The EU’s Struggle for Corporate Accountability: A Step Backward?

In the field of corporate accountability and sustainable business practices, the Corporate Sustainability Due Diligence Directive (CSDDD) has emerged as a beacon of hope within the European Union (EU). The CSDDD was proposed by the European Commission in 2022 with the aim of establishing mandatory standards for corporate due diligence, with a focus on human rights and environmental protection. The significance of the CSDDD lay not only in setting a precedent for corporate due diligence duty but also in creating a EU-wide accepted standard regarding the rules for responsible corporate behaviour on a global scale.

Last week, however, the halls of the Council of the EU witnessed a disheartening turn of events. The proposed directive, which aims to hold large corporations accountable for labour, human rights and environmental abuses in their supply chains, faced unexpected challenges in a crucial vote in the EU Council. Despite widespread support from both business and civil society, the CSDDD failed to secure the necessary approval. The reasons for this setback reveal a story of political manoeuvring and compromises that undermine democratic principles.

The surprising abstention of Germany, once a staunch supporter of the CSDDD, raised eyebrows and pointed to internal political dynamics at play. Reports suggest that the Free Democratic Party (FDP), a minority coalition partner, wielded considerable influence in swaying Germany’s position on the directive. Germany’s abstention, is a major factor in the derailment of the CSDDD. Germany’s abstention represents a complete reversal of its previous support for the directive. This opposition is not an isolated incident but is rooted in a wider context of resistance to regulatory measures aimed at increasing corporate accountability.
Similarly, Italy’s opposition to the CSDDD, speculated to be part of issue-linkage deal with Germany, has further complicated the path to consensus. France, once a vocal supporter of the directive, attempted a last-minute manoeuvre to weaken its scope, reflecting the divergent interests and priorities of EU member states.

Since 2022, the European Union has been leading regulatory efforts to address environmental and human rights concerns, resulting in the Corporate Sustainability Due Diligence Directive (CSDDD). However, these efforts have faced resistance, particularly from Germany, which has expressed concerns about the regulatory burden on businesses, especially small and medium-sized enterprises (SMEs).

The Corporate Sustainability Reporting Directive (CSRD), a precursor to the CSDDD, also faced similar challenges. Delays and calls for reducing the scope of the directive were caused by opposition to the reporting obligations on SMEs. The shifting landscape of regulatory priorities within the EU was underscored by German influence, exemplified by President Ursula von der Leyen’s call for a reduction in reporting obligations for SMEs. The proposed directive represents a significant departure from existing regulatory frameworks due to its expanded liability for businesses across subsidiaries and value chains. Germany’s abstention from the vote on the CSDDD reflects not only internal political dynamics but also broader concerns about the regulatory burden and its impact on businesses.

Therefore, the need for transnational accountability mechanisms becomes increasingly evident. Transnational corporations often exploit regulatory loopholes to evade accountability by operating across borders. A unified framework, such as the CSDDD, would have provided a crucial tool for holding these entities accountable for their actions, irrespective of geographical boundaries.

However, there is a glimmer of hope on the horizon amidst the gloom. With the Belgian presidency now leading, there is an opportunity to reignite discussions surrounding the CSDDD. Belgium’s mandate to address concerns raised by EU members offers a window of opportunity for meaningful dialogue and consensus-building. Internal discussions within the EU Parliament, coupled with renewed engagement from stakeholders, hold the promise of revitalising the Corporate Sustainability Due Diligence Directive (CSDDD) and restoring faith in the EU’s commitment to corporate accountability.

In conclusion, the failure of the CSDDD would represent a missed opportunity to strengthen corporate accountability within the EU and beyond. The events of last week highlight the necessity for transparent and democratic decision-making processes within supranational institutions. With the baton passing to the Belgian presidency, there is a renewed opportunity to reaffirm the EU’s commitment to upholding human rights and environmental standards in the corporate sphere.