative coherence by EU member States, and to recognize that while the CSDDD takes a restrictive approach, it is mostly a procedural instrument that cannot and should not supersede existing international human rights obligations.

Conclusion

I would like to draw two conclusions from these initial thoughts. The first one is that, in the transposition to domestic law, EU member States should aim for the highest common denominator in terms of the scope of rights that companies should consider while exercising human rights due diligence. It would not just operate in their favor, facilitating the consideration of all internationally recognized human rights and thus limiting or reducing potential problems of coordination throughout their chains of activities. Such an approach would also be consistent with the EU human rights policy as a whole.

Second, and perhaps more importantly, it is necessary to acknowledge that, just as in the EU, if something is of a voluntary nature, a large degree of implementation should not be expected. The same logic applies for companies operating in many (if not all) other States. While some may have already incorporated some of these standards into their practice and business relationships, the reality is that without national legislation requiring explicit preventive measures, companies should not be expected to do so on their own. This does not mean that all States should aim to introduce human rights due diligence legislation akin to the CSDDD (at least not exclusively); on the contrary, it should lead the EU to work with third States and other stakeholders to promote the adoption of standards consistent with their national realities that generally require companies to respect human rights, including, inter alia, through the exercise of human rights due diligence.