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After a highly politicised process undertaken over a number of years, the European Union (EU) fnally adopted the Corporate Sustainability Due Diligence Directive (CSDDD) on 13 June 2024. The CSDDD entered into force on 25 July 2024, starting a two-year transposition period whereby Member States will have to transpose the Directive’s obligations into their national laws by 26 July 2026 at the latest. The CSDDD creates an obligation for large companies to undertake risk-based due diligence to identify, assess, address and remedy potential and actual adverse impacts on human rights and the environment in connection with a company’s activities and broader business operations. The adoption of the CSDDD is part of a trend in recent years towards the adoption of binding sustainability obligations for companies, particularly in the EU. This presents a valuable opportunity to consolidate an approach to managing human rights and environmental risks which builds on the standards set in international instruments and emerging good practices. However, the move from voluntary standards to binding requirements on companies runs the risk of stifing innovative approaches, meaningful stakeholder engagement and pioneering collaborations to shift towards a compliance-driven approach to the due diligence process that is more concerned with fulflling the minimum standard required by the law. There are opportunities to address these issues in the development of transposition laws and through additional measures, such as guidance. It is clear that mandatory measures are needed to drive change,1 however, the soft law standards in the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines) should continue to guide the concrete implementation of binding obligations. These internationally recognised frameworks encourage a holistic approach to due diligence that is aimed at achieving better respect for human rights and the environment with which the CSDDD is largely aligned. Accordingly, these frameworks remain critical touchstones to guide companies, state authorities, civil society and other stakeholders in the transposition and implementation of the obligations contained in the CSDDD. As independent actors with human rights expertise, national human rights institutions (NHRIs) are well-placed to engage in the transposition process to advocate for alignment with the UNGPs and the OECD Guidelines, as well as bring attention to those areas in the Directive text that still require clarifcation. There are a range of issues that NHRIs can raise with policymakers through the transposition process: 1. Clarifying core concepts: NHRIs can engage with policymakers to ensure that the core due diligence concepts are accurately captured in the transposition laws and are as far as possible aligned with the UNGPs and OECD Guidelines. Key issues where NHRIs can take this approach are: a. Ensuring that the key elements of the risk-based approach to due diligence in the CSDDD are transposed faithfully. This includes the identifcation of impacts; the defnition of, and approach to, ‘appropriate measures’; the involvement framework; prioritisation; and the use of MSIs, industry initiatives and third-party verifcation. It is important to keep as an attention point challenges which may arise from local language translations of these core concepts; b. Ensuring that stakeholder consultation is core to the process; and c. Ensuring that the requirements for responsible disengagement are met. 2. Resolving ambiguities: There is some language in the Directive which is ambiguous and would beneft from clarifcation in the transposition laws, including in respect of the material scope, the civil liability regime and the due diligence required on downstream impacts. Further, there are a number of matters of interpretation that would beneft from a consistent approach across Member States, and in respect of which NHRIs can encourage national authorities to raise with the European Commission. 3. Encouraging ambitious transposition laws: if there are opportunities to do so, NHRIs can advocate for more ambitious laws which may exceed the minimum requirements in the Directive. Key issues where NHRIs can take this approach are: a. expanding the personal scope to include a larger number of companies; b. taking a broader approach to material scope, either by including a broader range of international instruments or simplifying the conditions on which a right or prohibition is in scope of the Directive; and c. Expanding the approach to downstream due diligence in the defnition of “chain of activities”. 