Principles for Responsible Investment

"However, proposed substantive changes on the scope and implementation of disclosure and due diligence rules risk creating data gaps and costs for investors and companies. It is important to safeguard investors’ ability to efficiently reorient capital towards the objectives of the European Clean Industrial Deal and the transition to a competitive circular net zero economy."" ""Mandatory human rights and environmental due diligence ... serves as an early warning system to protect critical supply chains and is supported and implemented by a large number of investors and businesses worldwide. Companies see the economic benefits of a corporate human rights and environmental due diligence duty. The current CSDDD requirements, the result of a delicate political compromise, are proportionate and practicable. ... Nevertheless, the Omnibus I proposal also risks creating significant legal uncertainty and administrative burden for in-scope companies and their suppliers" "Leaving this to every five years as proposed would mean significant risks and impacts could be overlooked. It could also increase the risk of fines (and liability under national law). An assessment at least every three years is in line with many governance codes, climate strategy reviews etc"

"Businesses and financial market participants need long-term policy stability to support their implementation efforts. Recent studies, including those published by the EU’s own Platform for Sustainable Finance, are showing that increased transparency created by these regulations is starting to have an impact. ... Initiatives like the Clean Industrial Deal will ensure the long-term competitiveness of Europe's net-zero industry and its economic resilience. ... The CSDDD complements these disclosure tools with essential opportunities for action and behavioral change. ... We support the overall objective of simplifying and improving the coherence of the EU sustainable finance framework. Such revisions can effectively reduce reporting burdens and complexity, while enhancing the usefulness of disclosure requirements and promoting a more coherent approach to the transition across the value chain. However, reopening these regulations in their entirety risks creating regulatory uncertainty and could ultimately jeopardise the Commission’s goal to reorient capital in support of the European Green Deal. ... We therefore support targeted actions by the Commission at the technical level to provide simplification, clarity and consistency across the framework."

Signatories ‘are issuing this joint statement to emphasise the importance of preserving the core of the EU sustainable finance framework. Rules on (…) corporate due diligence are a key foundation for achieving the EU’s economic and sustainability goals. (…) In the context of the Omnibus I simplification initiative, we call attention to the investors, banks, other financial institutions and companies across our economy that support preserving the core elements of the (…) Corporate Sustainability Due Diligence Directive (CSDDD). (…) CSRD/ESRS and CSDDD are essential for achieving the EU’s wider sustainability, growth and competitiveness ambitions. (…) The signatories of this statement consider that regulatory simplification can be achieved without compromising on the substance of sustainability rules or their significant benefits for businesses across the EU’.

The group states 'We reiterate our support for the agreement... on the Corporate Sustainability Due Diligence Directive (CSDDD).”“The CSDDD offers a unique opportunity to establish a level playing field...”“This is in line with international standards, notably the OECD Guidelines... and UN Guiding Principles…'

The entity states that: 'PRI welcomes the proposed Corporate Sustainability Due Diligence Directive (CSDDD) and supports the appropriate and practicable inclusion of the financial sector.' It adds the following: 'to be clear, achievable and proportionate, the due diligence requirements for the financial sector under the CSDDD must complement and reinforce existing obligations. Co-legislators should adopt proportionate requirements for ongoing due diligence throughout the value chain, using a risk-based approach in line with international standards.'

Based on the document "EU Business Statement – February 2022," in which the entity is listed as a signatory, it states: “We... urge the European Commission to adopt a legislative proposal without further delay.” “We firmly believe that strong and ambitious EU legislation would make a tangible contribution to improving human rights and environmental conditions along global value chains...” “Our view has always been that the due diligence expectations set out in the UNGPs and in the OECD Guidelines should form the core requirements on business in HREDD legislation.”

The entity considers that a legal requirement for due diligence is needed (question 2). It adds that: 'we recommend the EU establish a legal duty for companies to undertake due diligence. Research shows that, almost ten years after their formulation, these standards OECD Guidelines for MNEs have been only sporadically adopted by companies'. It also states that 'we recommend that the EU legal framework on supply chain due diligence builds on internation standards to ensure alignement ....'.

"Several key components are retained in the Commission’s proposal and should remain in the final text. (…) Maintain the personal scope of CSDDD" "International guidelines recognise that all companies have a responsibility to respect human rights, which includes the expectation to carry out due diligence. The thresholds for a company to fall in scope of the CSDDD are already very high – it is estimated the directive will cover only 6000 EU and 900 non-EU companies with important operations in the EU."

The statement indicates: “The CSDDD also includes clear mechanisms to ensure that SMEs are protected from any indirect effects...”“In-scope companies are required to provide targeted and proportionate support to SMEs…”

In a statement in reaction to the proposal for a CSDD Directive, it states that ' the PRI called on the Commission to introduce a mandatory due diligence proposal which included all businesses operating in the EU, regardless of sector or size. The limited scope of the Commission’s proposal is insufficient and could pose risks and challenges for investors, particularly in private markets, when it comes to managing their exposure to sustainability issues'.

