Disclaimer: The featured examples in this blog, drawn from members of the Nordic Business Network for Human Rights, are not an endorsement of a particular company, their approach to human rights or their business model in general. They serve as illustrations of current practice and do not reflect all aspects of a company’s actions.

The European Commission’s Omnibus proposal risks stifling innovation and emerging good practices for addressing human rights impacts across value chains.

Changing the CSDDD to a tier-based approach which focuses human rights due diligence (HRDD) efforts on direct suppliers unless a company has ‘plausible information’ that it should consider its indirect suppliers, could generate unnecessary bureaucracy and parallel processes, diverting resources from addressing the most severe impacts.

For many companies, the most severe adverse impacts in global value chains are likely to be found beyond Tier 1. This is acknowledged not only by the European Commission and OHCHR, but also by companies.

Claus Teilmann Petersen from apparel retailer BESTSELLER states:

“Our industry’s most salient human rights risks will often be found deeper in the supply chain, beyond direct suppliers where we have the most leverage. The Omnibus’ approach would require conducting proactive tier 1 due diligence and only reactive due diligence in the deeper tiers. This would lead to a significant misallocation of resources, potentially resulting in companies overlooking serious risks. We insist on maintaining a tier-agnostic risk-based approach, concentrating our efforts where they benefit rightsholders the most.”

Not only do these changes proposed in the Omnibus move away from the risk-based approach of international standards like the UNGPs and OECD Guidelines and may lead companies to overlook serious abuses. They are also out of step with current business practice and threaten to undermine emerging proactive approaches to addressing potential impacts in the value chain.

Companies have reported employing a range of strategies to address their impacts. Neste, for example, which produces fuels by sourcing waste and residues from industries including the palm oil sector (not crude or refined palm oil), has identified that in this sector, the most serious human rights impacts often occur beyond its direct suppliers, at the plantation level. To address this, Neste has conducted in-person social audits and labour studies at plantations and mills and with recruitment agencies that hire migrant workers. Recognising the systemic nature of these impacts, Neste also participates in landscape programmes with smallholders. To increase its leverage, Neste collaborates with other brands on joint assessments, engages with governments, and participates in multi-stakeholder initiatives.

BESTSELLER uses a two-track approach to manage human rights risks. For direct suppliers and factories, it applies responsible sourcing practices and runs regular assessments through its Factory Standards Programme. For deeper supply chain issues, like raw material sourcing, where direct oversight and individual company leverage is limited, BESTSELLER works through multi-stakeholder initiatives. In areas without established initiatives, it collaborates with other brands and civil society organisations to develop shared solutions. This flexible, risk-based strategy allows the company to tailor its engagement across different supply chain tiers.

Statkraft, Norway’s state-owned electricity producer, has, for example, identified that serious human rights risks are connected to polysilicon for solar panels several tiers deep in its supply chain. To seek to address these risks, Statkraft became a founding member of the Solar Stewardship Initiative, which audits solar manufacturing sites and their material flows.

Heidi Platou from Statkraft said:

“The most severe impacts identified and that need to be addressed are deep in our supply chain. So we need to engage as close to the impacts as we can get. Working only with our direct suppliers would make us paper pushers rather than being in the business of reducing our industry’s impacts.”

Vestas, a wind turbine manufacturer, recognises that large infrastructure projects managed by its downstream customers may affect local communities. Vestas developed a Social Due Diligence tool for key windfarm projects, especially in emerging markets and areas with Indigenous Peoples. The tool assesses social risks through country evaluations, KYC checks, media screening and site-level due diligence, leading to tailored social management plans during construction.

Tetra Pak, a food processing and packaging company, identified waste pickers in its downstream value chain as a group vulnerable to adverse human rights impacts. In Vietnam, it partnered with NGO ENDA to help street waste pickers register with local authorities and access social protection, healthcare, and safety equipment.

Rather than encouraging companies to take a proactive approach to identifying and addressing their impacts, the Omnibus could create perverse incentives:

• Emerging good practices could be stifled by an approach which incentivises focusing on what is within companies’ immediate line of sight, diverting resources from where risks are more severe and likely.
• Companies with a more mature approach to risk identification are more likely to become aware of ‘plausible information’ than companies with less sophisticated processes or those less subject to public scrutiny. Even if the risk profile is similar, a company with more avenues to identify such information will be required to do more extensive HRDD than a less mature company, who may in turn be disincentivised from developing their risk identification processes.

The Omnibus’ proposed changes do not simplify the HRDD process for companies but rather create additional layers of complication.

The CSDDD also does not exist in a vacuum, and companies within scope are likely to already or soon be subject to other legislation that encourages or requires HRDD. Moving away from the risk-based approach outlined in the UNGPs could create a more fragmented and complex legal landscape for companies to navigate. This is far from the ’simplification’ promised by the European Commission.

Amendments to the CSDDD must not handcuff companies to outmoded practices known to be ineffective, such as blanketing first tier suppliers with generic surveys, as we have seen in response to the German Supply Chain Act. Rather, companies should be encouraged to take an adaptive, proactive approach to identifying and addressing risks to people, informed by rightsholders’ needs. The Omnibus’ departure from the risk-based approach risks a regression in international consensus and from current and emerging business practice. Companies state it themselves: risk-based HRDD on their value chains with appropriate guidance is possible, and the most efficient and effective approach, enabling pragmatic initiatives that can create positive change for rightsholders.

Mathilde Dicalou is a Human Rights, Business and Tech Adviser, Noah Mardirossian a Human Rights, Business and Tech Senior Adviser, and Gabrielle Holly a Human Rights, Business and Tech Chief Adviser at the Danish Institute for Human Rights.