Wirtschaftsvereinigung Stahl

"For the steel industry in Germany, the improvement and assurance of the sustainability of its products as well as human rights-respecting manufacturing and procurement processes are of central importance. The proposal significantly complicates global competition for European companies and may lead to the withdrawal of companies from risk countries. We therefore propose the following adjustments: Review of practicability in the current geopolitical context, Limitation to tier 1 business relationships, Stringent definition of the scope of obligations, No civil liability, No stigmatization of individual industries A model for a practical European legislation is provided by the German Supply Chain Due Diligence Act (LkSG).In order to meet the required resilience and corporate due diligence obligations, without abandoning business relationships in risk countries, the planned directive must be designed pragmatically and must not lead to a shift of state responsibilities onto the companies, whereby only the companies bear the risks if, for example, human rights violations occur in the supply chain.WV Stahl urgently advocates for the legal text to be clearly formulated in the sense of a duty of effort."

“Improving and ensuring the sustainability of its products and manufacturing and procurement processes is of great importance to the steel industry in Germany. This includes, in particular, the implementation of corporate due diligence obligations in supply chains, which are designed to comply with social and environmental standards and contribute to better living and working conditions. The steel industry in Germany is committed to this responsibility and considers it fundamentally advantageous if the same framework conditions for corporate due diligence apply throughout the EU. Since only a few EU Member States have corresponding legislation and the German Supply Chain Due Diligence Act (LkSG) is the most balanced and implementable European framework, basing European legislation on the LkSG would be an efficient way to achieve a level playing field across the EU.”

“The current EU proposal goes far beyond the German LkSG and lacks the necessary sense of proportion for business realities and opportunities for influence. It is precisely the impractical requirements placed on companies that make a revision of the draft directive appear urgently necessary. Particularly negative is the planned requirement to exercise due diligence along the entire supply and value chain, combined with the additional risk of civil liability. What is particularly problematic here is that the directive leaves open whether companies have an obligation to achieve compliance with the directive or merely to make efforts to do so. ... Without adapting key sections of the draft, the foreseeable consequences would be significant competitive disadvantages for European companies and the withdrawal of economic activities from high-risk countries. It is not the goal itself, but the manner in which it is planned to be implemented that must be viewed critically.”

“From the perspective of the steel industry in Germany, the initial aim of the directive should be to create a level playing field for the protection of human rights. There are already a large number of existing laws in the environmental sector that reflect the concept of protection in a much more targeted and objective manner. Therefore, additional inclusion in the CSDDD is superfluous.”

Q2: "No action is necessary." - "Actually the existing guidelines and standards should be sufficient. The NAP monitoring that took place in Germany showed, among other things, that a large number of the companies surveyed are already successfully implementing appropriate measures. However, an EU-wide regulation would be preferable to national solo efforts." In relation to potential benefits of an EU due diligence law, the entity selected: Contribute effectively to a more sustainable development, including in non-EU countries; Levelling the playing field, avoiding that some companies freeride on the efforts of others; Increasing legal certainty about how companies should tackle their impacts, including in their value chain; Harmonisation to avoid fragmentation in the EU, as emerging national laws are different; Other: Beyond the importance of harmonization, we also want to emphasize that any EU legislative action should seek alignment with international principles, such as UN guiding principles. This is of paramount for globally operating EU companies. In relation to potential drawbacks, the entity selected: Increased administrative costs and procedural burden; Penalisation of smaller companies with fewer resources; Competitive disadvantage vis-à-vis third country companies not subject to a similar duty; Responsibility for damages that the EU company cannot control; Difficulty for buyers to find suitable suppliers which may cause lock-in effects (e.g. exclusivity period/no shop clause) and have also negative impact on business performance of suppliers; Disengagement from risky markets, which might be detrimental for local economies.

"We therefore propose the following adjustments: ... No stigmatization of individual industries. The extended definition of the scope, according to which companies that generate more than 50 percent of their annual revenue, among other things, from the production of metallic raw materials, should be deleted from the perspective of the steel industry: Article 2, paragraph 1b) CSDD should be removed, as an additional sectoral risk delineation is too general and would result in the stigmatization of the affected industries."