The entity states that: 'The current limited personal scope of the Commission’s proposal is insufficient and could pose risks and challenges for investors. This is particularly the case in private markets, when it comes to managing an investor’s exposure to sustainability issues, given that a lot of these issues occur in smaller companies which are most likely to be unlisted'. It also adds that ' International guidelines state all companies have a responsibility to respect human rights, including by way of carrying out due diligence ... the PRI called on the Commission to introduce a mandatory due diligence proposal which included all businesses operating in the EU, regardless of sector or size. PRI recommends co-legislators to introduce a clear timeline for increasing the scope of financial and non-financial companies subject to the CSDD, which is sequenced in line with the CSRD ...'.

The document advocates for the legislation to apply to all companies, regardless of size or sector, expressly including SMEs and financial actors. This position represents clear support for the universal scope of the regulation.The entity explicitly supports the universal application of the legislation, recognizing the importance of a level regulatory playing field, including for SMEs.

The entity advocates (question 15) for a minimum process and definitions approach which should be applicable across all sectors (with further requirements for environmental issues). In relation to SMEs, it does not exclude them from the legislation's scope and is in favour of providing, 'detailed non-binding guidelines catering for the needs of SMEs in particular.' In addition, the entity emphasises the importance of including the finance sector under the scope of the legislation and suggests using the existing European Commission's guidance for SMEs on human rights.

The statement indicates '“The civil liability regime clarifies that requirements are an obligation of means, not results, giving companies legal certainty.” By stating that the regime is an "obligation of means" (rather than results), the group reinforces the clarity and reasonableness of the enforcement framework.

The entity advocates for the existence of legal accountability mechanisms, including administrative sanctions and civil liability, as a means to ensure the effectiveness of the legislation. There is clear support for the implementation of robust enforcement mechanisms, covering both administrative penalties and civil liability, fully aligning with the scope of the indicator.

In relation to enforcement mechanisms (question 19a) the entity advocates for: 'Judicial enforcement with liability and compensation in case of harm caused by not fulfilling the due diligence obligations.' It added that: 'An appropriate accountability and enforcement mechanism is essential to ensure compliance with proposed legislation. This should accompany disclosure through the NFRD. ... The mandate for enforcement must be given to the most suitable authority. Supervisory functions – such as the National Contact Points (NCP) of the OECD – have limited merit and capacity in successful enforcement. We would therefore look favourably on a judicial enforcement regime with liability and compensation subject to a proper examination of learnings from similar national approaches. The need to provide access to remedy for people subject to harm from corporate activities should be given due weight in these considerations.'

The entity states that 'The entity states that ‘Currently, there is no explicit duty in EU law for directors to generally act in accordance with the company’s long-term interests, shareholders’ views or to incorporate stakeholder interests. (…). Therefore, the CSDD presents a significant opportunity for harmonised and strong duties throughout the EU. However, compared to the Commission’s initial impact assessment, the coverage of director’s duties in this proposal is extremely limited. Furthermore, while we welcome the intention with regards to directors’ duty of care and oversight of due diligence processes, the language used in Articles 15, 25 and 26 does not provide sufficiently clear direction to lead to strong, harmonised duties throughout the EU’.

The letter argues that governance structures, including boards of directors, should integrate due diligence, implying an active role for directors in risk prevention and mitigation. Although the text does not explicitly propose a formal legal obligation for directors, it advocates for their incorporation into governance, justifying a positive score.

In its explanation on the enforcement mechanisms, (question 19a) the entity refers to the need of providing access to remedy for people subject to harm. Specifically, on director's duty to establish procedures and, where relevant, targets to ensure adverse impacts are identified, prevented and addressed, it states that it agrees to some extent (question 7). Although it provides comments to this question, they focus mainly on targets.

Analysis: The text reinforces the importance of corporate accountability and the guarantee of access to remediation for victims of negative impacts, in line with the spirit of the indicator. Score: +1 Justification: Despite being brief, the direct mention of the need for remediation justifies a positive score, as it aligns with the principle of repairing damages caused or contributed to

Asked about the due diligence duty definition (question 14) the entity considers that, 'the responsibility to provide access to remedy should be included'. In response to question 19a, on enforcement mechanisms, the entity advocates for, 'judicial enforcement with liability and compensation in case of harm caused by not fulfilling the due diligence obligations'. It also states that: 'the need to provide access to remedy for people subject to harm from corporate activities should be given due weight in these considerations.'

The letter explicitly advocates that companies should adopt measures to influence and support their business partners, including adjusting their own purchasing practices, which aligns with the use of leverage for remediation purposes. There is clear and active support for the use of leverage to influence business partners, as outlined in the indicator.

The entity agrees with the definition of due diligence duty, subject to technical considerations that include, 'the responsibility to provide access to remedy should be included'. The definition refers to having processes to account for human rights both in companies' own operations and supply chains - including impacts within scope that are caused or contributed to by the company.

