On the Sidelines: High Time to Coordinate EU Law with the Global South

With the final approval of the European Parliament in April 2024, the EU Corporate Sustainability Due Diligence Directive (EU CSDDD) will be enacted as a law. The final approval comes on the back of several months of negotiations and important milestones, including the EU Council and the EU Parliament Committee on Legal Affairs sign-off.

The EU Directive even in it’s watered down version is being upheld as an important step in the right direction. This is primarily because of it’s clear enunciation of intent and objective which is “to better exploit the potential of the single market to contribute to the transition to a sustainable economy and contribute to sustainable development through the prevention and mitigation of potential or actual human rights and environmental adverse impacts in companies’ chains of activities.” The proposed Bill sends a message to the value chain actors that corporate responsibility and accountability is here to stay and grow in scope, scale and significance. It recognizes businesses as important contributors to sustainable development and the sustainability transition of economies and societies, whilst ensuring that they do no harm intentionally and unintendedly

However, as may be the case with any other Law, the EU Directive does come with its areas for further consideration and improvement. In this regard, a key aspect that stands out, owing to its conspicuous absence is the voice and role of the ‘global south’ in the drafting process. Despite having skin in the game, there is lack of representation from emerging economies that typically constitute the tail-end of global value chains. Some may argue that the Directive in its current form will in 2029 applicable to:

• EU companies with more than 1,000 workers and with a global turnover surpassing Euro 450 million
• Non-EU companies generating Euro 450 million turnover in the EU (with no worker threshold)

It is estimated that close to 5,300 companies will fall under the ambit of the Directive. However, in practice, the number of businesses under the purview of the Directive will be far higher. This is owing to the coverage of the Directive which places clear expectations, albeit indirectly, on value chain actors including, subsidiaries and business partners. It will shape the way businesses conduct themselves with suppliers, investors, regulators, consumers, customers etc.

Participation in Development Process

Just as the casting process is integral to designing efficient and strong equipment/tool, the effectiveness and strength of a law lies in its casting (engagement/consultation) process, which by virtue of being inclusive and participatory weighs in on diverse and even divergent perspectives. A case in point, is the national framework on responsible business conduct developed by India titled, ‘National Guidelines on Responsible Business Conduct’ (updated version of the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011; NVGS) published by the Ministry of Corporate Affairs, Government of India in 2019. The timeline for the development of the Guideline ran parallel to the development of UN Guiding Principles on Business and Human Rights (UNGP) (UN doc A/HRC/17/31) which were also adopted in 2011. The development process of the national framework was guided by a Guideline Drafting Committee (representing different stakeholder groups) and backed by an extensive consultation process pan-India.

While the NVGs were voluntary, disclosure and reporting on it was mandated by the apex market regulator SEBI in a phased manner. The Guideline was later updated to align with the Sustainable Development Goals (SDGs) and the UNGPs. The robust process adopted in the development process was greatly instrumental in the mainstreaming of the national guideline. The further uptake of the NVGs was underpinned by a well-planned awareness raising and capacity building process. Today, top 1000 companies (by market capitalisation) mandatorily report on the Business Responsibility and Sustainability Reporting format and there is a lighter version that is developed for Small and Medium Enterprises (SMEs).    

On the Sidelines

However, a close look at the development timeline for the European Directive, right from the European Parliament and the European Commission releasing the proposed text in March 2021 and February 2022 respectively shows us that the global south has largely been sitting on the side lines, as a recipient of information (often sprinkled with confused messaging and blurred visibility on the next steps). Once the final formal approval is secured by the European Parliament and the member states, the Directive will enter into force on the twentieth day following its publication in the EU Official Journal. Following which the EU member states will have two years to transpose the Directive into national law. The Directive will then start to apply to companies in a phase-in way from 2027 and onwards, starting with the large companies.   

From now until 2027, when the EU Directive is implemented by businesses there is much that can and must be done to ensure a smooth adoption and rollout of the due diligence law. For in the absence of a clearly laid out deployment plan (developed through a consultative process) the laws are bound to be regarded with skepticism in the form of protectionism and trade barriers. This may in turn dampen the adoption of the Directive by the value chain actors and efforts to mainstream it.

While most recognize the need and importance for an EU-wide due diligence law that puts business and human rights centre stage, it is the approach toward its integration and adoption that will decide its efficacy in the coming times.