EU corporate due diligence rules slammed for “watered down” policy

28 May 2024 --- The European Council has recently formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD) with the revised regulation enforcing new rules for large companies to address the harmful impacts of their activities on human rights and environmental protection. The directive holds the activities of company subsidiaries accountable, in addition to their business partners, and will impact the F&B industry at large, including palm oil, cocoa and coffee sectors.

Several critical issues that have plagued food and beverage corporations for decades fall within the regulation’s ambit. These include forced labor, child labor, inadequate workplace health and safety, worker exploitation and environmental footprints such as greenhouse gas emissions, pollution, biodiversity loss and ecosystem degradation.

Research has documented critical sustainability concerns intrinsically linked to key commodities and ingredients like coffee, cocoa, bananas and honey. 

A Fairtrade risk map established that one in five workers globally lives in poverty, agricultural production is responsible for 70% of global freshwater withdrawals and child labor is increasing. In light of these concerns, the law is a long time coming.

“The approval of CSDDD is an historic step. Most important is that CSDDD requires companies not only to avoid human rights and environmental issues in their value chains, but also to fix them. With the legislation saying that where relevant, companies should adapt business plans, overall strategies and operations, including purchasing practices,” Gert van der Bijl, senior EU policy advisor for Solidaridad Europe, tells Food Ingredients First.

While the revised CSDDD is not the ideal outcome, it holds promise.Experts and civil society organizations (CSOs) note that the discourse around the legislation has intensified the debate on responsibility in value chains, and some companies saw it coming.

“Some companies prepared for the implementation by changing the value chains. Transparency, long-term relations and pricing systems which allow living income and living wage are now much higher on the agenda than ever before. This will continue, as procurement practices must change in many value chains to fulfill the legal requirements,” says Friedel Hütz-Adams, senior researcher at the Sudwind Institute.

Fierce debates preceded the adoption
Member states have fiercely debated the CSDDD since the first vote in February 2024, when it could not get a qualifying endorsement from the Council of the EU. Germany had earlier threatened to withdraw support for the directive, citing potential bureaucratic and legal concerns facing businesses, postponing the decision by a month.

The Council’s Competitiveness Council held the final vote on May 24. Interestingly, out of 27 EU states, 17 voted in favor, while ten abstained. The voting requirements do not differentiate between abstention and voting against the directive, with both having the same effect. Abstaining states are Austria, Belgium, Bulgaria, Czech Republic, Estonia, Germany, Hungary, Lithuania, Malta and Slovakia.

Experts on the subject highlight that the revised law is strikingly different from the original proposal. 

For example, the directive will now affect companies with over 1,000 employees and a turnover of more than €450 million (US$489 million). In contrast, the original proposal applied to companies with 500 employees reporting more than €150 million (US$169 million) in revenue. Many deem this a watering down of the original text.

Sustainability concerns are intrinsically linked to key commodities like coffee, cocoa, bananas and honey.Additionally, implementation of the revised CSDDD will be phased in over five years. From 2027, it will apply to companies with more than 5,000 employees and €1,500 million (US$1631 million) turnover. The following year, it will impact companies with over 3,000 employees and a €900 million (US$978 million) turnover. Finally, in 2029, it will impact companies with more than 4,000 employees and €450 (US$489 million) million turnover.

Alexandra Dawe, director of corporate affairs and advocacy at the Rainforest Alliance, says: “Even though thresholds have shifted, making it less ambitious, CSDDD remains a catalyst for corporate accountability, bridging voluntary CSR to legally binding due diligence.”

CSOs voice concern, regret — and anger
The revised CSDDD has some weaknesses. One is that companies’ liabilities are not evident anymore,  Hütz-Adams from the Sudwind Institute told us. 

“Many small companies are part of the value chains of big companies. Specifically, the food sector depends on big supermarket chains for most of its turnover. Small companies do not fall under the CSDDD, but big companies to whom they want to sell products will raise questions about human rights in the value chain. They will not care how big their supplier is.”

The exclusion of smaller companies from the law could create chaos in some markets. He says it is already happening in Germany. “This will not create a level playing field, but an unfair competition by companies who don’t care about human rights in their value chains.” 

Moreover, he says the wording of the law “contradicts the requirements of the UN Guiding Principles on Businesses in Human Rights, which call for clear liabilities and don’t even mention the number of employees but focus on risk-based approaches.”

Eline Achterberg, policy lead for business and human rights at Oxfam Novib, comments: “The now adopted law covers fewer than 5,500 European companies, down from an estimated 17,000 as per the December agreement, adding thousands more businesses to the already long list of those escaping responsibility. As a result, well over 99% of European companies will not be stopped from burning the planet’s future and profiting from human suffering.” 

The altered thresholds will have real consequences for smallholder farmers, who produce about one-third of the world’s food. They also constitute a majority of the world’s poorest people along with fishermen.

The exclusion of smaller companies from the law could create chaos in some markets.“It also means that thousands of agri-food companies are not required to respect human rights, despite the high risks of abuse in that sector. And while these companies rake in massive profits, cocoa farmers continue to struggle for survival, banana pickers are being sprayed with dangerous pesticides and migrant workers on European tomato plantations are living in slums,” Achterberg continues.

The way forward
Corporate due diligence is integral to achieving sustainability targets. The ball is now in the court of governments and businesses. While the run-up to receiving the backing of a majority of European states has been rife with uncertainty, national governments must manage the implementation of the CSDDD and company compliance.

“In these national laws, states should diverge as little as possible from key international standards, such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct from 2011. Frontrunner companies have already adopted these guidelines and have shown that doing business responsibly is possible,” says Achterberg.

Advocates like Van Der Bijl reiterate the prioritization of small-scale farmers and suppliers. “It is now important to ensure that suppliers, particularly smallholders in sectors like cocoa or coffee, will not have to shoulder the burden of this directive’s ambition by themselves. Therefore, it is crucial that the EU and member states commit to provide financial support and information to different supply chain actors, civil society and producers throughout the world.”

The Rainforest Alliance, too, cites strong support and practical steps as essential to implementation. “Equitable investment in sustainability across the value chain is needed to support them in adopting practices benefiting both people and the planet,” adds Dawe.

While the revised CSDDD is not the ideal outcome, experts say it holds promise if implemented correctly. 

“Our role is to define what success looks like and to raise the bar, and we are doing so on the basis of proven operations. Human rights due diligence is not just a policy, but a proven positive impact on people’s lives,” notes Matthias Lange, executive director of the International Cocoa Initiative.

By Anvisha Manral