"Furthermore, the CSDD-E stipulates an obligation for companies with more than 500 employees and a global annual turnover of more than EUR 150 million (Art. 2, para. 1a CSDD-E). If companies generate more than 50 per cent of their annual turnoverfrom the manufacture of basic metals, among other things, the scope of application already applies to companies with more than 250 employees and a global annual turnover of more than EUR 40 million (Art. 2, para. 1b iii CSDD-E).In addition, Art. 2, para. 1b) CSDDD should be deleted, as an additional sectoral risk delimitation is too general and would result in stigmatisation the affected industries." "The application threshold of the CSDD-E should be aligned with the LkSG and raised to 1,000 employees."

"Option 2. “Minimum process and definitions approach”: The EU should define a minimum set of requirements with regard to the necessary processes (see in option 1) which should be applicable across all sectors. Furthermore, this approach would provide harmonised definitions for example as regards the coverage of adverse impacts that should be the subject of the due diligence obligation and could rely on EU and international human rights conventions, including ILO labour conventions, or other conventions, where relevant. Minimum requirements could be complemented by sector specific guidance or further rules, where necessary.SMEs can have a lighter reporting requirement. However, this should be on the condition that the relief does not lead to the disadvantage of large companies with an extended reporting obligation. The simplified reporting obligation should not result in large companies in a supply chain having to assume the reporting obligation for SMEs."

"From WV Stahl's point of view, the proposed directors' duty of care interferes too much with company law and should therefore be rejected. The CSDDD stipulates that company management must take into account the short-, medium-, and long-term effects of its decisions on sustainability issues, including human rights, climate change, and environmental impact, known as the directors; duty of care. In addition, Article 26 of the CSDDD emphasizes the responsibility of company management for establishing and monitoring due diligence. The proposed directive leaves open how individual companies are to ensure this and comply with the law. Particularly in light of the potential personal liability of management (Article 25, paragraph 2 CSDDD), this provision clearly goes too far."

"The CSDDD also stipulates that company management must consider the short-, medium- and long-term effects of its decisions on sustainability issues, including human rights, climate change and environmental impact, known as the directors' duty of care. In addition, Art. 26 CSDD-E emphasises the responsibility of company management for establishing and monitoring due diligence. The draft directive leaves open how individual companies are to ensure this. Particularly in light of the potential personal liability of management (Article 25, paragraph 2 CSDDD), this provision clearly goes too far. The provision is far too vague and will lead to inconsistent application.From the perspective of the steel industry in Germany, the aforementioned measures interfere too much with applicable company law and should therefore be rejected."

"The CSDD stipulates that the management must consider the short, medium, and long-term impacts of its decisions on sustainability issues, including human rights, climate change, and environmental impacts, the so-called Directors' duty of care. In addition, Article 26 CSDD emphasizes the responsibility of management for the establishment and control of the duty of care. The directive proposal leaves open how individual companies are to ensure this and comply with the law. Particularly in light of the potential personal liability of management (Article 25, paragraph 2 CSDD), this regulation goes clearly too far."

"We therefore propose the following adjustments: ... no civil liability. The steel industry in Germany firmly rejects civil liability as well as the possibility of issuing interim orders. "

"Particularly negative is the planned requirement to exercise due diligence along the entire supply and value chain, combined with the additional risk of civil liabilityThe behaviour and actions of independent third parties must not lead to civil liability for companies. Companies should only be held liable for their own activities in the supply chain, not for those of their business partners or suppliers. Furthermore, the draft provides that the competent courts in the Member State may also require compliance with the law and remedial measures provided for in the Directive by ordering the cessation of infringements and, where appropriate, imposing remedial measures that are proportionate to the infringement and necessary to effectively end the infringement. This should also include interim injunctions. The possibility of interim injunctions clearly goes too far. Civil law interventions in companies without main proceedings must be avoided. For these reasons, too, the possibility of civil liability is excluded in the LkSG. Both draft laws, i.e. both the LkSG and the CSDD-E, explicitly provide for the establishment of country- specific supervisory authorities and a probationary period for fines. This sufficiently ensures that the laws are effective and that abuse is prevented.The steel industry in Germany firmly rejects civilliabilityExcessive compliance costs and an incalculable liability risk would ultimately stand in the way of the EU's efforts to strengthen security of supply in order to ensure the competitiveness of European industry."

