What will the state of corporate accountability look like three years from now?
Exactly three years from today the European Union Corporate Sustainability Due Diligence Directive (CSDDD) will come into force. This is being billed as one of the most significant legislative attempts to legally mandate sustainable and responsible business practices. But will this make companies more accountable for their actions? And how much progress must we make to fill the current accountability gap that CSDDD will help address?
The Corporate Sustainability Due Diligence Directive
For the last five years, EU policy makers – responding to pressure from civil society and impacted communities worldwide – have worked to introduce a law aimed at addressing the adverse impacts of corporate activities on human rights and the environment. The impetus behind this law stems from growing recognition of the urgent need to tackle environmental degradation and human rights abuses linked to corporate operations. There has been increasing pressure from civil society, investors, and consumers for companies to adopt more sustainable practices. The European Green Deal and the EU’s commitment to the UN Sustainable Development Goals (SDGs) further underscore the necessity for robust legislation to enforce corporate accountability.
The challenges ahead
The purpose of the CSDDD is to introduce a legal framework that ensures companies operate responsibly throughout their own operations and entire supply chains. However, while this law represents a crucial step towards more sustainable business practices, its implementation poses several challenges. Companies will need to invest in robust due diligence systems which may require significant resources and expertise. These efforts will be needed to ensure effective supply chain mapping and stakeholder engagement, particularly for complex global supply chains.
Are we CSDDD-compliant ready?
The World Benchmarking Alliance (WBA) published benchmarks which ranks and assesses the world’s 2,000 most influential companies on their contributions to sustainable development. Approximately over 50% of these companies will fall under the scope of the CSDDD. This allows for WBA to give a snapshot of the current trends of the world’s most influential companies in how they will comply with CSDDD.
While it is nearly impossible to see into the future, what we can do is look at where we are now and estimate how far companies must travel to live up to CSDDD’s goals and in turn start addressing the risks in their supply chains. We can do this by looking at how companies are currently performing in our benchmarks:
- Mainstreaming supply chain due diligence
The CSDDD mandates that companies implement a meaningful due diligence process, which includes meaningful stakeholder engagement for both designing the process as well as the risk assessment.
WBA’s Social Benchmark shows that 80% of the 2,000 most influential companies score zero on the initial steps of HRDD implementation, and only 9% demonstrate any evidence that they engage with affected or potentially affected stakeholders.
- Reversing biodiversity degradation
CSDDD extends the concept of “human rights due diligence” to “human rights and environmental due diligence” which mandates that companies must identify their key environmental risks.
WBA’s Nature Benchmark shows that while the food and agriculture sector bear an enormous responsibility for two of the biggest drivers of environmental degradation – land use change and the exploitation of nature – only 2% of the biggest 350 companies in the world currently disclose their environmental impacts. Furthermore, despite being among the most nature-dependent industries, 0% holistically address their dependencies on nature
- Achieving the Paris Agreement
CSDDD mandates that companies adopt and put into effect a transition plan for climate change mitigation to ensure that the business model and strategy of the company are compatible with the transition to a sustainable economy and the limiting of global warming to 1.5°C in line with the Paris Agreement.
WBA’s Climate and Energy Benchmarks show that the world’s most influential aluminum, cement and steel companies need to triple their efforts to reduce emissions intensity in the next five years to align with a 1.5°C trajectory. Coupled with this, the largest oil and gas companies have no set date to phase out fossil fuels. By failing to make credible transition plans they will not reduce their operational emissions fast enough to limit global warming to 1.5°C.
Whilst WBA’S benchmarks can tell us the mountain that companies and governments will have to climb to deliver on what are very basic and crucial commitments to protect people and the planet.
This means that we cannot spend the next three years quibbling about every single detail or demanding 100% clarity on every obligation when we have such massive gaps to address. What we first need is foremost is for t companies to take the upcoming law seriously and know that if they do not start addressing their risks there will be consequences – not just reputational ramifications as is mostly the case today, but also legal ones!
While the potential impact of CSDDD focuses on shifting the current corporate behaviour, ultimately governments will be responsible for driving action to accelerate the transformation by ensuring that the law is implemented and supervised as effectively as possible. The world currently lacks mechanisms that are effective in holding the most influential companies accountable for their contribution to sustainable development, but CSDDD is a golden opportunity to start to change this.
WBA will continue to monitor the roll out of CSDDD to ensure that it puts people and the planet first by ensuring that the impacts companies have on societies and the environment is made consequential to their success. We have begun by looking at the current stare of company preparedness for key components of the mandatory due diligence legislation: Are companies ready for the EU supply Chain law? – and we will continue by assessing other key aspects of the CSDDD implementation.
