CLEPA

The entity agrees with a legal framework on due diligence and calls for a Regulation

The entity states that 'a regulation on supply chain due diligence would be the best way to ensure harmonised implementation across Member States, thus avoiding a patchwork of national requirements and legal uncertainty. A high degree of harmonisation at EU level can eventually strengthen the competitiveness of EU suppliers. It is our understanding, however, that the Commission will address supply chain due diligence within the context of a social corporate governance directive that will also address director duties ... a regulation for supply chain due diligence based on Single Market competence and a directive on directors' duties should be considered'.

The entity calls for a more harmonised framework than the one presented

The entity states that 'CLEPA welcomes the intention to provide a coherent framework for supply chain due diligence across the EU but warns in the public consultation that the current proposal will create legal uncertainty and may fragment the single market. The directive should be amended to provide more assurances for a harmonised framework ...'.

The entity calls for full harmonisation

The entity states that 'The most important element of the proposal should be full harmonisation. This is necessary to avoid fragmentation of the EU single market and ensure a level playing field. This can be achieved by using, for instance, an “internal market clause”. If the EU wishes its model to be used as a reference elsewhere in the world, it cannot rely on the limited harmonisation provided by the directive that would potentially lead to 27 different frameworks'.

The entity welcomes the Omnibus proposal and calls for amendments to be made to the CSDDD without making detailed suggestions

"However, the current regulatory approach places excessive emphasis on reporting requirements and legal liability, creating administrative burdens and legal uncertainty that hinder innovation and competitiveness. … the current patchwork of directives and regulations has shifted significant resources to data collection across supply chains, the preparation of audits, and efforts to ensure compliance with often contradictory or duplicate requirements. ... The European Commission must reassess the impact of the Corporate Sustainability Due Diligence Directive (CS3D) on competitiveness and propose concrete changes to limit the administrative burden related to non-reporting due diligence requirements."

The entity supports the creation of an EU level due diligence framework, emphasising harmonisation.

The entity states that 'CLEPA welcomes the inception impact assessment to embed sustainability and supply chain due diligence into a new EU corporate governance framework. Uniform regulation at EU level can increase effectiveness, level the playing field and avoid a patchwork of different frameworks across the EU. It is critical that EU initiatives harmonise rules across the EU, easing compliance and lowering costs instead of adding a layer of complexity it'.

Although the entity indicates that it welcomes the due diligence framework, it criticises its design and argues that would undermine legal certainty and fragment the market

The entity states that 'CLEPA welcomes the initiative for an EU wide sustainability due diligence framework. Unfortunately, without revisions, the proposal would undermine legal certainty and fragment the single market. Companies should be provided with more means and legal assurances to effectively fulfill due diligence requirements'. Then it explains the the aspects that need to be amended, why it considers it fails, and proposes different amendments.

The entity, through a joint business statement (JBS), shows support while showing some concerns on implementation.

The JBS indicates that: 'European business remains supportive of the objectives of the proposed directive ... and we urge co-legislators to work on a reasonable approach that is manageable for companies in practice'. It also states that 'we strongly call for full harmonization to ensure a level playing field and avoid further internal market fragmentation' and that 'legal clarity is paramount for the success of this initiative'.

While signatories show general support for CS3D objectives, they urge rapid adoption of the postponement measures in the Omnibus package. Their position centres on delaying implementation.

The statement points out that 'Although we stand behind the objectives of the CSRD and the CS3D, any setback in the adoption of the proposed postponement measure would jeopardise the stability and predictability that companies require to plan their long-term investments and compliance strategies'. It also indicates that 'reporting obligations under these laws are considerably resource intensive, often requiring additional headcount and a substantial financial investment. By swiftly postponing requirements set in the CSRD and the CS3D, policymakers can avoid squandering vital business resources'.

By endorsing this joint statement, the entity demonstrates support for the Omnibus Simplification Package designed to lower the level of ambition and delay the implementation of the Corporate Sustainability Due Diligence Directive.

The document states that 'The Corporate Sustainability Due Diligence Directive (“CS3D”), undoubtedly the flagship legislation adopted under the Green Deal, is particularly ambitious in terms of its scope thereby creating challenging and impactful new obligations for businesses with global value chains and in some instances rife unintended repercussions for the real economy in the EU and in third countries. ... We, the undersigned European associations representing companies and sectors impacted by the CS3D, welcome the European Commission’s intention to put administrative burden relief and simplification at the heart of its agenda'. It also calls for extending the implementation phase: 'Guidelines and implementing legislation should be adopted at least two years before compliance with legislation becomes mandatory or the transition period should be extended'.