4. Engage with Member State implementation: NHRIs can also engage in technical implementation questions relevant to the national context such as ensuring an effective approach to supervision and enforcement, including the designation, resourcing and capacity building of Supervisory Authorities and the development of accompanying measures. Broadening the personal scope: NHRIs could engage with policymakers to advocate for a broader personal scope or one that refects more the nature of the industry landscape in their jurisdiction. This could take the form of: • Lowering the employee and turnover thresholds, for example, to 500 employees and a turnover of 150million or apply the laws to large companies and listed SMEs to align with the personal scope in the CSRD. • Considering including other forms of business which may exist under the national laws of the Member State but which are not included in the personal scope of the CSDDD. Clarifying the material scope: NHRIs could engage with policymakers to advocate for clearer drafting on the material scope. This could take the form of: • Broadening the scope of human rights and instruments, including noted omissions such as European human rights frameworks and other topical conventions such as, inter alia, Convention Against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment, the Convention on the Elimination of all forms of Discrimination Against Women and the Convention on the Elimination of all forms of Racial Discrimination, the Convention on the Rights of Persons with Disabilities, the frst two Optional Protocols to the Convention on the Rights of the Child, the ILO Conventions on Occupational Health and Safety, ILO Minimum Wage Convention, as well as international humanitarian law instruments and other frameworks such as, inter alia, the UN Declaration on the Rights of Indigenous Peoples and the UN Declaration on the Rights of Persons Belonging to National or Ethnic, Religious and Linguistic Minorities. • Advocate for language in transposition laws which clarifes how the term “abuse” is to be understood in the context of the CSDDD and encourage consultation with the European Fundamental Rights Agency. • Highlighting challenges of interpretation of the defnition of “adverse human rights impacts” with the relevant national authority and encouraging them to seek clarifcation from the European Commission on how the three conditions in the defnition of adverse human rights impact will work, i.e.: (a) that a company could abuse a right; (b) that an abuse of a right impairs a protected legal interest; and (c) a company could reasonably identify an abuse of a right and how this works with the identifcation obligation. Alternatively, advocating for these conditions to be omitted. • Clarifying through authoritative guidance and/or an approach to oversight, enforcement and support given by Supervisory Authorities that companies should take an expansive approach to capturing human rights in their due diligence in line with the expectations of the UNGPs. Addressing downstream due diligence and ‘chain of activities’ concept: NHRIs could engage with policymakers to advocate for a broader approach to the scope of due diligence or enhanced alignment with the UNGPs. This could take the form of: • Clarifying the defnition of “chain of activities” to include parts of the downstream value chain that were originally contained in the various legislative proposals at EU level, such as use of the product or service, design, composition, commercialisation, sales, marketing, disposal and waste management. • Including express language in the transposition laws which makes clear that own operations due diligence requires consideration of downstream impacts, including the use of products and services. • Clarifying through authoritative guidance and/or an approach to oversight, enforcement and support given by Supervisory Authorities that downstream impacts should be considered in the context of own operations due diligence, consistent with the European Commission’s FAQ. Ensuring a risk-based approach to due diligence: NHRIs could engage with policymakers to advocate for rooting obligations on companies in the holistic, risk-based approach to due diligence of the UNGPs in the transposition laws. This could take the form of: • Ensuring that the defnition of “appropriate measures” is translated and transposed faithfully and that the concept of “effectiveness” is core to the measures undertaken to address actual and potential impacts. • Ensuring that the use of contractual assurances does not lead to in-scope companies offoading their due diligence obligations onto other companies that are not in the scope of the CSDDD, especially SMEs. • Keeping as an attention point that the notions of “cause”, “jointly cause” and “caused only by a business partner” are based on the UNGPs approach to involvement, which should conceptualise involvement as a spectrum rather than set categories. • Keeping as an attention point that prioritisation should be undertaken only when necessary and requires dynamic assessments that will depend on context, adapt to the characteristics of the impact, the nature of the relationship with potential involved stakeholders and the company’s resources. • Ensuring that the use of MSIs and industry initiatives is not made a proxy for stakeholder engagement and due diligence, but rather as one of the tools within a more holistic due diligence process. Centring stakeholder engagement in the due diligence process: NHRIs could engage with policymakers to advocate for centring stakeholder engagement in the due diligence process. This could take the form of: • Ensuring that transposition laws are clear that engagement with affected stakeholders