On 26 July 2024, the new EU Corporate Sustainability Due Diligence Directive (CSDDD) came into effect, marking the beginning of a three-year period during which EU countries must adopt the legislation into national law. 

This is a historic step which campaigners fought hard for the EU to take in order to change business conduct, give victims a chance at justice, and introduce binding climate and human rights obligations for companies. 

Under the new rules, corporate giants in the EU will be required to check their own operations and global activities for adverse environmental and human rights impacts and respond to them appropriately. For example, upon discovering an oil spill caused by its subsidiary anywhere, a fossil fuel giant would be expected to clean up the spill and take necessary measures to bring it to an end. 

If they fail to comply, companies risk fines amounting to 5 per cent of their global net turnover and even lawsuits. In a win for campaigners, victims of abusive EU corporate giants anywhere can bring lawsuits before European courts to claim compensation.  

The law phases in from 2027, when the first set of companies with 5000 and more employees and over 1.5 billion euros in annual turnover will need to comply.  From 2028, it will also apply to companies with at least 3000 employees and a turnover 900 million euros. In 2029, the final set of businesses that must comply with the CSDDD are those that employ 1000 people or more and have a turnover of at least 450 million euros. 

The CSDDD brings much-needed accountability to corporate giants, but it is also imperfect. This mixed result has much to do with growing corporate power and political choices in the last five years. But they don’t have to seal the fate of this landmark law. 

The law that almost wasn’t 

As soon as the idea of binding due diligence rules was floated in 2019, corporate lobbies went to work on a counter-campaign funded by a budget running in the millions. Using aggressive lobbying and communication tactics, which targeted the European Commission, ministries across member states, and permanent representatives in Brussels, corporate lobbies went from casting doubt over the need for binding rules to spreading disinformation about the draft law, weakening the provisions of CSDDD, and a last-ditch attempt to kill the bill. 

For corporations, this has always been a winning strategy. For decades, they used this strategy to make self-regulatory schemes and certification an accepted guarantee for responsible business conduct – despite evidence of their ineffectiveness. According to the World Benchmarking Alliance, most corporate giants are not even halfway to meeting human rights and environmental commitments. Meanwhile, the biggest oil and gas companies put off transitioning and continue to greenwash their activities while pouring millions into large-scale fossil fuel projects known as carbon bombs. 

Companies are not only failing to meet their own human rights and climate commitments, but they also get away with it. Campaigners have exposed how Shell and other European oil and gas giants have has turned the once biodiverse Niger Delta into one of the most oil-polluted regions on earth and how European fashion brands were complicit in the Rana Plaza garment factory collapse in Bangladesh which claimed over 1000 lives. Recently, media reports have highlighted ongoing labour rights violations and arsenic poisoning by a cobalt mine in Morocco that supplies German carmaker BMW. 

Companies are not only failing to meet their own human rights and climate commitments, but they also get away with it.

Victims in these cases and many more are left with their health, livelihoods, and environment in tatters. Those who seek justice face a host of hurdles – including retribution and a cumbersome legal system – that make accountability and restorative justice elusive. Perhaps the most illustrative of companies’ negligent conduct and dismissiveness is the oft-heard argument that they didn’t know about the impact of their activities. 

Add this unchecked corporate power to a fateful election year, and you get the most turbulent and norm-defying decision-making the EU has seen. Suddenly, protecting human rights and the planet from reckless companies became controversial and secondary to narrow political interests – best exemplified by German Free Democrats (FDP), the European People’s Party (EPP) and far-right groups’ stance against several nature and sustainability files.   

In the final six months of making the law, we saw corporate interest and political horse-trading in the driving seat of the EU, undermining its credibility and democratic process. Stirred by these events, the file’s lead rapporteur Lara Wolters denounced member states and lobbies for their “flagrant disregard” for the EU’s process.  

With lawmakers handing a free pass to the financial sector, scrapping the political agreement reached a mere two months prior, weakening the bill at the last minute, and stalling the final votes on the law, the future of meaningful corporate accountability rules by the EU looked shaky. 

Making big business do the bare minimum  

Yielding to corporate demands, EU lawmakers gutted rules for smaller companies in mining, textile, construction and other high-risk sectors, as well as extensive downstream coverage. They also scrapped due diligence on financial services and provisions requiring directors’ bonuses to be linked to their implementation of climate transition plans.  

Most shockingly, the CSDDD’s employee threshold was doubled and the turnover more than doubled. This move struck out 70 per cent of eligible companies and made corporate giants – some 5400 companies – the only targets of the rules. (The silver lining here is that the biggest and most powerful polluters are still covered by the law.).  

What’s worse, corporate lobbies secured a longer implementation period, effectively delaying the application of the law by three years. 

Under the compromised rules, corporate giants will need to check for negative impacts arising from their own operations, subsidiaries, and supply chains and take effective preventive, mitigating, and remediating action. Companies must adopt a due diligence policy, consulting affected communities and workers in its development and implementation. Victims will still be able to litigate within a minimum of five years if they can prove a company failed to conduct due diligence and is responsible for the harm suffered. The law also asks companies to adopt transition plans to bring their business model and strategy in line with EU climate law and the Paris Agreement 1.5 ºC goal.  

If this all reads as the basics of accountability, that’s because it is. 

