On 23 February 2022, the European Commission published its long-awaited proposal for a corporate sustainability due diligence Directive. The stated purpose of the draft Directive is to “foster [companies’] respect of human rights and the environment in their own operations and throughout their value chains” by mandating them to identify, prevent, mitigate and account for their impacts.
WBA welcomes the Commission’s proposal and recognises that this could be a watershed moment to introduce European Union (EU) policy which will help to close the corporate accountability gap. We have responded to the Commission’s consultation by sharing key considerations for EU policymakers. These are based on the findings of WBA benchmarks and are aimed at enhancing the positive impact of this legislation:
1. Board accountability for human rights and climate mitigation is critical to improve company performance in transitioning to net-zero. Without board responsibility for climate strategy and targets, business climate action will be insufficient to align with the EU Green Deal and Paris Agreement. Our 2021 Oil & Gas Benchmark shows that companies in high-emitting sectors show limited emissions responsibility through climate targets and transition planning.
2. Board remuneration should be linked to sustainability performance. Corporate Human Rights Benchmark results have shown that companies in which at least one Board member has incentives linked to aspects of the company’s human rights policy commitments do better overall than their peers.
3. Specific climate mitigation measures are needed to improve company performance. Climate change presents a fundamental threat to the enjoyment of human rights and CSDDD must include climate within the definition of adverse impacts. Our Climate and Energy Benchmark shows that companies are failing to quantify the financial impact the low-carbon transition will pose to their business.
4. Companies should identify their stakeholders and their interests to understand company impacts on people and planet. Our Corporate Human Rights Benchmark results have shown that companies that engage with (potentially) affected stakeholders, including in the development or monitoring of their human rights approach, tend to do better overall on the benchmark than their peers.
5. Financial institutions must align with baseline company rules. They are key enablers of the economic system, by promoting economic growth, driving investment and employing millions of people worldwide. Our upcoming Financial System Benchmark will guide EU policymakers on how to close the corporate accountability gap in this sector and ensure that the sector is subject to the necessary due diligence obligations, taking into account the long-term nature of investment, crediting and other financial sector activities.