EU CSDDD: ‘Politicians have hugely misread signals from business’

‘Chaos’ and ‘irresponsibility’ were the words used by MEP Lara Wolters to describe EU member states’ failure to advance the EU Corporate Sustainability Due Diligence Directive

EU member states have misread business signals, said Richard Howitt, former member of the European Parliament and lead negotiator on the EU Non-Financial Reporting Directive, after ambassadors failed to approve the EU Corporate Sustainability Directive, leaving the law’s chances of being approved hanging by a thread.

Lara Wolters, an MEP and the parliament’s lead negotiator on the file, said politicians were listening to “an extreme minority of business voices”.

Speaking during a press conference at the parliament in Strasbourg, Wolters singled out the French and German business networks of Medef and BDA as having pushed their governments to vote against the directive. She suggested they had their leaders “on speed dial”, and that Italian prime minister Giorgia Meloni had been “lobbied and pressured”.

Wolters said she could not confirm reports that this morning France had proposed raising the threshold of companies covered by the directive from more than 500 to 5,000 employees, but said that if it were true it showed “a flagrant disregard for the parliament and our democratic decision-making processes”. The last minute opposition to the CSDDD was “part of a wider trend” and previous understandings between MEPs that has been accepted as “good practice” were no longer being respected, she added.

Germany, France and Italy were blamed for leading the opposition to the CSDDD. Wolters said she was “disappointed” by the “irresponsible” attitude of the German Free Democratic party and the “opportunism” of FDP leader and German finance minister Christian Lindner in rejecting the deal at the last minute. She said she saw “political posturing”, “chaos” and “irresponsibility” in the EU Council, with “different proposals and ideas, but nothing concrete” to move the debate forward.

Marc-Olivier Herman, economic justice lead at Oxfam, said the three countries “should be dealmakers, not deal-breakers”.

“Instead of playing the game of big business, they must face up to their already made commitments,” added Hermann. “We have a once-in-a-generation opportunity to end corporate impunity. If missed, survivors of corporate abuse will pay the price.”

Member states have suggested their opposition to the deal is based on its potential impact on companies, but Howitt suggested this claim was to misunderstand what business wanted. In any case, other already agreed laws would continue to increase the demand for environmental and human rights reporting, he said.

“The defeat does not lift any burden from business, which will continue have to respect national due diligence regulations in France, Germany, the Netherlands and that are likely to emerge in other EU member states, given the vacuum which now risks being created,” Howitt said in a statement. “It also leaves a contradiction in EU law, with companies already required to report on due diligence efforts, but now denied the clear framework through which to implement them.

“The advancement of business and human rights through mandatory due diligence will not go away, as current initiatives in Brazil, Norway, South Korea, Japan, the UK and the US prove,” Howitt continued. “It simply means that the EU is likely to be passing the mantle on responsible business conduct to others in the world and could lose probably five years in setting the standard for European business to uphold its role globally.

“Politicians have hugely misread signals from business, and governments are badly lagging behind companies in understanding their obligations in a globalised world,” he insisted.

Investors want more accountability and transparency

Tracey Groves, head of sustainable business and ESG at consultancy DWF, described the outcome as “disappointing”, and likewise insisted that, even without the CSDDD, “expectations on businesses to conduct business sustainably across their supply chain are not going to disappear and are only going to increase”.

“There are already reporting obligations in place under the Corporate Sustainability Reporting Directive and stakeholders, ranging from investors to consumers, are demanding greater accountability and transparency across the value chain,” Groves told Sustainable Views. “We anticipate discussions will remain on the table and this will still be high on the agenda for EU policymakers and lobby groups as the EU elections loom closer.”

The Belgian presidency said it would “have to consider the state of play and see if it is possible to address concerns put forward by member states, in consultation with the European Parliament”.

Julia Grothaus, litigation, arbitration and investigations partner at Linklaters, was sceptical about the prospects of progress any time soon, describing the CSDDD as being “back to square one”.

“While the Belgian presidency announced that they would evaluate the options, it’s likely that the CSDDD will be substantially renegotiated between council and parliament after the EU elections in late spring,” said Grothaus. “It  remains to be seen to what extent the project will push ahead in the new legislative period – and whether the EU will succeed in creating a level playing field for companies operating in the EU without charging them with considerable burdens.”

Suggestions that negotiations with the European Parliament might rescue the directive in some form are “constitutionally novel at this stage”, said Howitt, but admitted that they were “the last hope of salvaging what was due to be one of the most significant pieces of European law-making in years”.

“While the CSDDD may technically still be alive, it’s on its last legs and time is running out to find any deal in this parliament mandate,” Richard Gardiner, head of public policy at the World Benchmarking Alliance, told Sustainable Views. “There is little doubt that if we lose this current window of opportunity then the next set of MEPs and commissioners will not be as enthusiastic to endorse this law, so it seems it’s now or never to get this done.”

Isabella Ritter, EU policy officer at non-profit ShareAction, accused negotiators of having let “internal political struggle take priority over the wellbeing of the planet and its people”, an attitude she described as “unacceptable”.