CEFIC – European Chemical Industry Council

The entity is critical about the amount of regulation that German companies are subject to.

The entity indicates that: ‘And it’s not only the Green Deal – it is accompanied by the taxonomy, CSDDD, national regulations as the BEHG: German companies are more and more handcuffed by new regulations’.

It agrees with the need of due diligence requirements for companies.

The entity indicates that: ‘Cefic agrees that robust and clear due diligence requirements for companies are essential to identify and address adverse impacts on environmental and human rights. An adequate and consistent transposition process of the Directive is key to ensure its effective implementation by companies in scope, especially for those operating in complex and extensive value chains’.

It favours reducing regulatory burden and simplification, while warning against a significant litigation risks the CS3D may create and calling for a competitiveness assessment.

The entity indicates that: ‘we see scope for ‘quick-wins’ and concrete actions to reduce regulatory burden and lighten the administrative load, while maintaining policy objectives. ... The CS3D is expected to create significant litigation risks and should undergo a competitiveness assessment to identify and address areas for simplification and burden reduction so as to better circumscribe due diligence obligations and limit the liability exposure of companies in scope. Entry into application of the new rules should be postponed and transposition should be halted pending that assessment. ... we see a general need for accelerating, simplifying and harmonising administrative procedures in general’.

It welcomes the Omnibus package with weaker requirements.

The entity indicates that, ‘Cefic, the European Chemical Industry Council, welcomes the Commission proposals in the context of the Omnibus I on sustainability’, while highlighting some of the sector’s needs. It supports the following changes: ‘Extension of the scope of maximum harmonisation, Focus on direct business partners, Removal of certain aspects of the civil liability regime, Removal of the requirement to terminate a business relationship, Streamlining of the definition of “stakeholders” and limitation of the due diligence stages requiring stakeholder engagement, Extended frequency of monitoring obligations, Advancement of adoption of due diligence guidelines, Removal of the “minimum cap” and reference to companies’ turnover for pecuniary penalties’.

The entity argues the goal of the directive should not be to create new substantive standards and warns that the current draft could increase ESG litigation risk in Europe.

The entity indicates that: ‘Cefic understands the intention of the Proposal while cautioning that the current draft would significantly increase ESG litigation risk in Europe. The objective of this Proposal should not be to create new substantive standards for companies, but to distinguish which are considered critical and request company compliance and due diligence to ensure them. While there is opportunity to simplify the Directive proposal to elicit meaningful transparency (generation of reliable, comparable and consistent information), there is also an urgent need to clarify key elements and definitions (as has also been raised by the Regulatory Scrutiny Board5). Such amendments will ensure harmonized interpretation, transposition and enforcement across the EU27’.

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'.

The document considers that CS3D entails regulatory burden and calls for simplification, delay and clarification through implementing legislation.

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, 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'.

The statement supports the approach to, 'alleviate these burdens', including due diligence obligations.

The statement indicates that: ‘We, the signatories, wholeheartedly support this approach to revitalise Europe's competitiveness and call for even more ambitious action to obtain substantial relief for companies. Indeed, in recent years, numerous pieces of overlapping and highly prescriptive legislation concerning due diligence and reporting have been enacted at the European level, creating a significant bureaucratic burden for our companies … The current due diligence and reporting obligations pose unnecessary difficulties for everyone affected, …. We therefore need bold measures to alleviate these burdens’.

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."

It argues pecuniary sanctions should not be based on companies’ turnover.

The entity indicates that: ‘Recommended that pecuniary sanctions should only be imposed after a company has ignored a formal instruction by the Supervisory Authority to comply with a specific due diligence obligation. Moreover, they should not be based on the company’s turnover but capped. Dissuasive sanctions which are not based on the company’s turnover should be considered’. It further explains: ‘Defining pecuniary sanctions based solely on a company’s turnover can contravene the principle of proportionality between penalties and offences as well as the principles of justice and fairness of sanctions’.

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'.

It favour using leverage to compel the business partner to better comply with due diligence.

It notes: ‘in some cases refraining from “entering into new or extending existing business relations with the partner in connection with or in the value chain of which the impact has arisen” will have no influence on the proper prevention or remedial of the adverse impact. ... To a certain extent, prevention and/or remedial action can be better achieved by extending these business relations as it would give more leverage to the company. This leverage may in turn be used to compel the business partner to better comply with due diligence’.

It defends access to the grievance mechanism should be limited to submission by or on behalf of a person whose protected legal interests have been infringed.

The entity indicates that: ‘Even though not addressed in the Commission’s proposal, Cefic’s considerations on the substantiated concerns mechanism being misused remain. It should be clarified that substantiated concerns can only be submitted by or on behalf of a person whose protected legal interests have been infringed as a consequence of breach by the company of its obligations under this Directive’.

It favours a limitation to the scope of those that can file a complaint.

The entity indicates that: ‘It is recommended to add a specification that concerns can only be submitted by those that allege to have suffered damage as a direct, causal result of a companies’ failure to comply with the obligations under the Proposal (as transposed in national legislation)’. It explains: ‘The mechanism in the proposed Directive is open to abuse by the submission of a deliberately overwhelming number of claims/concerns. Even if claims/concerns are ultimately determined not to be legitimate or substantiated, it takes time and resources to reach that outcome’.

It welcomes the removal of the EU-wide specific civil liability regime.

The entity indicates that: ‘Cefic welcomes the proposed removal of the EU-wide specific civil liability regime in Article 29, especially the provisions in Article 29(3)(d) allowing representative actions, and the extraterritorial effect in Article 29(7)’.

The entity opposes to liability for damages caused by indirect business relationships.

The entity indicates that: ‘Liability should only be considered in relation to damage actually caused by companies in accordance with existing Member State tort law. ... The existence of a business relationship should not be sufficient for the imposition of liability as companies cannot control the behavior of third parties. ... liability clause should only be introduced on the condition that only controlled entities and first-tier suppliers are in scope’.

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'.

It welcomes the focus on direct business partners and favours a risk-based approach, according to severity and likelihood-criteria.

The entity indicates that: ‘Cefic has previously expressed concerns about the lack of workability of due diligence obligations across the extent of the value chain covered. ... Cefic members welcome the focus on direct business partners as regards identifying and assessing actual and potential adverse impacts, but some clarification is required in key aspects. ... Mapping and risk-identification obligations in Articles 8(1) and (2) should also follow a risk-based approach, according to severity and likelihood-criteria. Companies in scope of the CS3D should not be required to check every entity in their chain of activities and identify every risk’.

It advocates for the implementation of the due diligence process only with the controlled entities and first-tier suppliers.

The entity indicates that: ‘The downstream value chain should not be included in the scope of the current legislation. As a result, due diligence requirements and a liability clause should only be introduced on the condition that only controlled entities and first-tier suppliers are in scope. ... The proposed due diligence requirements cannot be reasonably implemented on the downstream value chain as companies cannot control all participants operating in their value chain (despite contractual clauses and codes of conduct)’.

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'.

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'.

It questions the need to regulate directors’ duties as risk management is already included in due diligence requirements.

The entity indicates that: ‘The necessity to regulate directors’ duties on top of due diligence requirements is unclear, considering that the due diligence option already requires risk management and engagement with stakeholders’ interests’.