or their legitimate representatives is core to the due diligence process and is not an ‘add-on’. • Ensuring that the concept of meaningful stakeholder engagement is adequately translated and transposed into national laws. • Clarifying that the use of experts, MSIs or industry initiatives should only be used to support stakeholder consultation where it is appropriate to do so, and cannot substitute for meaningful stakeholder engagement. • Engaging with Member State authorities to advocate for necessary support to be given to stakeholders in order to facilitate the exercise of rights in the CSDDD relevant to the national context. Responsible disengagement: NHRIs could engage with policymakers to advocate for transposition laws to accurately refect the requirements of the CSDDD and refect the expectations of the UNGPs. This could take the form of: • Ensuring that the risk that disengaging is an option of last resort and can lead to a worse situation for rightsholders and the environment is made clear and that companies must take this into account in their assessment and consult with stakeholders. • Clarifying that companies should take into account remediation obligations in the context of decisions to disengage from a context or business relationship. Clarifying the civil liability regime: NHRIs could engage with policymakers to advocate for clarifcations to be made to the civil liability regime in transposition laws which aligns with the particularities of their national legal system and takes a balanced but expansive approach to liability prioritising access to justice for victims. This could take the form of: • Clarifying that environmental claims and claims involving collective rights are within scope and that the wording “aimed to protect the natural or legal person” is interpreted in line with the approach in the recitals concerning derivative liability. • Advocating for a reversal of the burden of proof in transposition laws to address the serious power imbalances between companies and those harmed by due diligence failures. • Ensuring that the provisions of national law transposing the civil liability regime are of overriding mandatory application in cases where the law applicable to such claims is not the national law of a Member State. • Strengthening of other national provisions needed to support the objectives of the civil liability provision in the CSDDD, such as protection of victims. In addition, this note delves into additional implementation matters that the Member States will have to address, and to which the NHRIs should be attentive. They include: Designating and designing the Supervisory Authority: NHRIs could engage with policymakers to advocate for the designation of one or more Supervisory Authorities (SAs) with adequate capacity and resourcing to properly supervise the transposition laws. This could take the form of: • Engaging with national policymakers on the designation of the SAs keeping in mind existing national supervisory mandates and mechanisms of relevance including to clarify potential interrelationship with National Contact Point or other mechanisms of relevance. • Engaging with national policymakers on the design of the SAs and planning for how to monitor how the SAs exercise their mandate to ensure that they meet the requirements that they be independent, impartial and transparent. • Advocating for the appropriate resourcing of the future SAs, including with the fnancial resources to conduct monitoring and advisory activities, and human resources to cover the scope of competence required to monitor the implementation of the CSDDD in the EU and beyond, including the necessary human rights expertise. • Advocating for the substantiated concern processes to be designed and implemented in a way that is consistent with the effectiveness criteria for non judicial grievance mechanisms outlined in the UNGPs, including legitimacy, accessibility, predictability, equity, transparency, rights compatibility and being a source for continuous learning. – • Planning for how to monitor the way in which SAs receive and address substantiated concerns including ensuring that substantiated concerns are dealt with without undue delay. This includes consideration of the adequacy of administrative or judicial review processes available in respect of decisions of the SAs. • Planning for how to raise awareness of the substantiated concerns process and provide support to rightsholders using the process. • Offering to play an active collaborative role with the future SAs either through a formal agreement or through an informal collaboration to provide legal human rights expertise and share knowledge on key human rights and environmental issues, as well as facilitating exchanges with NHRIs in countries relevant to in-scope companies’ chains of activities. Adopting accompanying measures: NHRIs could engage with policymakers to advocate for the development of accompanying measures to be ft for purpose and meet the needs of rightsholders and other stakeholders. This could be done through engagement with national policymakers on the development of information accessibility and support measures required under the CSDDD.