"Secure a clear and level playing field for civil liability." "Due diligence legislation should have an appropriate enforcement mechanism to ensure compliance. Article 29 gives undertakings legal clarity and complements the well-understood concepts “cause”, “contribute” and “directly linked” from the UNGPs40 and OECD guidelines. The Omnibus I proposal to withdraw the liability regime by deleting Article 29(1) would remove this legal certainty, create an un-even playing field across the Union and restrict access to justice for victims. This contradicts some of the central aims of the Directive. Without a civil liability regime, companies would still face legal risks if they failed to undertake due diligence and those who are “leaders” could even be subject to more targeted litigation as claimants would not have a guaranteed legal basis to pursue companies that have not taken these proactive steps. This in turn increases legal and other risks for investors. As stated in the Commission staff working document, the positive benefit of this proposal is unclear. There is also a lack of evidence that an EU-wide civil liability regime will lead to an overwhelming number of litigation cases."

The statement indicates “The civil liability regime clarifies that requirements are an obligation of means…”

Support for civil liability as an essential component of the legislation shows direct alignment with the requirement for judicial enforcement. The entity explicitly endorses civil liability with provisions for compensation, justifying the maximum score.

In response to question 19a, on enforcement mechanisms, the entity advocates for: 'judicial enforcement with liability and compensation in case of harm caused by not fulfilling the due diligence obligations.' It also states that: 'An appropriate accountability and enforcement mechanism is essential to ensure compliance with proposed legislation. This should accompany disclosure through the NFRD ... The mandate for enforcement must be given to the most suitable authority.'

"Several key components are retained in the Commission’s proposal and should remain in the final text. (…) Maintain the (…) current upstream & downstream coverage of risks and impacts in “chain of activities”. "Limiting due diligence obligations to direct suppliers, unless there is plausible information, will have several unintended consequences. ... Give companies the discretion and certainty to conduct targeted and effective risk and impact management. Maintain and clarify the implementation of the CSDDD’s proportionate risk-based approach to assess the most severe impacts (including and beyond tier one) in line with the UN Guiding Principles for Business and Human Rights and OECD Guidelines." "Companies and investors can be exposed to risks and may be connected to negative impacts upstream and downstream their value chains. It is important a mandatory due diligence law covers both, to empower undertakings to prioritise their due diligence efforts where the risk of adverse impacts is most severe."

It states that 'the most salient ... risks and impacts often lie deeper in supply chains. A risk-based approach to due diligence is helpful to companies as this allows them to focus on where the real risks are, building on their knowledge of their own supply chains. By limiting due diligence to tier 1 suppliers, the Omnibus proposal may unintentionally promote the kind of “box ticking” compliance exercises that it intends to reduce'.

It states that ' Under the CSDD proposal, financial undertakings are only obliged to carry out due diligence assessments before providing a financial service. In addition, this pre-service assessment only considers the activities of the clients receiving the investment ... meaning there are no value chain due diligence obligations. Furthermore, this pre-service provisioni due diligence obligation does not include SMEs receiving the financial service'. 'PRI recommends co-legislators amend the due diligence obligations for financial undertakings to include ongoing assessments and which cover the entire value chain'. Outside the financial companies scope, the entity also considers value chain as the adequate coverage ('the proposal will support investor’s sustainability assessments; enhance risk analysis and processes for impact prevention, mitigation and remediation; and provide greater understanding of those companies within scope of the CSDD including throughout the value chain').

The entity fully supports the application of due diligence throughout the entire value chain, as reflected in UN and OECD principles. The statement proposes that the legislation require a continuous and proactive approach, covering direct operations and business relationships. There is clear and normative support for the application of due diligence across the entire chain (upstream and downstream), justifying the maximum score for this indicator.

The Company advocates for a due diligence duty following a minimum process and definitions approach, considering all sectors (and complemented with environmental requirements) as per question 15. It agrees with the definition of due diligence duty provided in question 14, 'subject to technical considerations'. These considerations include: 'the legislation should explicitly refer to value chains rather than supply chains which also covers customers and downstream relationships'; 'the responsibility to provide access to remedy should be included.'

Specifically, it states that: 'Article 6, paragraph 4 of the CSDD proposal states “companies shall, where relevant, (…) carry out consultations with potentially affected groups including workers and other relevant stakeholders to gather information on actual or potential adverse impacts”. The inclusion of “where relevant” contradicts UNGP 18, which states that this process “should always involve meaningful consultation with potentially affected groups and other relevant stakeholders, as appropriate to the size of the business enterprise and the nature and context of the operation”. PRI recommends co-legislators remove “where relevant” in this sentence and provide guidance, aligned with international standards, for how companies can ensure the dialogue is meaningful.'

The letter advocates that risk assessment should take place through active listening and dialogue with affected stakeholders, which aligns with the spirit of the indicator. The statement explicitly supports the use of dialogue as a risk assessment tool, justifying the maximum score.