EU Steps Forward

Corporate accountability is increasingly recognized as essential in addressing the twin triple planetary crises of climate change, pollution, and biodiversity loss. As transnational corporations (TNCs) dominate global supply chains, their role in perpetuating environmental harm and human rights abuses has drawn heightened scrutiny (Fabe, pp. 1477–1479; Finger & Svarin, pp. 7149–7169). Given the persistent regulatory gaps inherent in existing voluntary frameworks, such as the United Nations Guiding Principles on Business and Human Rights (UNGPs), the European Union has pursued a more assertive regulatory approach aimed at institutionalizing sustainable and ethically responsible corporate conduct. The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) was crafted to address these deficiencies.

The CSDDD seeks to harmonize sustainability requirements across the EU by establishing a mandatory framework that compels TNCs to address sustainability issues within their operations and supply chains. The CSDDD builds on a growing body of Member States’ regulatory initiatives, such as the French Duty of Vigilance Law and the German Supply Chain Due Diligence Act, and aligns with the EU’s commitments under international agreements such as the Paris Agreement and the United Nations Sustainable Development Goals (SDGs).

By extending corporate accountability to supply chains, harmonized across the EU and extended to global influence, the CSDDD operationalizes principles of shared responsibility that are foundational to achieving global sustainability goals. However, this effort reflects the Union’s ambition to leverage its economic power to influence corporate practices and climate change policies beyond its borders (Grevi & Youngs, p. 21). The Directive, which might prove to be straining on existing global legal frameworks, may shape the future of corporate climate liability.

Legal Framework of the CSDDD

The CSDDD imposes binding obligations on large corporations operating in or targeting the EU market. It requires them to identify, prevent, and mitigate adverse human rights and environmental impacts throughout their supply chains. The directive’s application is limited to companies exceeding specific turnover or employee number thresholds, and includes stricter requirements for entities in high-risk sectors such as agriculture, mining, and textiles. This differentiated regulatory approach reflects an awareness of the asymmetrical influence that corporations exert across supply chains, as well as the heightened exposure to environmental and human rights risks inherent in specific high-impact industries.

The Directive mandates the adoption of due diligence plans that outline measures for identifying and addressing risks, engaging with stakeholders, and implementing remediation. It emphasizes supply chain accountability, requiring companies to monitor and report on the effectiveness of their measures. These provisions build on the EU’s regulatory trajectory, as seen in the Non-Financial Reporting Directive (NFRD) and its successor, the Corporate Sustainability Reporting Directive (CSRD). Both instruments aim to enhance corporate transparency and align business practices with sustainability goals.

Crucially, the CSDDD introduces civil liability for companies that fail to prevent or mitigate adverse impacts. Member states are tasked with establishing administrative sanctions and judicial mechanisms to enforce compliance. This dual approach reflects the EU’s commitment to ensuring the Directive’s effectiveness while respecting the subsidiarity principle, which allows member states to tailor enforcement mechanisms to their legal systems (Fabbrini, pp. 221–242).

The Directive’s provisions on stakeholder engagement and access to remedies are consistent with international instruments such as the Aarhus Convention and the UNGPs. By requiring companies to consult affected stakeholders, the CSDDD seeks to amplify the voices of vulnerable communities and ensure that remedial measures address their specific needs.

Historical Background

The evolution of the CSDDD reflects broader trends in international efforts to regulate corporate behaviour in the face of environmental degradation and human rights abuses. While the Directive represents a novel initiative, its origins can be traced to domestic and international precedents and growing societal and political pressures for corporate accountability.

The idea of corporate due diligence emerged with the adoption of the United Nations Guiding Principles on Business and Human Rights (UNGPs) in 2011. The UNGPs articulated a “Protect, Respect, and Remedy” framework, establishing a baseline for state and corporate responsibilities to address human rights risks in business operations. Although the UNGPs were non-binding, they catalysed discussions about mandatory due diligence, particularly in jurisdictions that sought to translate principles into enforceable legal obligations. The EU, a staunch supporter of the UNGPs, began considering legislative measures to advance the implementation of these principles.

At the domestic level, European states spearheaded significant initiatives that laid the groundwork for the CSDDD. France adopted the Duty of Vigilance Law in 2017, which imposed binding due diligence requirements on large companies to prevent environmental and human rights violations across their supply chains. Subsequently, Germany followed France, enacting the Supply Chain Due Diligence Act in 2021. These pioneering laws provided concrete examples of how due diligence obligations could be integrated into national legal systems, sparking calls for harmonization at the EU level to prevent fragmentation and ensure a level playing field.

The European Commission formally began exploring the idea of an EU-wide due diligence directive in 2020, spurred by advocacy from civil society organizations and growing evidence of corporate involvement in environmental and human rights abuses. Studies by the European Parliament, including its report on supply chain due diligence, highlighted the pressing need for strong legislation to hold corporations accountable for their cross-border impacts. Public consultations revealed widespread support for mandatory due diligence among stakeholders, including businesses seeking regulatory clarity and consistency.

Parallel to these regional developments, international frameworks continued to shape the conceptual underpinnings of the CSDDD. The OECD Guidelines for Multinational Enterprises and the OECD Due Diligence Guidance for Responsible Business Conduct provided detailed guidance on implementing due diligence in corporate operations. These instruments reinforced the growing consensus that corporations should be responsible for preventing and mitigating adverse impacts throughout their supply chains.

