Confederation of Danish Industry

Although the entity does not support the development of a legal framework, it considers it a better option that the existance of several national legislations within the EU. The entity asks for clarifications on a number of concepts contained in due diligence duty definition.

The Company's response choice for question 2 in relation to the need of a legal framework shows support for the development of an EU legal framework. However, it explains the following: ‘DI does not support development of an EU legal framework. But compared to several national legislations within the EU, a common EU legal framework is to be preferred. DI recognizes that EU regulation on due diligence can potentially contribute to creating a level playing field within the internal market and reduce divergence in the requirements that companies meet …. With the many national legal requirements that either exist or are on the way, there is a risk of a fragmented framework with divergent expectations for companies that will be administratively overburdened as a result. DI will thus point to an EU legal framework, so that efforts are concentrated, and the requirements are aligned as much as possible. However, to safeguard competitiveness of Danish and European companies, it is crucial to base any action on international standards and guidelines, as many European companies are part of global supply chains and must be able to maintain global competitiveness and reflect meaningful requirements on their international suppliers'.

The entity is in favour of an horizontal approach. However, it considers that all SMEs should be excluded.

The Company states that ‘A possible mandatory approach will impose bigger burdens towards them SMEs. Any EU measure needs to take this into account. Thus, DI believes that EU regulation should not cover micro, small and medium-sized enterprises (MSMEs). Without legal requirements, SMEs will still be affected through demands from major customers, which are subject to mandatory due diligence, and their standard will thus be raised by market forces. Alternatively, if SMEs are included, mandatory due diligence must be adapted to the capabilities and capacities of SMEs and take into account the level of risk of their industry, product etc’.

The entity does not take position in relation to the different options presented by the consultation.

The entity states that ‘The nature and scope of enforcement mechanisms and sanctions will depend on the exact content and scope of the regulation/obligation. When it comes to enforcement and sanctions, there is a critical difference between holding companies responsible for breaches in only the first tier of the supply chain or throughout the entire supply chain. Should the due diligence obligations apply throughout the entire supply chain, the sanctions should be determined differently for breaches in respectively first tier and beyond first tier’. … We recommend that legal liability applies only to first tier, while all levels beyond tier one should be regulated by other non-legal measures using existing bodies such as the OECD National Contact Points'.

The statement opposes EU-level regulation of directors' duties, including article 26, preferring national frameworks.

The statement indicates that '‘Some duties in the proposal go beyond the objective of regulating companies’ due diligence obligations. This is especially the case for the parts related to corporate governance (art. 15 (3), 25 & 26), … this part of the impact assessment was rejected twice by the European Commission's Regulatory Scrutiny Board (RSB). RSB called for better explanation and evidence of the added value of regulating directors’ duties on top of due diligence requirements, considering that the due diligence obligation already requires risk management and engagement with stakeholders’ interests’ … The existing frameworks for corporate governance are based on unique legal and economic traditions throughout the Member States and are not suited for regulation at EU-level'.

The entity strongly disagrees with a legal requirement for directors to establish procedures to ensure risks and impacts on stakeholders are identified, prevented and addressed, and to manage risks for the Company in relation to stakeholders and their interests.

In its response to question 7 on whether directors should be legally required to establish procedures to ensure risks and impacts on stakeholders are identified, prevented and addressed, it states that 'DI supports an EU based due diligence requirement for certain types of companies regarding due diligence processes. However, the liability of companies relating to due diligence processes must be balanced … While being supportive of an EU harmonized due diligence requirement, we disagree that the EU should interfere with Member States’ regulation on directors’ duties. Already today, if the company as a legal entity has an obligation to do something, the board members and executive management can become personally liable according to Member States' legislation. But personal liability will depend on the concrete circumstances … It is not appropriate to short-circuit such concrete and individual factors which are aimed at ensuring fairness, by introducing collective responsibility per se. The circumstances under which there will be personal liability could also be linked to general principles of liability in the Member States, making the proposal controversial also in relation to the subsidiarity principle’. In relation to managing risks for the Company in relation to stakeholders, it states: What is relevant in this context is whether there is a need for EU legislation. In our view, there is no such need. Consideration for long-termism, sustainability and stakeholders’ interests is already embedded in Member States legislation and in the Corporate Governance frameworks on directors’ duties. … Directors’ duties cannot be put on a check list formula as suggested by the question. It would be a step backwards, not forward.

The statement expresses concern about vagueness and legal uncertainty in the proposed grievance mechanisms.

The statement points out that '‘For instance, introducing complaint rights for a wide and vaguely defined group of stakeholders in combination with equally vaguely defined directors’ duties, creates legal uncertainty about the liability of the management … Legal uncertainty is created in particular … as regards complaints procedures (art. 9)’

The entity considers that it should be the company itself to decide the stakeholders that are relevant and how is best to include them in dialogue, including through complaint mechanisms.

In response to question 20c, the entity states that 'In general, we believe it should be up to the company itself to define the stakeholders that are relevant to exactly that company and how to best include the stakeholders in dialogue, decisions and complaint mechanisms. Stakeholder dialogue and inclusion should definitely take place. But the details of how it takes place should be determined by the company itself. Such flexibility increases chances of real impact'. It 'strongly disagrees' with question 20a on a legal requirement (for directors) to establish mechanisms for stakeholder consulation as part of due diligence duty.

The entity refers to liability extending up to the first tier of the supply chain. However, its position on liability and compensation in cases where due diligence obligations are not fulfilled remains unclear.

