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15 Feb 2024

EU Commission, Council & Parliament in Trilogue

Excerpts from CSDDD legal text: protections & opportunities for SMEs

Nick Youngson CC BY-SA 3.0 Alpha Stock Images

The (non-exhaustive) examples below on protections and opportunities for small and medium-sized enterprises (SMEs) from the Global North and South are from the Corporate Sustainability Due Diligence Directive (CSDDD) Trilogue compromise agreement.

See also our compilation of CSDDD excerpts on the risk-based approach, appropriate measures & other features ensuring quality over bureaucracy.

Supporting SME suppliers and enabling positive change in value chains through adjustments to own purchasing practices (delivery times, payment terms etc.) as parts of in-scope companies' due diligence (due diligence ≠ policing/auditing)

  • Article 7 (2) / Article 8 (3): Companies [in scope] shall be required to take the following appropriate measures [to prevent, mitigate, bring to an end or minimise potential or actual abuse], where relevant: [...]
    • (ca) / (da) make necessary modifications of, or improvements to, the company’s own business plan, overall strategies and operations, including purchasing practices, design and distribution practices;
    • (d) / (e) provide targeted and proportionate support for an SME which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME, providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing
  • Recital 34 / 39: [...] Where relevant, companies should adapt business plans, overall strategies and operations, including purchasing practices, and develop and use purchase policies that contribute to living wages and incomes for their suppliers, and that do not encourage potential / actual adverse impacts on human rights or the environment. [...] Such measures could also be relevant to address adverse impacts that are jointly caused by the company and its business partner, for instance due to the deadlines or specifications imposed on it by the company. Also, by better sharing the value along the chain of activities, responsible purchasing or distribution practices contribute to fighting against child labour, which often arises in countries or territories with high poverty levels. [...]

Fair contracts with SME partners accompanied by support measures

  • Article 7 (4) / Article 8 (5): [...] When contractual assurances are obtained from, or a contract is entered into, with an SME, the terms used shall be fair, reasonable and non-discriminatory. The company shall also assess whether the contractual assurances with an SME should be accompanied by some of the appropriate measures for SMEs included in paragraph 2, point (d) / paragraph 3, point (e) [see above]. [...]
  • Recital 34 / 39: [...] Contractual assurances should be designed to ensure that responsibilities are shared appropriately by the company and the business partners. [...]
  • Recital 45: [T]he Commission, in consultation with Member States and stakeholders, should provide guidance on model contractual clauses [...]. The guidance should aim to facilitate a clear allocation of tasks between contracting parties and ongoing cooperation, in a way that avoids the transfer of the obligations of this Directive to a business partner and automatically rendering the contract void in case of a breach. The guidance should reflect the principle that the mere use of contractual assurances cannot, on its own, satisfy the due diligence standards of this Directive. [...]
SMEs are not included in the personal scope of the EU's Corporate Sustainability Due Diligence Directive (CSDDD), which means they are not subject to its formal provisions. The law acknowledges they might still be indirectly impacted as business relationships of companies in scope, and therefore considers their particularities and includes protections - much more comprehensively than, for instance, the German Supply Chain Act. In practice, this means the CSDDD represents a tangible opportunity for effective and fair collaboration between larger and smaller companies on human rights and environmental issues along value chains, in line with the international standards. The directive is a key moment for rightsholders, and a chance for SMEs to become more sustainable and resilient, as value chain partners.
Johannes Blankenbach, EU/Western Europe Researcher & Representative, BHRRC

Sharing of audit costs and results

  • Article 7 (4) / Article 8 (5): [...] Where measures to verify compliance are carried out in relation to SMEs, the [in-scope] company shall bear the cost of the independent third-party verification. In case the SME requests to pay at least a part of the cost, or in agreement with the company, the SME shall be able to share the results of verifications with other companies. [...]

Exercising restraint regarding requests for information from smaller companies

  • Recital 30: [...] With a view to limiting the burden on smaller companies created by requests for information [...], companies should exercise restraint with regard to business partners that do not themselves present risks of adverse impacts and privilege reaching out, where reasonable, directly for more detailed information to business partners at levels in the chain of activities where [...] potential or actual adverse impacts are most likely to occur. [...]
  • Article 6 (4b): Where information necessary for the in-depth assessment according to paragraph (1a), point (b) can be obtained from business partners at different levels of the chain of activities, the company shall prioritise requesting such information, where reasonable, directly from business partners where the adverse impacts are most likely to occur.

Engagement with business partners over disengagement

  • Recital 36 / 41: [...] In order to ensure that appropriate measures for the prevention and mitigation of potential adverse impacts / bringing to an end or minimising of actual adverse impacts are effective, companies should prioritize engagement with business partners in their chain of activities, instead of terminating the business relationship, as a last resort action after attempting at preventing and mitigating adverse potential impacts without success / to bring actual adverse impacts to an end or minimise their extent without success. Factors determining the appropriateness of the timeline for adoption and implementation of [enhanced prevention/correction, suspension or responsible disengagement] actions could include the severity of the adverse impact [...] as well as impacts on SMEs or smallholders. [...] Where companies do temporarily suspend or terminate the business relationship, they should take steps to prevent, mitigate, or bring to an end the impacts of suspension or termination, provide reasonable notice to the business partner and keep that decision under review. [...]
  • Article 7 (5) (b) / 8 (6) (b): [...] Prior to temporarily suspending or terminating the business relationship, the company shall assess whether the adverse impacts of doing so can be reasonably expected to be manifestly more severe than the adverse impact that could not be prevented or adequately mitigated / brought to an end or the extent of which could not be adequately minimised. Should that be the case, the company shall not be required to suspend or to terminate the business relationship, and shall be in a position to report to the competent supervisory authority about the duly justified reasons of such decision. [...]

Accompanying public support measures for businesses, especially SMEs

  • Article 14 (1): Member States shall, in order to provide information and support to companies, their business partners and stakeholders, set up and operate individually or jointly dedicated websites, platforms or portals. Specific consideration shall be given, in that respect, to the SMEs that are present in the chains of activities of companies. [...]
  • Article 14 (2): Without prejudice to applicable State aid rules, Member States may financially support SMEs. Member States may also provide support to stakeholders for the purpose of facilitating the exercise of the rights laid down in this Directive.
  • Article 14 (3): The Commission may complement Member States’ support measures building on existing Union action to support due diligence in the Union and in third countries and may devise new measures, including facilitation of joint stakeholder initiatives [...].
  • Article 14a (1): The Commission shall establish a single helpdesk through which companies may seek information, guidance and support [...].