ClientEarth and Frank Bold released ‘Navigating the EU’s CS3D and CSRD: A New Era for Corporate Environmental Due Diligence and Reporting’ (September 2024), an overview of every environmental element of the new directive. The guide is for for those tasked with transposition, implementation and enforcement - as well as for businesses.
Human Level’s Take: For those of you looking at the provisions of the EU CSDDD to understand what to expect, don’t forget that governments can go beyond the directive in a number of areas where this can be viewed as helpful. ClientEarth and Frank Bold make the case for a number of areas where governments should consider clarifying the provisions of the EU CSDDD—to enhance legal predictability; to strengthen alignment amongst this directive and other pieces of legislation (e.g. the CSRD, the SFDR) and soft law; and to help ensure companies don’t face blind spots in their due diligence. In particular, governments can apply a full value chain approach tp companies’ due diligence. They can also ground the scope of environmental impacts more clearly in international law and expectations—both those environmental impacts that have human rights implications, as well as those environmental impacts that come from international environmental conventions. The road to greater EU CSDDD clarity starts now!
- The pivotal opportunity of the transposition: The report delves into the transposition process, which is the process that will happen now of incorporating the EU CSDDD into national laws of EU Member States. Under EU law, a directive is binding with regard to the result to be achieved. However, Member States have a certain degree of flexibility with regard to the manner in which the directive is incorporated into national law. Article 4 of the EU CSDDD (which relates to the level of harmonisation) requires full harmonisation for certain provisions laid down in Article 8(1) and (2), Article 10(1) and Article 11(1)—which relate to the core elements of the duty of conduct (the obligation to identify, prevent and bring impacts to an end). Outside of these core elements, Member States are permitted to go beyond most of the CS3D’s requirements and to adopt more stringent provisions. Therefore: “[t]ransposition into national legislation thus represents a pivotal opportunity to ensure a high level of environmental protection, by reinforcing the CS3D’s alignment with international standards and enhancing coherence with other legal frameworks, such as the Corporate Sustainability Reporting Directive (CSRD) and other EU due diligence legislation.”
- Value chain coverage: The report delves into how the EU CS3D deviates from the CSRD and international standards. The EU CS3D requires companies to consider their entire supply chains, as well as downstream distribution, transport and storage when done for or on behalf of the company. However, the CSRD, the Sustainable Finance Disclosure Regulation (SFDR) and international standards require companies to identify and address impacts in their entire upstream and downstream value chains. This matters. The report gives the example of the use and waste treatment of a company’s products, which are not in scope of the due diligence duty. This may result in important clean-up costs being unduly shifted to States and the public. Another example provided is the exclusion of downstream financial services and investments from due diligence conducted by financial services providers. Therefore, the report argues that the transposition is the opportune time to address this divide between pieces of legislation. Governments are urged to bring the definition of the downstream chain of activities in line with the CSRD and international standards by including all activities, in particular the use and waste management of products and the provision of services. They are also urged to introduce due diligence requirements for financial products and services, in line with international standards and UN recommendations.
- Scope of environmental impacts - and connection with human rights: The report describes the two-pronged approach to environmental impacts contained in the CS3D. First, the directive covers environmental impacts with human rights implications. “This underscores the interconnectedness between environmental degradation and human rights abuses—including the right to health, potentially addressing a wide range of scenarios where environmental impacts intersect with human rights.” Second, the directive covers environmental impacts that are defined by reference to a list of prohibitions and obligations derived from international environmental conventions (irrespective of any direct human rights implications). Although these two approaches “have the potential to provide a strong framework for addressing business contributions to the triple planetary crisis”, the report calls on governments to provide needed clarity to business. In particular, the way in which environmental impacts are defined may result in divergent interpretations by companies, which in turn would create legal uncertainty and blindspots. The report provides a lot of detail on these two aspects of environmental impacts and how they are to be read - including providing examples of how environmental impacts have human rights implications. (See in particular a discussion with regard to whether due diligence in relation to climate change can be viewed as being included within the environmental impacts with human rights implications).