Transposition of the Corporate Sustainability Due Diligence Directive: A practical guide for national human rights institutions

Resource Key: JEIRQ44W

Document Type: Report

Creator:

Author:

  • Gabrielle Holly
  • Mathilde Dicalou

Creators Name: {mb_resource_zotero_creatorsname}

Place: Copenhagen, Denmark

Institution: Danish Institute for Human Rights

Date: 2024

Language: en

After a highly politicised process undertaken over a number of years, the European Union (EU) fnally adopted the Corporate Sustainability Due Diligence Directive (CSDDD) on 13 June 2024. The CSDDD entered into force on 25 July 2024, starting a two-year transposition period whereby Member States will have to transpose the Directive’s obligations into their national laws by 26 July 2026 at the latest. The CSDDD creates an obligation for large companies to undertake risk-based due diligence to identify, assess, address and remedy potential and actual adverse impacts on human rights and the environment in connection with a company’s activities and broader business operations. The adoption of the CSDDD is part of a trend in recent years towards the adoption of binding sustainability obligations for companies, particularly in the EU. This presents a valuable opportunity to consolidate an approach to managing human rights and environmental risks which builds on the standards set in international instruments and emerging good practices. However, the move from voluntary standards to binding requirements on companies runs the risk of stifing innovative approaches, meaningful stakeholder engagement and pioneering collaborations to shift towards a compliance-driven approach to the due diligence process that is more concerned with fulflling the minimum standard required by the law. There are opportunities to address these issues in the development of transposition laws and through additional measures, such as guidance. It is clear that mandatory measures are needed to drive change,1 however, the soft law standards in the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines) should continue to guide the concrete implementation of binding obligations. These internationally recognised frameworks encourage a holistic approach to due diligence that is aimed at achieving better respect for human rights and the environment with which the CSDDD is largely aligned. Accordingly, these frameworks remain critical touchstones to guide companies, state authorities, civil society and other stakeholders in the transposition and implementation of the obligations contained in the CSDDD. As independent actors with human rights expertise, national human rights institutions (NHRIs) are well-placed to engage in the transposition process to advocate for alignment with the UNGPs and the OECD Guidelines, as well as bring attention to those areas in the Directive text that still require clarifcation. There are a range of issues that NHRIs can raise with policymakers through the transposition process: 1. Clarifying core concepts: NHRIs can engage with policymakers to ensure that the core due diligence concepts are accurately captured in the transposition laws and are as far as possible aligned with the UNGPs and OECD Guidelines. Key issues where NHRIs can take this approach are: a. Ensuring that the key elements of the risk-based approach to due diligence in the CSDDD are transposed faithfully. This includes the identifcation of impacts; the defnition of, and approach to, ‘appropriate measures’; the involvement framework; prioritisation; and the use of MSIs, industry initiatives and third-party verifcation. It is important to keep as an attention point challenges which may arise from local language translations of these core concepts; b. Ensuring that stakeholder consultation is core to the process; and c. Ensuring that the requirements for responsible disengagement are met. 2. Resolving ambiguities: There is some language in the Directive which is ambiguous and would beneft from clarifcation in the transposition laws, including in respect of the material scope, the civil liability regime and the due diligence required on downstream impacts. Further, there are a number of matters of interpretation that would beneft from a consistent approach across Member States, and in respect of which NHRIs can encourage national authorities to raise with the European Commission. 3. Encouraging ambitious transposition laws: if there are opportunities to do so, NHRIs can advocate for more ambitious laws which may exceed the minimum requirements in the Directive. Key issues where NHRIs can take this approach are: a. expanding the personal scope to include a larger number of companies; b. taking a broader approach to material scope, either by including a broader range of international instruments or simplifying the conditions on which a right or prohibition is in scope of the Directive; and c. Expanding the approach to downstream due diligence in the defnition of “chain of activities”. 