'Only Half Thrown Under the Bus The CSDDD and LkSG after Omnibus I'

...We argue that the CSDDD remains strong, especially its obligations on human rights and environmental due diligence (HREDD). However, the Omnibus missed an opportunity to clarify civil liability and, most critically, significantly restricted the personal scope of the CSDDD...

While the Directive explicitly permits a reduction of the scope (Art.1(2)), a respective change to the [German Supply Chain Act] LkSG might violate an international obligation of Germany: the prohibition of regression according to Article 2(1) of the International Covenant on Economic Social and Cultural Rights (ICESCR)...

Although the Omnibus removes the specific obligation to establish climate plans, the CSDDD continues to require HREDD in relation to climate change...

Under the CSDDD, HREDD includes analysing and addressing adverse impacts arising from a company’s own operations. To fulfil the CSDDD’s effectiveness requirement (Art. 3 (o)), this necessarily includes addressing adverse impacts resulting from the business model as the core of every company’s activities... In practice, this means that companies whose business models are structurally based on the exploitation of the planet or people, such as fast fashion, will be required to establish business model transformation plans. Using business model red flags, such as those developed by Shift, a leading centre of expertise on business and human rights, can serve as a good starting point.

The CSDDD requires companies to change their design and distribution practices (Art. 10(2)(g), 11(3)(e)). Such practices not only impact the upstream value chain but also the intended use...

The Omnibus I has not significantly weakened the HREDD obligations themselves, though it has clarified how to use information requests. Obligations relating to downstream impacts and business model risks as well as responsible disengagement or suspension remain intact. For the LkSG, this also means that the ill-fated tier-1 approach with exceptions will finally have to be reformed in favour of a real risk-based tier-n approach...

Prioritisation of risks is what allows companies to focus their capacity on the most relevant risks. Unlike the LkSG (Sec. 3(2) No. 2), leverage is not listed as a deciding factor for prioritisation in the CSDDD...

One instrument of risk analysis has – rightly – received more attention than others: information requests from suppliers. Too often, companies, especially in Germany, have resorted to superficial, automatised, one-size-fits-all questionnaires implemented by IT-Tool providers that are not interoperable... The CSDDD’s new rules clarify that companies must first collect and analyse information available to them before asking their suppliers for information that “cannot reasonably be obtained by other means”...

The Omnibus... clarifies that continued engagement with business partners shall not expose companies to sanctions or liability if there is a reasonable expectation to believe that the enhanced preventive or corrective action plan will succeed. Conversely, sanctions and liability remain possible where no such expectation exists.

One significant implication for the LkSG is the need to set up an independent supervisory authority, as required by Art. 24 CSDDD. The Federal Office for Economic Affairs and Export Control (BAFA), which operates under the legal and technical supervision of a Federal Ministry, does not meet the requirement of legal and functional independence...

...While the CSDDD’s sanction mechanism remains strong, the legislator missed an opportunity to provide legal certainty on civil liability.