Ferma says CSDDD rejection provides time to address ‘shortcomings’

The Federation of European Risk Management Associations (Ferma) has told Commercial Risk that news that the Corporate Sustainability Due Diligence Directive (CSDDD) has been formally shelved for now will provide more time to address its “practical shortcomings” and potentially deliver a more risk-based approach.

The comments come as human rights and environmental groups reacted angrily to news that the CSDDD failed to achieve backing from the European Council, as a rising number of European states signalled their opposition to the planned rules and forced the Belgian presidency of the EU to halt the legislation’s path.

“While supporting the European Commission’s ambitions for the CSDDD, Ferma has been vocal about the practical difficulties associated with implementing the directive requirements as proposed, and has been calling for a risk-based and proportionate approach to value chain due diligence. Yesterday’s decision by the Council to put the legislation on hold will allow additional time to address the practical shortcomings in the current text,” said Typhaine Beaupérin, Ferma’s CEO.

Initial opposition to the CSDDD was raised by Germany and Italy but reports suggest that they were joined by sceptical ambassadors at the Council meeting this week from Austria, Bulgaria, Czechia, Estonia, Finland, Hungary, Italy, Luxembourg, Lithuania, Malta, Slovakia and Sweden.

A French proposal to lift the bar so that the directive only applied to companies with more than 5,000 employees rather than 500, which would have slashed the numbers of firms impacted by the rules by as much as 80%, was not enough to convince these nations that the further ‘red tape’ was necessary.

The bottom line appears to be that European businesses – worried about costs and rising restrictions on their ability to compete in the global market at a time of high uncertainty and volatility – have won the day for now, though of course not all companies agree that the CSDDD is a bad thing.

The Belgian presidency announced that “necessary support wasn’t found” for the CSDDD at the meeting of national ambassadors. “We now have to consider the state of play and will see if it’s possible to address the concerns put forward by Member States,” it added.

Lara Wolters, who led negotiations for the European Parliament as the directive’s Rapporteur, was clearly disappointed with the result. She said that national governments were playing “political games” ahead of the many elections coming across Europe.

“Member States are protecting all those companies that prefer not to take a close look at what is happening in their global supply chains,” Wolters said. “We urge the Council to stick to its commitments and find a solution to resolve this issue before the end of the current mandate,” she continued.

The European Coalition for Corporate Justice (ECCJ), the largest civil society network devoted to corporate accountability, which represents more than 480 NGOs, trade unions and academic institutions throughout Europe, was one of many groups that voiced its severe disappointment in the Council’s decision.

“Today’s failure of the EU Council to endorse the Corporate Sustainability Due Diligence Directive marks a deplorable setback for corporate accountability and the protection of human rights and the environment worldwide,” it said in a joint statement with fellow organisations.

“The blockage is largely attributable to big Member States: the early announced abstention from influential Germany – orchestrated by the minority German coalition partner the FDP, and met with spiritless resistance by Chancellor Scholz – was followed by others. A last-minute attempt by France to derail negotiations by proposing a tenfold increase in the company threshold last night increased the uncertainty for other states,” continued the statement.

“These political games starkly defy the resounding support for the directive from governments, trade unions, civil society, large, medium and small businesses, and individual citizens. Without binding EU legislation on corporate accountability, national governments fail to address human rights impacts, the exploitation of workers, and impacts on indigenous peoples’s rights and other traditional communities and natural ecosystems linked to corporate operations. It is a harrowing failure by EU governments to meet their obligations under international human rights law, and a green-light signal to reckless businesses that they can keep fuelling the climate and ecological crises for corporate profits,” it added.

The International Federation for Human Rights, which represents 188 organisations in 117 countries, was equally shocked by the derailment of this flagship piece of EC legislation.

“The failure of the EU Council to endorse the Corporate Sustainability Due Diligence Directive… marks a deplorable setback for corporate accountability and the protection of human rights and the environment worldwide. FIDH joins a coalition of 130 organisations in calling on the Belgian Presidency to circle back to the member states and ensure a strong majority without haggling over the key principles of the compromise hammered out in the trilogue agreement,” it said.

Uku Lilleväli, sustainable finance policy officer at WWF European Policy Office, said: “It’s scandalous that, in the 21st century, certain European lawmakers wish to permit companies to ignore human rights and environmental integrity, all under the guise of short-term profits. Let’s be clear: the law wouldn’t burden companies with unnecessary red tape; instead, it would secure a level playing field and help firms navigate necessary transitions in an informed and responsible manner.”