4. Engage with Member State implementation: NHRIs can also engage in technical implementation questions relevant to the national context such as ensuring an effective approach to supervision and enforcement, including the designation, resourcing and capacity building of Supervisory Authorities and the development of accompanying measures. Broadening the personal scope: NHRIs could engage with policymakers to advocate for a broader personal scope or one that refects more the nature of the industry landscape in their jurisdiction. This could take the form of: • Lowering the employee and turnover thresholds, for example, to 500 employees and a turnover of 150million or apply the laws to large companies and listed SMEs to align with the personal scope in the CSRD. • Considering including other forms of business which may exist under the national laws of the Member State but which are not included in the personal scope of the CSDDD. Clarifying the material scope: NHRIs could engage with policymakers to advocate for clearer drafting on the material scope. This could take the form of: • Broadening the scope of human rights and instruments, including noted omissions such as European human rights frameworks and other topical conventions such as, inter alia, Convention Against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment, the Convention on the Elimination of all forms of Discrimination Against Women and the Convention on the Elimination of all forms of Racial Discrimination, the Convention on the Rights of Persons with Disabilities, the frst two Optional Protocols to the Convention on the Rights of the Child, the ILO Conventions on Occupational Health and Safety, ILO Minimum Wage Convention, as well as international humanitarian law instruments and other frameworks such as, inter alia, the UN Declaration on the Rights of Indigenous Peoples and the UN Declaration on the Rights of Persons Belonging to National or Ethnic, Religious and Linguistic Minorities. • Advocate for language in transposition laws which clarifes how the term “abuse” is to be understood in the context of the CSDDD and encourage consultation with the European Fundamental Rights Agency. • Highlighting challenges of interpretation of the defnition of “adverse human rights impacts” with the relevant national authority and encouraging them to seek clarifcation from the European Commission on how the three conditions in the defnition of adverse human rights impact will work, i.e.: (a) that a company could abuse a right; (b) that an abuse of a right impairs a protected legal interest; and (c) a company could reasonably identify an abuse of a right and how this works with the identifcation obligation. Alternatively, advocating for these conditions to be omitted. • Clarifying through authoritative guidance and/or an approach to oversight, enforcement and support given by Supervisory Authorities that companies should take an expansive approach to capturing human rights in their due diligence in line with the expectations of the UNGPs. Addressing downstream due diligence and ‘chain of activities’ concept: NHRIs could engage with policymakers to advocate for a broader approach to the scope of due diligence or enhanced alignment with the UNGPs. This could take the form of: • Clarifying the defnition of “chain of activities” to include parts of the downstream value chain that were originally contained in the various legislative proposals at EU level, such as use of the product or service, design, composition, commercialisation, sales, marketing, disposal and waste management. • Including express language in the transposition laws which makes clear that own operations due diligence requires consideration of downstream impacts, including the use of products and services. • Clarifying through authoritative guidance and/or an approach to oversight, enforcement and support given by Supervisory Authorities that downstream impacts should be considered in the context of own operations due diligence, consistent with the European Commission’s FAQ. Ensuring a risk-based approach to due diligence: NHRIs could engage with policymakers to advocate for rooting obligations on companies in the holistic, risk-based approach to due diligence of the UNGPs in the transposition laws. This could take the form of: • Ensuring that the defnition of “appropriate measures” is translated and transposed faithfully and that the concept of “effectiveness” is core to the measures undertaken to address actual and potential impacts. • Ensuring that the use of contractual assurances does not lead to in-scope companies offoading their due diligence obligations onto other companies that are not in the scope of the CSDDD, especially SMEs. • Keeping as an attention point that the notions of “cause”, “jointly cause” and “caused only by a business partner” are based on the UNGPs approach to involvement, which should conceptualise involvement as a spectrum rather than set categories. • Keeping as an attention point that prioritisation should be undertaken only when necessary and requires dynamic assessments that will depend on context, adapt to the characteristics of the impact, the nature of the relationship with potential involved stakeholders and the company’s resources. • Ensuring that the use of MSIs and industry initiatives is not made a proxy for stakeholder engagement and due diligence, but rather as one of the tools within a more holistic due diligence process. Centring stakeholder engagement in the due diligence process: NHRIs could engage with policymakers to advocate for centring stakeholder engagement in the due diligence process. This could take the form of: • Ensuring