The shadow of a law that remains is a much narrower interpretation of international due diligence standards defined by the UN Guiding Principles on Business and Human Rights and the Guidelines for Multinational Enterprises on Responsible Business Conduct outlined by the Organisation for Economic Co-operation and Development (OECD). The CSDDD is littered with vague terms such as “chain of activities” and “protected legal interests” that reinvent due diligence concepts and create confusion. In a joint letter, the UN Human Rights Office, the International Labour Organization, and the OECD warned that such misalignment not only sends the wrong signal to companies but it also undermines hard-won progress on due diligence. 

Some of the conflicts with existing standards could easily be resolved through clarifying guidelines. However, to plug the more consequential holes in the CSDDD, lawmakers must legislate. 

Room to improve 

One gap that leaves a sour taste in the mouth of campaigners is the exclusion of the finance sector from the CSDDD. Although the law requires them to adopt a transition plan, financial institutions won’t have to conduct due diligence on their core business – i.e. investments, lending, etc. As long as tailored due diligence rules aren’t extended to the finance sector, “financial institutions will produce cards with recycled plastics and their leaflets with sustainable paper while continuing to bankroll climate chaos with their investments,” warns Olivier Guérin of the watchdog Reclaim Finance. The EU still has the opportunity to right this oversight under a review clause that mandates the adoption of a separate law. 

Financial institutions will produce cards with recycled plastics and their leaflets with sustainable paper while continuing to bankroll climate chaos with their investments.

Still, more holes lie in the climate rules. While the climate provisions in CSDDD are novel, they do not amount to full due diligence obligations on climate-related impacts, leaving loopholes that companies could try to exploit. Beyond asking companies to adopt a transition plan, CSDDD asks them to set clear emissions reduction targets, implement the plan, update it, and report on the progress made towards the goals. These are key rules that climate campaigners won. However, lawmakers sabotaged this important contribution to corporate climate mitigation by failing to require supervisory authorities to monitor whether the plan has actually been put in place. This risks reducing transition plans to mere greenwashing tools.  

These shortfalls are especially alarming amid an escalating climate crisis that has seen companies ditching their self-imposed climate targets without accountability.  

Providing access to justice for victims is a key win in this legislation, but the rules do not pave an easy path to justice. The law has strict requirements on what can trigger a case. Notably, environmental harm alone with no direct victims won’t trigger a company’s liability, and neither will its failure to take climate action. Victims are saddled with the responsibility to identify a culprit, gather evidence, and prove misconduct. This can be a lengthy and expensive process for victims, even with the provision of some procedural rights.  

As campaigner Maelys Orellana of NGO ActionAid explains, “The complexity of corporate structures and of bringing together sufficient resources to build cases means that many obstacles remain for affected persons or communities. Member States should go further into correcting [the] asymmetry of power, such as reversing the burden of proof.” 

The fact that the law allows victims to be represented by trade unions and NGOs can help with this burden but as only social partners in the EU can represent victims, a privileged few with such networks stand to benefit.  

If we imagine victims behind a locked door to justice, these conditions put the keys to open that door just out of reach. 

Even the word “justice” must be used cautiously when speaking about the civil liability regime of CSDDD as the main goal is compensating victims even though in some cases that will be insufficient or too late. 

Will Europe keep its CSDDD promise?  

Despite these shortcomings, the start of the transposition phase of the CSDDD brings a sense of possibility and urgency. 

The fact that the CSDDD is a directive means member states can course-correct with an expansive and coherent transposition in the next two years. After all, a directive sets minimum standards and gives member states the regulatory room to go further. In this regard, the CSDDD gives member states ample room to strengthen their national law. 

The pushback campaign by corporate lobbies and some member states didn’t just water down the text; it undermined public perception and managed to throw out years of policymaking norms. By caving in to business demands, EU lawmakers have unwittingly given credence to falsehoods about corporate accountability and undermined trust in the bloc’s legislative process. This has primed the ground for a difficult transposition process. 

Therefore, the EU must now work to shed the veil of controversy around corporate accountability laws in general and the CSDDD in particular and restore trust in its process. This will require challenging and pre-empting harmful narratives by lobbies, strengthening institutional checks and balances, as well as safeguarding decision-making from undue corporate influence. 

So far, the European Commission is proving uninterested in this important task and too eager to do the bidding of corporations. Not only has the recently published Draghi report – commissioned by EU chief Ursula von der Leyen – been heavily influenced by corporations, but it also resurrects claims that laws like CSDDD impose a disproportionate regulatory burden on SMEs. The report also states that the national transposition of EU laws adds further obstacles to business. What’s more, in her briefs to candidates for the EU’s top jobs, von der Leyen has given them a mandate to pursue the so-called simplification of sustainability rules to make EU corporations more competitive. 

For monumental legislation like the CSDDD, timing is everything – and corporate lobbies understand this. They are biding their time and counting on fatigue and the right-ward shift in the EU’s institutions after the elections to undo the law.  

This opportunity can still be taken away by member states pursuing a swift transposition and implementation of the CSDDD.  

The defiant and mobilising force of civil society movements which buoyed this law will also be crucial. They must stand ready to challenge misinformation, raise public awareness, and hold companies and governments to the promises of the CSDDD. They will also be needed in ensuring that victims can exercise their hard-won right to take abusive companies to court. 

With companies failing spectacularly to meet social and climate goals while fighting attempts to enact binding rules, often with disregard for democracy, enforcing these new rules is a necessary step in reining in corrosive corporate power and for Europe to – finally – stand up for human rights and the environment.