Large UK companies warned over CSDDD

UK companies have been warned “not to rest on their laurels” with regard to the EU’s new Corporate Sustainability Due Diligence Directive (CSDDD), according to law firm RPC. It noted that despite Brexit, the directive will still apply to large UK companies that make significant revenues in the EU. RPC called the directive “a real turning point” despite certain compromises over contentious issues. Sophie Tuson, a senior associate at RPC and environment and climate change practice lead, said: “After four years in the making, agreement on the EU’s new Corporate Sustainability Due Diligence Directive marks a historic moment. For the first time, all EU member states will need to pass national laws forcing companies to address negative human rights and environmental impacts in their supply chains.” She added: “This is a real turning point as up until now these kinds of harms have largely been unregulated and supply chain due diligence has been voluntary under various international standards. It sends a clear message to businesses that as responsible corporate citizens they must address the wider social and environmental impacts of their supply chains.” However, she pointed to two contentious areas. Firstly, the limits on financial institutions. “A key sticking point during the negotiations was whether the rules would apply to financial institutions. The final agreement is largely a compromise, with the finance sector included but with more limited obligations. Notably, companies in the financial sector will only have to conduct due diligence of their own operations and their upstream suppliers, but not for the downstream companies they invest in,” said Tuson. She said this was a big win for the European Council and particular member states who had advocated for this exclusion. “However, many environmental NGOs will lament the fact that financial institutions are not required to do more to address the social and environmental impact of their investments,” she added. Secondly, she highlighted the provision around climate change, another area of contention. “Although the final text of the directive is yet to be published, it appears that climate change has been excluded from companies’ due diligence obligations despite the European Parliament strongly pushing for this. Nevertheless, all companies will need to adopt a climate transition plan to ensure their business models are compatible with a 1.5°c future. Driving corporate climate action in this way will be crucial for delivering on countries’ climate pledges under the Paris Agreement,” Tuson said. And she concluded that UK companies should not rest on their laurels, since the directive will still apply to large UK companies that make significant revenues in the EU. It will also apply indirectly to smaller UK companies if they are in the supply chains of EU companies that are caught by the directive, she explained. “It’s also not inconceivable that similar supply chain laws could be introduced in the UK in the near future. Just last week, the UK government announced its intention to push ahead with new rules that would force companies to conduct checks on their supply chains to ensure products like beef, cocoa, palm and soy were produced in line with local laws. A bill has also recently been tabled in Parliament proposing a UK equivalent of the CSDDD. While this still has a long way to go before it would make it into law, it shows there’s real appetite for similar supply chain laws in the UK,” she said.

Large UK companies warned over CSDDD

Directive a real turning point despite compromises

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