that transposition laws are clear that engagement with affected stakeholders or their legitimate representatives is core to the due diligence process and is not an ‘add-on’. • Ensuring that the concept of meaningful stakeholder engagement is adequately translated and transposed into national laws. • Clarifying that the use of experts, MSIs or industry initiatives should only be used to support stakeholder consultation where it is appropriate to do so, and cannot substitute for meaningful stakeholder engagement. • Engaging with Member State authorities to advocate for necessary support to be given to stakeholders in order to facilitate the exercise of rights in the CSDDD relevant to the national context. Responsible disengagement: NHRIs could engage with policymakers to advocate for transposition laws to accurately refect the requirements of the CSDDD and refect the expectations of the UNGPs. This could take the form of: • Ensuring that the risk that disengaging is an option of last resort and can lead to a worse situation for rightsholders and the environment is made clear and that companies must take this into account in their assessment and consult with stakeholders. • Clarifying that companies should take into account remediation obligations in the context of decisions to disengage from a context or business relationship. Clarifying the civil liability regime: NHRIs could engage with policymakers to advocate for clarifcations to be made to the civil liability regime in transposition laws which aligns with the particularities of their national legal system and takes a balanced but expansive approach to liability prioritising access to justice for victims. This could take the form of: • Clarifying that environmental claims and claims involving collective rights are within scope and that the wording “aimed to protect the natural or legal person” is interpreted in line with the approach in the recitals concerning derivative liability. • Advocating for a reversal of the burden of proof in transposition laws to address the serious power imbalances between companies and those harmed by due diligence failures. • Ensuring that the provisions of national law transposing the civil liability regime are of overriding mandatory application in cases where the law applicable to such claims is not the national law of a Member State. • Strengthening of other national provisions needed to support the objectives of the civil liability provision in the CSDDD, such as protection of victims. In addition, this note delves into additional implementation matters that the Member States will have to address, and to which the NHRIs should be attentive. They include: Designating and designing the Supervisory Authority: NHRIs could engage with policymakers to advocate for the designation of one or more Supervisory Authorities (SAs) with adequate capacity and resourcing to properly supervise the transposition laws. This could take the form of: • Engaging with national policymakers on the designation of the SAs keeping in mind existing national supervisory mandates and mechanisms of relevance including to clarify potential interrelationship with National Contact Point or other mechanisms of relevance. • Engaging with national policymakers on the design of the SAs and planning for how to monitor how the SAs exercise their mandate to ensure that they meet the requirements that they be independent, impartial and transparent. • Advocating for the appropriate resourcing of the future SAs, including with the fnancial resources to conduct monitoring and advisory activities, and human resources to cover the scope of competence required to monitor the implementation of the CSDDD in the EU and beyond, including the necessary human rights expertise. • Advocating for the substantiated concern processes to be designed and implemented in a way that is consistent with the effectiveness criteria for non judicial grievance mechanisms outlined in the UNGPs, including legitimacy, accessibility, predictability, equity, transparency, rights compatibility and being a source for continuous learning. – • Planning for how to monitor the way in which SAs receive and address substantiated concerns including ensuring that substantiated concerns are dealt with without undue delay. This includes consideration of the adequacy of administrative or judicial review processes available in respect of decisions of the SAs. • Planning for how to raise awareness of the substantiated concerns process and provide support to rightsholders using the process. • Offering to play an active collaborative role with the future SAs either through a formal agreement or through an informal collaboration to provide legal human rights expertise and share knowledge on key human rights and environmental issues, as well as facilitating exchanges with NHRIs in countries relevant to in-scope companies’ chains of activities. Adopting accompanying measures: NHRIs could engage with policymakers to advocate for the development of accompanying measures to be ft for purpose and meet the needs of rightsholders and other stakeholders. This could be done through engagement with national policymakers on the development of information accessibility and support measures required under the CSDDD.

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