EU member states fight over scope of due diligence directive –

EU member states fight over scope of due diligence directive –

As EU member states close in on a common negotiating position on the Corporate Sustainability Due Diligence Directive (CSDDD), they are fighting over whether companies should do due diligence for their entire value chain or just the supply chain.

The directive initially proposed by the Commission on 23 February 2022 would require member states to introduce legislation making companies responsible for violations of human rights and environmental standards along its entire value chain.

This would mean that a company would have to conduct due diligence on its suppliers and clients, and it could also be held liable for how its product is used and disposed of.

Last-minute push for a narrower scope

However, multiple EU diplomats told EURACTIV that a coalition of member states, including France, Italy, Spain, and Portugal, are trying to prevent this in a last-minute push to narrow the scope of the directive to the supply chain of a company.

“We believe that the focus should be on the upstream and not on the downstream [of the value chain],” an EU member state diplomat told EURACTIV, arguing that due diligence of the supply chain was already ambitious.

According to the diplomat, including the downstream part of the value chain would pose a series of complex judicial questions. The diplomat also said that the majority view among member states was that the directive should focus on the upstream part of the value chain.

A diplomat of another EU member state told EURACTIV that the last-minute push led by France “is getting to a point where all that would remain would be a value chain in name only.”

As several EU diplomats confirmed to EURACTIV, the push is resisted by Germany, Denmark, Finland, Netherlands and Luxembourg.

Can the financial sector be held liable?

“Companies would be completely off the hook for the harms their products create,” one source familiar with the negotiations told EURACTIV regarding the consequence of ditching the value chain approach for a supply chain approach.

For example, pesticide producers would not be held accountable if their products were used in a way that was especially harmful to the environment or to public health. Or producers of digital surveillance tools could not be made responsible if their tools were used for illegal surveillance operations, such as Pegasus or Predator.

The supply chain approach would also benefit financial institutions that do not want to be held liable for what their invested money might be put to use for.

Regarding the financial sector, France and Italy would like to entirely exempt it from the scope of the directive, according to multiple EU sources. Meanwhile, Germany, Ireland, and Luxembourg would just like to exempt asset managers and institutional investors.

In general, the changes currently put forward by EU member states point towards a less strict directive. “The longer this file stays in the Council, the more watered down it gets,” one source familiar with the negotiations told EURACTIV.

Agreement possible on Friday

Germany, for example, proposed what one EU diplomat called “a get out of jail free card”, namely an amendment that would allow companies to be largely exempt from liability if they were part of an industry initiative to address issues along the value chain.  While this sits uneasy with the supposedly progressive stance of the centre-left German government, this push might not lead to much.

According to one EU diplomat, the change proposed by Germany did not get much traction and is unlikely to be included in a new compromise text.

Member state negotiators hope they can agree on Friday so that the industry ministers can approve the common position of the member states at their meeting on 1 December in Brussels.

[Edited by Alice Taylor]

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