The Company states that 'The nature and scope of enforcement mechanisms and sanctions will depend on the exact content and scope of the regulation/ obligation. When it comes to enforcement and sanctions, there is a critical difference between holding companies responsible for breaches in only the first tier of the supply chain or throughout the entire supply chain. Should the due diligence obligations apply throughout the entire supply chain, the sanctions should be determined differently for breaches in respectively first tier and beyond first tier. In other words, the sanctions should consider how much the company could reasonably be aware of, how much it could influence and mitigate and how serious the breach was. The appropriate enforcement mechanism must be defined accordingly. ‘We recommend that legal liability applies only to first tier, while all levels beyond tier one should be regulated by other non-legal measures using existing bodies such as the OECD National Contact Points'.

The entity opposes applying due diligence across the full value chain; supports limiting scope to first-tier suppliers only.

The joint statement indicates that '‘The CSDDD proposal includes obligations related to due diligence which are too wide ranging and difficult to understand and apply. This needs to be clarified. Firstly, the requirements should be limited to the companies' suppliers in the first link. It is only in this stage that companies can practically assert influence. Further, the terms “established business relationship” and "value chain" need to be clarified. These definitions are very broad and unclear. As regards "value chain", we believe the term should be replaced by "supply chain", and it should be further clarified how far the responsibility extends’.

The entity does not agree with due diligence definition proposed by the consultation, and instead raises questions in relation to different concepts. Although it does not support the development of an EU legal framwork, it considers that it is necessary due to the existance of different national legislations. It advocates for a minimum process and definitions approach.

The entity, in response to question 14, states that '‘DI does not agree with this definition in full but agree that due diligence should be risk-based, proportionate and context specific. There is need for clear explanation of what is “adequate processes” … Furthermore, it is even more important with a clearer definition of “suppliers” and “business relationships”. … Consideration needs to be given to practical challenges companies could face to comply with legislation, including overview of large and complex supply chains and how to handle subcontractors with which the company does not have a direct relation. When it comes to accountability, it would be inappropriate to hold only Danish and European companies accountable for damages occurring throughout global supply chains when it is impossible to control all the components of the chain and many other actors are involved. Finally, what does “reasonable efforts” cover – that can be very difficult for companies to determine and companies may have different views on this and thus not make a level playing field which is the intention of EU regulation’. It does not refer to remedy nor improvement over time. Value chain comments seem to focus in upstream supply chain. Philosophically, is against a legal framework on due diligence, although it considers it necessary given the current context of different national legislations (question 2).

The entity strongly disagrees with a legal requirement (for directors) of stakeholder identification.

The entity strongly disagrees with question 6 about a requirement (for directors) to identify stakeholders and their interests. It states that ‘we find the question biased. What is relevant in this context is whether there is a need for EU legislation. In our view, there is no such need. Consideration for long-termism, sustainability and stakeholders’ interests is already embedded in Member States legislation and in the Corporate Governance frameworks on directors’ duties. But consideration for these important matters is embedded through broad principles that provide flexibility, because the running of businesses requires flexibility and a good margin of judgment and balancing. … Moreover, it should be taken into account that companies do not need detailed legislation to see the obvious self-interest in identifying its stakeholders and their interests’.

The joint statement argues that national frameworks already ensure stakeholder consideration; opposes EU-level imposition

The joint statement evolves around frontal opposition to include directors duties. It states that 'Furthermore, it needs to be underlined that in these existing national combinations of legislation and corporate governance frameworks, directors - and management – are already obliged to consider conse quences for the company as well as for other stakeholders in decision making. These decisions are complex and include by nature prioritising among both risks and opportunities, at all times'.

The entity strongly disagrees with requiring directors to establish consultation channels for engaging with stakeholders as part of due diligence duty.

The entity states, in response to question 20a, that '‘Firstly, the assumption that inclusion of stakeholders will make companies fulfill their due diligence duties better is not backed by evidence. Secondly, it is too intrusive to define by law how companies should include stakeholders. We recognize that consultation of relevant stakeholders is an important part of the due diligence process. However, it should be up to the individual company to define the most appropriate way to ensure such consultation and inclusion. Companies are different and hence there may be different ways that are suitable for them to include stakeholders. Also, it should be up to the company itself to define which stakeholders are relevant to the company and their due diligence process. Otherwise, stakeholders could in principle include anyone without any relevant connection to the company. Having too rigid requirements for a certain type of mechanism to consult stakeholders’ risks makes the whole thing a pseudo-mechanism that only exists because it is a legal requirement and not because it makes sense for the company and for the purpose of including stakeholders … Furthermore, it is questionable how authorities would meaningfully supervise the implementation and application of such a mechanism …’.

The statement opposes EU-level regulation of directors' duties, including article 25, preferring national frameworks

The statement indicates that '‘Some duties in the proposal go beyond the objective of regulating companies’ due diligence obligations. This is especially the case for the parts related to corporate governance (art. 15 (3), 25 & 26), … this part of the impact assessment was rejected twice by the European Commission's Regulatory Scrutiny Board (RSB). RSB called for better explanation and evidence of the added value of regulating directors’ duties on top of due diligence requirements, considering that the due diligence obligation already requires risk management and engagement with stakeholders’ interests’ … The existing frameworks for corporate governance are based on unique legal and economic traditions throughout the Member States and are not suited for regulation at EU-level'.

The entity strongly disagrees with a legal requirement for directors to manage the risks of the company in relation to stakeholders and their interests.

The entity strongly disagrees with question 6 about a requirement (for directors) of management of the risks for the company in relation to stakeholders and their interests. It states that ‘we find the question biased. What is relevant in this context is whether there is a need for EU legislation. In our view, there is no such need. Consideration for long-termism, sustainability and stakeholders’ interests is already embedded in Member States legislation and in the Corporate Governance frameworks on directors’ duties. But consideration for these important matters is embedded through broad principles that provide flexibility, because the running of businesses requires flexibility and a good margin of judgment and balancing. Directors’ duties cannot be put on a check list formula as suggested by the question. It would be a step backwards, not forward’.