FAQ on the EU Corporate Sustainability Due Diligence Directive (CS3D)

Our key takeaway: Nothing new! But also: time for more action! The recently released FAQ by Shift makes clear that the new Corporate Sustainability Due Diligence Directive (CS3D) is not new. It builds firmly on existing expectations of companies in existing international frameworks that have been in place for over ten years. We don’t even need to wait for the European Commission to put its guidance together, since there’s plenty of guidance already out there on implementing the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines on Multinational Enterprises. The CS3D builds on the international due diligence standards: it requests companies to prioritise based on risks to people; it connects expected actions with how the company is involved with the negative impacts; it requires companies to look at their own business decisions and strategies – especially their purchasing practices; and it focuses companies on how they can take meaningful actions to tackle the issues found - including collaborating with others. So nothing new, but also, now is the time for action, if implementing the UN Guiding Principles is newer to you and your business. Three actions can help now says Shift: familiarise yourself with existing guidance, invest in internal sustainability capacity, and actively participate in credible initiatives. Implementation starts now!

Shift published FAQs: on the EU Corporate Sustainability Due Diligence Directive (CS3D) (April 2024):

• The essentials: The FAQ first set the framing that human rights due diligence was first set out in the authoritative international due diligence standards – the UN Guiding Principles on Business and Human Rights and the OECD Guidelines on Multinational Enterprises – in 2011. Shift makes clear that “The Corporate Sustainability Due Diligence Directive introduces a new legal duty for large companies that applies to both human rights and environmental impacts and is grounded in these international standards. The CS3D will therefore help level the playing field for companies that have already invested in due diligence aligned with those standards. It should also help focus effort on what works (and what doesn’t) in carrying out meaningful due diligence based on the practical experience gained by business and civil over the last decade in implementing the international standards.” The FAQ clarify that “[w]hile we now have a European due diligence directive, this is not ‘European’ due diligence – it is sustainability due diligence grounded in the existing international standards, as explained above.”
  

• Alignment with the international due diligence standards on business and human rights: The FAQ delve into four ways in which the CS3D is aligned with the international due diligence standards. First, prioritisation. “Focusing on the most severe risks to people, not just what is easiest or most proximate for the company to address, is much more likely to make due diligence efforts impactful for workers and local communities in companies’ operations and value chains.” Second, involvement with negative impacts. The EU CS3D uses the ‘involvement framework’ or the ‘cause/contribution/linkage’ framework which “differentiates between how a company is involved with an impact and what action is expected of it in response.” Shift notes that “[t]his framework in the international standards has consistently helped bring stakeholders around the table for constructive conversations about what is reasonable in any given situation based on how a company is connected to an impact.” Third, looking at a company’s own conduct and strategy. Shift observes that “[f]or the first time, companies covered by the CS3D will be required to look at their own business decisions and strategies – especially their purchasing practices – and any unintended effects these may have on their business partners.” In particular, “[i]t’s a company’s own responsibility to address any tensions between its sustainability expectations of its partners and the business demands it places on them.” Fourth, taking measures that address impacts. The FAQ makes clear that “[t]he Directive requires companies to consider a range of measures, including collaborating with others, to effectively address impacts. This is not about simply blanketing first tier business relationships with questionnaires and audits!”
  

• Next steps for business: The FAQ recommends three actions for companies to take now. First, familiarise yourself with existing guidance. “Companies will have plenty of time to get their houses in order for implementation of the CS3D if they start work now.” Although the European Commission will, with time, put together authoritative implementation guidance, companies don’t need to wait for this since there is already a large amount of publicly available guidance. Second, invest in internal sustainability capacity. Shift observes that “this is an excellent time to seek out the existing expertise of internal human rights and sustainability colleagues where they have already been working to implement the international standards and to invest in further in-house capacity to set companies up for the years to come.” Third, actively participate in credible industry and multistakeholder initiatives. This can help companies identify salient risks in their sector; gain access to tools or guidance, or to a shared grievance mechanism; and coordinate with others around the use of leverage to drive better outcomes. At the same time, the Directive makes clear that these initiatives do not replace an individual company’s responsibility for due diligence. Other questions addressed by the FAQ relate to the role of administrative supervision, the meaning of civil liability, Member State requirements, and how impacts in downstream business relationships are addressed.