The Directive’s development also coincided with the intensification of global climate commitments, such as the 2015 Paris Agreement, which underscored the urgent need for systemic changes to achieve sustainability goals. In this context, the 2019 European Green Deal established a comprehensive strategy to transition the EU to a climate-neutral economy by 2050. The Green Deal included commitments to promote sustainable corporate governance, positioning the CSDDD as a critical legislative initiative to align corporate practices with the EU’s broader environmental and social objectives.

The COVID-19 pandemic further accelerated the push for the CSDDD. The global health crisis exposed vulnerabilities in corporate supply chains and amplified concerns about labour rights abuses and environmental degradation linked to business activities. The pandemic highlighted the interconnectedness of global supply chains and underscored the need for legally binding measures to ensure that corporations operate responsibly, even in times of crisis (Shih, pp. 82-89).

In February 2022, the European Commission presented its proposal for the CSDDD, marking a milestone in the EU’s regulatory approach to corporate accountability. The Directive represents the culmination of decades of advocacy, legal experimentation, and policymaking aimed at embedding sustainability and human rights considerations into corporate governance frameworks. It reflects not only the EU’s commitment to addressing global challenges but also its ambition to set a global benchmark for corporate responsibility in the 21^st century.

This historical trajectory illustrates how the CSDDD emerged from a confluence of domestic, regional, and international developments, driven by the recognition that voluntary measures are insufficient to tackle the complex challenges posed by globalization. By drawing on these diverse influences, the Directive seeks to provide a coherent and enforceable framework for promoting sustainable and ethical business practices, which may significantly impact its global enforceability.

Opportunities for Global Corporate Accountability

The CSDDD offers significant opportunities to advance global corporate accountability. By embedding sustainability within corporate governance, it aligns with the principles of the Paris Agreement, the SDGs, and the OECD Guidelines for Multinational Enterprises.

The Directive’s potential to become the global model is underscored by its compatibility with several existing international frameworks. For example, its provisions on stakeholder engagement resonate with the Aarhus Convention’s emphasis on public participation in environmental decision-making. Similarly, its focus on due diligence complements the UNGPs’ framework for integrating human rights considerations into corporate practices.

Therefore, the EU can position the CSDDD as a cornerstone of its climate and sustainability strategy by fostering cooperation, addressing enforcement gaps, and empowering stakeholders. If effectively implemented, the Directive could redefine global corporate governance, solidifying the EU’s sustainable development and corporate accountability leadership.

Challenges and Critiques

Despite its transformative potential, the CSDDD is likely to encounter a range of legal, political, and operational challenges. Foremost among these is its extraterritorial reach, which invites critical scrutiny regarding its compatibility with established norms of international economic law, particularly those governing non-discrimination and market access under the World Trade Organization framework. For instance, the General Agreement on Tariffs and Trade (GATT) prohibits measures that create unnecessary trade barriers, unless justified under specific exceptions. While the EU may invoke environmental or human rights exceptions under Article XX of the GATT, the burden of proof remains substantial, and disputes are likely to arise.

Another challenge lies in the Directive’s reliance on member states for enforcement. Variability in national legal systems and regulatory capacities could undermine the uniform application of the CSDDD. Evidence from the EU Emissions Trading System (EU ETS) suggests that disparities in enforcement can weaken the efficacy of EU-wide measures. The CSDDD’s success will depend on the robustness of national enforcement mechanisms and the EU’s ability to monitor compliance across jurisdictions.

Corporate pushback also poses significant risks to the Directive’s implementation. Industry stakeholders have contended that the CSDDD imposes disproportionate compliance burdens on businesses, with particular concern expressed regarding its impact on small and medium-sized enterprises (SMEs) operating within high-risk sectors. Critics contend that the Directive could create competitive disadvantages for EU-based companies, especially when trading with partners in jurisdictions lacking similar standards.

Finally, the Directive’s broader implications for global corporate governance are contested. While the EU’s normative power, dubbed “the Brussels Effect”, has previously set global benchmarks, as seen with the General Data Protection Regulation (GDPR), the CSDDD’s ambitious scope may generate resistance from other regions. Emerging economies, in particular, may view the Directive as an attempt to impose EU norms on third countries, exacerbating regulatory fragmentation and complicating international trade relations.

Conclusion

The EU Corporate Sustainability Due Diligence Directive (CSDDD) marks a transformative step in institutionalizing corporate accountability for environmental and human rights impacts, aligning business practices with global sustainability goals. By instituting mandatory due diligence obligations and reinforcing supply chain accountability – an acknowledgment of the significant role corporations play in shaping global emissions and resource consumption – the Directive departs from prior reliance on voluntary frameworks and establishes a comprehensive legal mechanism aimed at addressing the structural challenges inherent in globalization and transnational corporate governance.

Drawing upon the European Union’s normative and economic authority, most notably illustrated by the extraterritorial influence of the GDPR, the CSDDD possesses the potential to shape global regulatory trajectories by fostering convergence around mandatory due diligence regimes in other jurisdictions. However, the CSDDD faces numerous challenges, including the potential for uneven enforcement across EU member states and conflicts with international trade law, particularly under WTO agreements like the GATT. Ensuring effective enforcement and navigating these legal conflicts will be essential to its success.

Ultimately, the CSDDD’s ability to drive global standards depends on the EU’s engagement with international partners.  By engaging in structured dialogue with key trading partners and investing in capacity-building efforts within emerging economies, the European Union can reduce normative resistance and facilitate the harmonization of corporate accountability standards. These measures would enhance the Directive’s international legitimacy and consolidate its position as a central instrument in the evolving architecture of global sustainability governance.