Key Milestone Achieved in the EU Due Diligence Law - Will it Lead to Impact?
April 28, 2023
On 24 April 2013, 1,100 apparel workers lost their lives and 2,600 were seriously injured in the Bangladesh Rana Plaza factory collapse. Days prior to the event, cracks were clearly visible in the factory walls, but workers were forced to continue working, fulfilling orders bound for Europe for well-known garment brands like Benetton, Mango and Primark.
On 25 April of this year, exactly ten years and one day after the disaster, the legal affairs committee of the European Parliament voted to adopt their position on the EU Directive on Corporate Sustainability Due Diligence (CSDD). This is a key milestone in the lengthy but potentially impactful process develop a legal framework that fosters more responsible behaviour in companies’ operations and supply chains.
While the Members of the European Parliament (MEPs) largely adopted the Commission’s proposal, they did make a few important changes. Notably they extended the application of the new rules, to include EU-based companies with more than 250 employees and a worldwide turnover higher than 40 million euro, as well as parent companies over 500 employees and a worldwide turnover higher than 150 million euro. Non-EU companies will also be covered if their turnover is higher than 150 million euro and at least 40 million euro was generated in the EU. SMEs remain a red-line issue, and are expected to remain outside the legislation’s scope, despite clear guidelines from the UNGPs and OECD stating that all companies have an obligation to conduct human rights due diligence regardless of size.
Another key point of divergence for the MEPs was the inclusion of the financial sector in the scope of the directive. In the MEP position, financial investors, including banks and asset managers, are required to undertake what is being called “lighter touch” due diligence - using their leverage to induce investee companies to mitigate or cease adverse impacts. Earlier, EU Ministers and financial lobby groups pushed for banks and investment funds to be exempt from the regulation, arguing that the law should recognize the unique status of financial firms. While the inclusion of the finance sector is a positive development, many fear the narrow definition will exempt financial actors from carrying out effective due diligence for most of their asset management activities and exclude client’s contractors.
While the achievement of this milestone should be celebrated, the road ahead is still long and paved with potential hurdles. The EU Parliament will first finalize its position and vote on it during the 31 May – 1 June plenary session. Following this, the negotiations with the EU Council on the final text of the legislation can start. The next few months are critical to achieving an inter-institutional agreement before next year’s European elections – but also to ensuring that the final text reflects an effective piece of legislation that will drive tangible impact for real workers.
So what are the critical weaknesses in the current proposal? Two key shortcomings are the need for more meaningful stakeholder engagement and varied preventative measures throughout the due diligence process, particularly with marginalized and vulnerable groups of workers.
Article 7 in particular, could be further elaborated upon to clearly spell out how companies can take a broader range of measures to prevent potential adverse impacts. At present it states that companies should develop and implement a prevention action plan in consultation with affected stakeholders, seek contractual assurances and verify compliance with a company’s Code of Conduct through third-party verification, and make necessary investments, such as into management or production processes. Companies should also provide SMEs with support where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME. 
The text of the legislation could be strengthened by more clearly embracing a broader range of business preventive and mitigating actions that help to address the power imbalances in supply chains. For example, while asking suppliers to sign Supplier Codes of Conduct may please the legal departments in companies, it does not in any way guarantee that suppliers implement those standards or that knowledge on these standards are being passed on to workers or sub-suppliers. Without placing workers at the centre of their due diligence actions, and providing them with the means to know and exercise their rights, corporate efforts will remain shallow and ineffective. Similarly, suppliers need to be fully engaged and empowered to create systems and approaches that respect and help realize worker rights.
Furthermore, the over-emphasis on third-party verification, instead of leaning in on more meaningful approaches such as worker-led monitoring, fostering transparent workplaces, and collaborative training of workers runs the risk of institutionalizing a “tick-the-box” approach to HRDD. The text of the draft Directive could be significantly strengthened by identifying the broader range of worker-centric actions that businesses can and should take to prevent and mitigate against adverse human rights impacts.
Quizrr strongly believes in worker-led and collaborative approaches to human rights due diligence. Our digital training programs are built to infuse knowledge from the bottom-up, creating shared knowledge and awareness to identify risks and prevent adverse human rights impacts. Particularly when coupled with effective grievance mechanisms, capacity building can be a great way to gain the trust of workers while creating greater accountability and transparency with suppliers. Training can also increase leverage as it shows an investment and interest in the business relationships and can foster collaboration between buyers in shared facilities.
So while the 25 April 2023 milestone is one that should be celebrated – we still have a way to go before the Directive is passed. Let’s use this time to strengthen it with more concrete wording on engagement with workers and other stakeholders throughout the entire due diligence process.
 Available at www.business-humanrights.org/en/latest-news/eu-legal-affairs-committee-adopts-position-on-corporate-sustainability-due-diligence-directive/
 Available at www.euractiv.com/section/economy-jobs/news/eu-lawmakers-adopt-due-diligence-rules-position-ahead-of-key-plenary-vote/
 Available at https://www.bloomberg.com/news/articles/2023-04-13/bankers-fear-huge-fallout-from-new-eu-rule-esg-regulation
 Available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0071
 Available at https://www.antislavery.org/wp-content/uploads/2022/05/ASI_CS3D_.pdf
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