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30 Mär 2022

Finn Robin Schufft, Germanwatch

An umbrella with holes? The proposal for a Directive on Corporate Sustainability Due Diligence and its potential impact on deforestation

As the Commission is moving forward with its proposal, the Brazilian government under far-right president Bolsonaro is attempting to push through a series of legislative bills that would further ease the commercial activity on deforested and indigenous-owned land. If passed, the bills would constitute another step in the president’s quest to get rid of existing rules protecting the Amazon rainforest and other important ecosystems and to strip Indigenous peoples of their rights.

Would the law proposed by the EU Commission henceforth prevent companies in the EU market from selling products linked to deforestation and the violation of Indigenous rights? And, in case of non-compliance with the EU law, would the people affected by environmental destruction and human rights violations be able to claim their rights in a European court?

The answer is: If the Commission proposal moves forward in its current form, some of the products related to the destruction of ecosystems and related human rights violations will likely cease to enter the EU market. But some may well not.

Unlike the EU Commission’s proposal for a Regulation on deforestation-free products published in November 2021, the CSDD proposal (formerly Corporate Sustainable Governance initiative) does not only aim at a selection of products linked to deforestation. It obliges companies from all sectors to conduct due diligence to address several negative human rights and environmental impacts along their entire value chains.

We have previously stressed the importance of the CSDD Directive’s horizontal “umbrella” approach for curbing deforestation. The broad scope of the draft Directive could usefully complement the product-specific focus of the draft EU Regulation on deforestation-free products. In a recent study, we recommended that to this end, the CSDD Directive must contain comprehensive environmental due diligence duties and be broad in scope to cover obligations for companies’ entire value chains as well as for small and medium-sized enterprises (SMEs) if these operate in a risk sector. We also argued that the proposal needs to strengthen the rights of the people affected by adverse impacts and provide them with effective access to justice. Unfortunately, the current CSDD proposal, while it would certainly entail some positive steps in the right direction, does not comprehensively address all three of these crucial requirements. In the following, we explain what are the proposal’s most critical shortcomings with regard to deforestation and how they could be fixed.

First of all, rather obviously, the risk of deforestation in a company's value chain must be covered by its due diligence obligations...

However, despite clearly addressing environmental harm, this provision does not form part of the standalone environmental obligations imposed on companies in the annex to the draft Directive...

Second, it is an important step forward that the CSDD proposal, in principle, establishes due diligence obligations for companies’ entire value chains. Yet, the fact that due diligence, according to the proposal, only needs to be conducted concerning “established business relationships” curtails these obligations substantially...

Third, the proposal breaks ground in that it establishes the civil liability of companies where they do not meet their due diligence obligations. This is a crucial precondition for affected individuals and groups – such as Indigenous communities who have been deprived of their land or resources – to enjoy access to justice. However, the possibility of civil liability alone cannot guarantee an effective remedy...

More generally, the CSDD proposal does better than the draft Regulation for deforestation-free products when it comes to focussing on affected people and stakeholders by linking environmental harm with human rights risks and laying the ground for those people to claim redress. Unfortunately, though, the inclusion of stakeholders provided for in the proposal is largely reactive...

Both the CSDD proposal and the proposal for deforestation-free products are now up for discussion within the European Parliament and the Council. The deforestation proposal is slightly ahead, with the respective informal “trilogues” between the Commission, Parliament and Council expected to begin in autumn. For the CSDD proposal, the trilogue can be expected to start in 2023. The Council and Parliament should now make use of the fact that both proposals are being discussed in parallel to push for a harmonized and ambitious package of EU rules to prevent imported deforestation.