"Question 15d: If you ticked option 2) in Question 15 and with a view to creating legal certainty, clarity and ensuring a level playing field, what definitions regarding adverse impacts should be set at EU level? ""Definitions at EU level:- Scope for companies > 5.ooo employees- Precise definition of the term supply chain and limitation to direct suppliers (tier-1)- Exclusion of civil liability""Q 19: For enforcement of the CSDDD, the entity calls for ""Supervision by competent national authorities, with a mechanism of EU cooperation/coordination to ensure consistency throughout the EU"" but does not support the inclusion of sanctions or civil liability provisions. "

"We therefore propose the following adjustments: ... Limitation to tier 1 business relationships.Value creation chains must not be the subject of corporate due diligence obligations. The definition of “established business relationship” is too vague. Including the entire value creation chain would inevitably lead to customers and suppliers having to mutually check each other in the course of their due diligence obligations. The resulting fulfillment effort would thus be redundant. This is also the reason why the LkSG is only related to one direction, namely the directly upstream supply chain (tier 1). Companies need a clearly defined area to which the corporate due diligence obligations required in a directive are to be applied. Such a clear delineation would be given with the limitation to tier 1 business relationships and would still cover a sufficiently large influence radius. For large corporations, the number of direct suppliers alone is already in the four-digit range.Stringent definition of the scope of the duty to act. It must be clearly stated that the planned law aims at a duty of effort. The CSDD does not indicate whether a duty of effort or a duty of success is to be fulfilled by the companies. In the case of a duty of success, companies would have to actively prevent a human rights violation through their actions, for example. If a violation were to occur in the company’s supply chain, this would be a violation in the sense of the directive.In the case of duties of effort, companies would have to do everything necessary to prevent, for example, a human rights violation. A company cannot guarantee that an independent and only contractually bound company in its supply chain does not commit a human rights violation."

"Particularly negative is the planned requirement to exercise due diligence along the entire supply and value chainAccording to Art. 1 (a) CSDDD, corporate due diligence obligations are to be applied to the value chain. According to the explanatory memorandum, margin number (18), the value chain should include both upstream and downstream business relationships, including direct and indirect business relationships. However, such a requirement is completely unrealistic and prevents the desired implementation, as such a construct will inevitably lead to customers and suppliers having to check each other in the course of their due diligence obligations. The resulting compliance costs would therefore be redundant and not conducive to achieving the desired outcome. This is also the reason why the LkSG only refers to one direction, namely the upstream supply chain. Furthermore, no distinction is made between direct and indirect business relationships. However, this distinction is essential, as companies often have no knowledge of their upstream suppliers or resellers. In large corporations in particular, the number of direct suppliers alone runs into the thousands. Commodity exchanges and wholesalers also make this task impossible. Additional difficulties arise with the inclusion of ""transport and storage of the product, dismantling of the product and its recycling, composting or landfill"" (margin number (18)) in the value chain.According to Article 1(a), the CSDDD classifies as ""established business"" relationship"" is decisive for the implementation of corporate due diligence obligations. The draft defines an ""established business relationship"" as ""a direct or indirect business relationship that is or is likely to be ongoing in view of its intensity or duration and that does not represent an insignificant or merely subordinate part of the value chain."" Whether business relationships are considered established must be reviewed regularly, at least every twelve months. Here, too, the question of feasibility arises. The criteria are too vaguely worded and leave room for interpretation, which leads to legal uncertainty.The regulations are far too vague and would lead to inconsistent implementation. From the perspective of the steel industry in Germany, a pragmatic solution should therefore be given priority. As a result, the steel industry in Germany advocates focusing exclusively on the upstream supply chain, and here on the direct business relationship (tier 1), as provided for in the LkSG.The restriction to Tier 1 suppliers is all the more important because the draft European directive provides for the possibility of civil liability. Mandatory legal, sanction-related and liability-related requirements must therefore be limited to those suppliers with whom companies have direct contractual and thus influential relationships,i.e. direct suppliers (tier 1). "

"The term supply chain or supply chain cannot be equated with business relationships. Subsidiaries can, but need not, be part of the supply chain. It also makes sense to limit the term supply chain to direct suppliers (tier-1), since only here is there a possibility of influence by the company. Often it is not possible to identify upstream suppliers (tier 2 to tier n) due to the protection of business secrets."