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By Allen Campbell, JD, MBA

This is another blog post in our series on Value Chain Sustainability.

There is substantial business support for Value Chain Sustainability (VCS) laws, such as the European Union’s draft Corporate Sustainability Due Diligence Directive (CSDDD). In recent weeks big companies have come together to call upon their governments to adopt and/or strengthen such legislation.

In the UK:

On July 7th of this year, 49 companies and organizations promulgated a document entitled Calling for a New UK Law Mandating Human Rights and Environmental Due Diligence for Companies and Investors. The signatories included Microsoft, ALDI, Mondelez, Nestle, Sainbury’s and Tesco. They said:

“We, the undersigned, as leading businesses, investors, business associations and initiatives operating in the UK, *** call on the government to introduce a new legal requirement for companies and investors to carry out human rights and environmental due diligence *** to prevent abuse of human rights and environmental harm in global operations and value chains. ***

“[W]e *** recognise the need for new binding standards which benefit all and promote sustainability. Mandatory human rights and environmental due diligence is key to ensure that efforts by companies that respect people and the planet *** are not undercut by the lack of a uniform standard of conduct applying to all business actors.

“Some companies are already taking steps to implement due diligence processes in line with the corporate responsibility to respect human rights as outlined by the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises. However, more companies need to assess, act and report on their potential and actual impacts on human rights and the environment. Legislation introducing an obligation to conduct due diligence as defined by the UNGPs and covering all business actors is critical to bring all companies to the same standard and build on progress to date.”

In the European Union:

The CSDDD is being finalized in the EU legislative process. The European Parliament, the European Council and the European Commission continue to be engaged in tripartite negotiations – the so-called Trilogue.

A few days ago, on August 30th, forty large players on the world stage, such as Unilever, Danone, Ericsson, Hapag-Lloyd, Mars and Novo Nordisk, issued a statement entitled Support for Alignment of the CSDDD with the International Standards on Sustainability Due Diligence (the “Statement”). It not only expresses support for the Directive, it also calls on European lawmakers to ensure that the mandatory due diligence requirements of the CSDDD incorporate the aforementioned principles of the United Nations and the OECD:

“More than a decade has passed since the unanimous endorsement of the United Nations Guiding Principles on Business and Human Rights (UNGPs) and their incorporation in the OECD Guidelines for Multinational Enterprises, which were recently updated.

“These authoritative international standards united stakeholders around a shared understanding of the scope of corporate responsibility for adverse sustainability impacts across the value chain. They have since been adopted, and relied on, by companies and industry associations as the blueprint to secure better outcomes for people and the environment, and have shaped emerging practice across sectors and geographies.”

The Statement makes five key points:

  1. The due diligence requirements should be risk-based and apply to the entire spectrum of risks and impacts across the entire value chains of companies, including downstream, in all sectors, including financial institutions, in accordance with the UN/OECD principles.
  2. Multistakeholder collaboration can help companies learn from the experiences of others. However, initiatives can only support, but never replace, a company’s own due diligence responsibilities. They therefore cannot provide a ‘safe harbor’.
  3. The due diligence duty should motivate companies and their directors to consider the company’s own activities that can raise or lower risks to people, the environment and climate across value chains. The CSDDD should encourage engagement by companies with business partners, rather than top-down policing through an overreliance on contracts and audits.
  4. Sustainability due diligence depends on (i) the perspectives of affected stakeholders, including workers, unions, communities and human rights & environmental defenders  and (ii) meaningful engagement with them.
  5. The Directive will need meaningful enforcement to ensure (i) that companies comply with it and (ii) that those who are harmed have access to a remedy – in the form of administrative supervision and civil liability.

The Statement concludes that the CSDDD “will not achieve its full impact if it [merely] harmonizes expectations between EU member states while diverging from the accepted international standards of the UNGPs and OECD guidelines.”

 Three key takeaways:

  • The Directive is moving forward with broad political support, even from businesses.
  • Businesses outside the EU are lobbying their governments for similar laws.
  • The values and principles of the United Nations and the OECD remain influential.

 Two worthy observations:

  •  Many thoughtful, well-intentioned people believe that doing ESG voluntarily is preferable to mandates. That is, at best, debatable. The signatories to the aforementioned documents are motivated in large part by the understandable belief that successful sustainability will depend on a level playing field for all participants in the global economy. This is consistent with the idea that ESG is moving from “soft law” to “hard law”.
  • The idea of engagement with business partners and other stakeholders is gaining acceptance. Companies can be expected to commit to stakeholder engagement and enhance their communication and negotiation skills accordingly.

VCS is a juggernaut. The Corporate Sustainability Reporting Directive has been enacted in the EU. Other VCS laws are on the books or in the legislative process. We are witnessing a global legislative achievement in the making.