The entity is in favour of a regulatory approach towards due diligence.

"""As industry associations / responsible business initiatives, we stand behind the EU’s objective to ensure respect for human rights and the environment through an EU-harmonised regulatory approach to due diligence""""We call for: Full harmonisation and consistency of EU due diligence requirements in sectoral and cross-sectoral policies and legal frameworks, in terms of scope, standards and enforcement modalities to ensure respect of better regulation principles."""

The entity calls for tailored conditions for SMEs and increasing the thresholds for SMEs defintion

The entity states that: 'Small and middle-sized companies will have less means to conduct supply chain due diligence. The legal framework should acknowledge this and public authorities should provide dedicated support. It is in this context worth noting that the French and German supply chain laws both went beyond the very narrow EU SME definition. The European framework should ideally be aligned with these definitions'

Calls for differentiated treatment of SMEs and sector-specific flexibility

The entity states that 'Any initiative should consider the complexity of global supply chains with often complex and indirect sourcing relations and consider differences between companies and sectors. A SME will not be able to conduct human rights due diligence of the same form and sophistication as a big multinational'.

The JBS does not oppose the inclusion of SMEs, but calls for safeguards to protect them.

The JBS seem to show support to the inclusion of SMEs, although it reiterates that: "The European economy, included SMEs which will be impacted even if formally out of the scope, need a workable due diligence framework that is drafted in a balanced and proportionate way."

Supports limited liability where reasonable due diligence is conducted

The entity states that 'Automotive suppliers should continue to be able to source raw materials or processed parts from across the world without liability concerns beyond their span of control. Experience with Conflict Minerals reporting to the US Securities and Exchange Commission (SEC) shows that span of control would require clear definition. For instance, if mandatory due diligence is imposed, it should not go beyond the level of the supply chain that is under the direct control of a company'.

The entity supports coordination and public oversight, but opposes brod civil liability

The entity considers there are some flaws, including the following: 'Civil liability could stretch beyond obligation of means and direct business relationships'. It proposes that If a company has complied with due diligence obligations, no civil liability should apply (obligation of means). Also: 'European network of supervisory agencies should be a driver of harmonisation'.

Entity supports the proposal in general terms

"We call for: ""Full harmonisation and consistency of EU due diligence requirements in sectoral and crosssectoral policies and legal frameworks, in terms of scope, standards and enforcement modalities to ensure respect of better regulation principles.""""The European Commission to facilitate engagement between enforcement agencies at Member State level by (for example) establishing an EU-level expert group, to ensure coherent national enforcement."""

The entity does not see significant added value in including due diligence responsibilities on directors' duties

The entity states that 'CLEPA members do not see significant added value in explicitly including supply chain due diligence responsibilities into the director duties. The director duties part of the proposal remains therefore unaddressed in this position paper'.

The entity does not consider necessary to regulate directors' duties.

The entity states that 'Regulating directors’ duties is unnecessary to reach the objectives of the proposal and does not belong in a due diligence framework. It will have negative side-effects, e.g. interfering with national company law systems and creating legal uncertainty, without added value to the ability of companies to apply effective due diligence'.

The JBS rejects including directors' duties in the Directive.

The JBS states that: 'regulating directors' duties does not belong in a due diligence framework. It will have negative side-effects, including the disruption of existing, well-established governance models of the member states, without added value to the ability of companies to apply effective due diligence'.

The entity considers a risk to introduce civil liability, and calls for a limited liability for specific cases

The entity states that 'Civil liability will greatly limit any effort to reduce legal uncertainty in a situation where business' control on outcomes is limited due to the multi-stakeholder nature of global supply chains. Challenges presented in this position paper illustrate why civil liability would lead to risks of business being held responsible for events they cannot control. If a civil liability element is added to the framework, it should clearly be limited to being liable for breaches of supply chain due diligence efforts. No liability for outcome of supply chain due diligence efforts should be imposed and the proposal should clearly identify which breaches could lead to civil liability'.

Although the entity does not oppose to legal liability, it calls for a more balanced approach

The entity states that 'Legal liability provisions need to be balanced and truly incorporate the widely accepted principle that due diligence is first and foremost an obligationof means and that companies cannot be made liable for damages they have not caused or directly contributed to (intentionally or negligently)'

The entity accepts liability for non-compliance with due diligence obligations, with exemptions for demonstrated compliance.

