EcoDa – The European voice of Directors

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 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 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 states that ‘ecoDa welcomes the European leadership in promoting sustainable supply chains in Europe and beyond. Breaching human rights and overlooking the environment can no longer be acceptable business conducts. However, the long-awaited proposal on sustainable corporate due diligence falls short in delivering realistic, clear and viable rules for companies’.

The entity disagrees with the need for a legal framework (question 2) and adds: ‘it should be enough to focus on asking companies to follow existing guidelines and standards. It states that, although 'having an EU legal framework would create a level-playing field for European companies and improve the legal certainty ..., many drawbacks could arising from such a legislation, that is why it should not not be too prescriptive nor too binding’. In answer to question 14 it restates: ‘ecoDa would like to stress that mandatory due diligence duties could pose serious difficulties for companies with a number of different supply chains, some of them very complex and extended all over the world’.

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."

‘EcoDa supports the European Commission proportionate approach to include third country companies while excluding SMEs from the direct scope of the proposed Directive. … However, ecoDa would encourage the enlargement of the scope as the Directive currently includes too few third-country companies. The non-EU companies will therefore easily compete on the EU market without respecting the terms of the proposal’.

The Company selected multiple options in question 16, including the exclusion of SMEs and detailed non-binding guidelines catering for the needs of SMEs in particular. It explains its choice: ‘Knowing that in 2018 SMEs accounted for 99% of all enterprises in the EU and generated more than 50% of value added, the European Commission should prevent itself from adding any additional burden on them. The European institutions cannot ignore the major burden that will be borne by SMEs’. In response to question 15, it advocates for a, “Principles-based approach”, which entails a horizonal coverage of all sectors.

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 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 entity claims that ‘The proposal does not provide useful clarifications on the notion of directors’ duty of care. On the contrary, the artificial imbrication of due diligence and directors’ duties results in confused articles (25 and 26). It is unclear if these latter relate only to due diligence. Board members do not need more legislation but more examples of good practices … ecoDa would encourage the institutions to clarify article 25 and make it coherent with national legislations. If this is not achievable, ecoDa would therefore recommend the deletion of this article to avoid unnecessary confusion’. It also calls for clarification on the notion of directors, stating that ‘ecoDa would like to recall that it is not the role of the board to put in place the due diligence actions, as mentioned in the draft directive, but that of the management’.

The entity disagrees 'to some extent' with question 7, on requiring directors to establish procedures to ensure that possible impacts are identified, prevented, and addressed. It explains the following: 'the European Commission should prevent itself from requiring the same procedure to all companies’. In response to question 6 on directors being required to manage risks in relation to stakeholders, it strongly disagrees and adds that 'The European Commission should think twice before changing the accountability rules. Such provisions would clearly lead to the creation of risk-averse companies in Europe’.

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

The entity states that: ‘As a general matter, liability provisions have to be drafted carefully. The broader power given to every stakeholder to challenge the decisions taken by the board will result in numerous and paralyzing legal disputes for the company. … The text is far too unclear on which type of liability could be engaged (vicarious liability, direct liability, etc.). The French example demonstrated that a clarification was necessary and was provided by the constitutional council. A company should be able to avoid legal liability by showing that it has undertaken the due diligence required in the circumstances’.

Question 19a asks about enforcement mechanisms through a multiple-choice format, one of which is, 'judicial enforcement with liability and compensation in case of harm caused by not fulfilling the due diligence obligations'. The company did not select this as one of its preferred measures. However, it then states that: '‘Disputes must be settled by a court under the Union's judicial system. Only such a court is able to guarantee the full effectiveness of Union law. In addition, ecoDa suggests to reinforce the role of internal and external audits on this topic’.

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: '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 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 Company considers that en EU legal framework on due diligence should not be developed (question 2). It explains: ‘it should be enough to focus on asking companies to follow existing guidelines and standards. ... we believe that imposing on companies an obligation to account for the results of the implementation of a due diligence strategy through the entire supply chains may create legal uncertainty on companies. In addition, a diligence duty imposed on the entire value chains may result in a relocation or in any case a reduction of value chains since many companies will not have the means to acquire the digital tools or recruit the relevant teams in order to ensure effective screening’. Considering this, it advocates for a horizontal principles-based approach (15). Finally, in answer to question 14 it highlights: ‘ecoDa would like to stress that mandatory due diligence duties could pose serious difficulties for companies with a number of different supply chains, some of them very complex and extended all over the world’.

The document indicates that: ‘Indeed, European companies cannot control and oversee their entire value chains across the world, including their indirect business relationships. The risk is to simply force companies to disengage from some markets and terminate business relationships. Disengagement in some countries might have real impacts on the socio-economic model of the country concerned and the quality of life of its inhabitants. There is a significant risk of leaving market shares open to non-European competing companies’.