"If a company has complied with due diligence obligations, no civil liability should apply (obligation of means). Companies should explicitly be exempted from civil liability risks if obligations of article 7 and 8 are fulfilled and contractual assurances were obtained from direct suppliers and verified by an industry alliance"

Although the joint statement does not oppose to legal liability, it calls for a more balanced approach

The joint statement indicates that 'Legal liability provisions, including sanctions, need to be balanced, follow legal traditions around breach-damage-causality and truly incorporate the widely accepted principle that due diligence is first and foremost an obligation of means. The complexity of value chains cannot be underestimated when analysing impacts which can have multiple competing causes, players and dynamics. Therefore, companies cannot be made liable for damages they have not -intentionally or negligently - caused'.

The entity opposes to the extention of obligations beyond upstream supply chain and direct control, and calls for exceptions in specific regions.

The entity states that 'making businesses responsible to conduct oversight beyond their direct supplier base will in most cases stretch their span of control'. It also points out that a mandatory due diligence should reflect the fact that while a company has full control over its own operations and certain insight and influence into the operations and supply chain management of direct suppliers, it has very little to no control over indirect suppliers/ sub-suppliers'. It also points out that ' European suppliers therefore may face competitive disadvantages if sourcing possibilities become more limited than those available to non-European suppliers. Furthermore, a wide range of raw materials of relevance for the production of automotive components can only be sourced from a limited number of countries with a high ESG risk profile. The framework should provide a clear recognition of the fact that companies for certain products may be in a dependence and asymmetric power relationship with their supplier and will face a significant commercial disadvantage if they would not be able to source a certain raw material or intermediate good. In case e.g. raw materials cannot be procured in “non-risk” areas, the framework should provide a possibility / describe circumstances on how to maintain the supply chain without compromising any of the due diligence requirements'.

The entity calls the Comission to recognise limitation in supply chain control

The entity states that 'the directive should be amended to ... institutionally anchor the globally prevalent risk-based approach and to recognise limitations in the control that individual businesses have over their supply chain'

The entity considers that covering the whole value chain is neither manageable nor realistic. It also calls for a reduction of obligations.

The entity states that 'Focusing on all aspects within the whole value chain is neither manageable nor realistic. Supply chains alone can comprise multiple tiers with hundreds or thousands of locations, product lines and entities. Companies should be able to prioritise the most salient risks and have the freedom to take appropriate actions to cease, prevent or mitigate identified adverse impacts in accordance with a risk based approach. Without this ability to prioritise, companies cannot realistically implement due diligence requirements in an efficient way'. It also points out that ' The list of norms/conventions in the Annex is too far reaching and generates legal uncertainty. Most of the norms in the annex are only applicable to states and not legal private entities like companies. To be workable, this list should be reviewed and shortened, clearly indicating what are the requirements directly applicable to companies'.

The entity would limit obligations to supply chain under direct control

The entity states that 'if mandatory due diligence is imposed, it should not go beyond the level of the supply chain that is under the direct control of a company. No liability should be imposed where the business can show it undertook reasonable due diligence'. It does not refer to remedy nor improvement over time.

The entity opposes to the extention of obligations beyond upstream supply chain and direct control.

The entity states that 'Due diligence requirements should only apply to upstream suppliers’ supply chain'. It doesn't refer to other elements of the indicator such as remedy or improvement. Then entity seems to be in favour of legal requirement for due diligence.

The joint statement argues that companies can't focus in all elements of their value chains. It also calls for a reduction of obligations

The joint statement states that 'To ensure that the future Directive is truly consistent with a risk-based approach, widely supported in international instruments in the UN and OECD, companies cannot be expected to focus on every single element of their value chains. The ability to prioritise the identification of and action to address the most salient risks is a necessity that must have a crucial impact on compliance with the due diligence process and its consequences'. It also points out that 'we call for revisiting and shortening the annex to only include those conventions and treaties that create concrete obligations on companies so not to mix up their roles with the one of states'.

It supports contractual clauses with third-party verification as part of compliance

The entity states that 'Industry initiatives and contractual clauses should be clearly defined and allow for (civil) liability exemptions'. It then adds that 'Companies should explicitly be exempted from civil liability risks if obligations of article 7 and 8 are fulfilled and contractual assurances were obtained from direct suppliers and verified by an industry alliance'.

The signatories call for avoid the extension of the scope of CS3D during implementation and introduction of guidance on model contract clauses.

The statement indicates that 'competitiveness assessment that leads to the new simplification should ensure that upcoming implementing legislation and guidance … are co-developed to address gaps or excessively burdensome provisions, rather than introduce additional layers of complexity or de facto extend the scope of the CS3D'.