Trilogue negotiations are gearing up for a new round of talks on the EU’s Corporate Sustainability Due Diligence directive (CSDDD) next week. In the political debate, climate emerges as a key issue for aligning the legislation with international standards and ensuring real-world improvements for people and the planet.

Seven years ago, the European Union ratified the Paris Agreement on climate change, meaning that EU Member States agreed to set the EU on course to becoming the first climate-neutral economy and society by 2050. On top of that, EU capitals pledged to reduce emissions by at least 55% by 2030, compared to 1990 levels. Three years later, the EU Green Deal introduced several policy initiatives aiming to facilitate this transition. Unfortunately, the reality is that Europe is falling short of its climate goals. One reason is that instruments which have been introduced, such as reporting mechanisms, have shown limited impact only. To address this, the forthcoming Corporate Sustainability Due Diligence Directive should require companies to assess climate risks and develop strategies for climate impact mitigation that can bring the much-needed shift in business conduct. Would the companies be obliged to meet emissions reduction targets? Let’s delve into the climate scope of the CSDDD.

Climate change is a direct and serious threat to human rights and natural ecosystems. Take recent extreme weather events that are threatening people’s lives. Last summer, wildfires raged across the European continent, charring nearly 800,000 hectares throughout the EU, destroying lives and livelihoods. Heat waves such as the 48°C in Sicily, made July the hottest month in at least 120,000 years and ushered in the era of global boiling. The whole Mediterranean experienced lower river flows than ever before, and the East Mediterranean is expecting longer droughts and more devastating floods for the region as dried-out soils will struggle to absorb rain once it falls.

Climate change requires countries worldwide to work collaboratively, climate knows no borders. While the EU has taken some steps to reduce emissions and reliance on fossil fuels, they are still insufficient to meet the Paris Agreement’s 1.5°C objective. Unfortunately at this stage, we are rather on a path to a 2.4°C or higher warming increase. How do we solve this apparently inevitable disaster? Let’s remember the fact that EU capitals do have the obligation to direct their businesses to drastically reduce and mitigate their climate impacts. On the European level, the EU has introduced regulations mandating big companies to report on their environmental and social practices. However, businesses are yet far from making the necessary shift: according to recent research, only 1% of businesses align their spending with decarbonisation goals. Moreover, it also highlights the systemic lack of decarbonisation action in key sectors such as finance, and oil and gas.

To address the urgency of climate change, it is essential to implement effective measures that compel businesses to respond adequately. One instrument could be climate transition plans that the CSDDD will introduce – only if designed to trigger businesses to truly reduce emissions. This is not for certain: currently, it is discussed that businesses will be obliged to draft those climate transition plans only, but that there will be no enforceable requirement to implement these plans.

The EU allows banks, investors, insurers &
other financial institutions to ignore the social &
environmental harm that these assets can cause.

That’s why we insist on the inclusion of the financial sector in the #CSDDD.

3⃣stories of harm w/involvement of EU financers pic.twitter.com/U7OUZ3mxS8

— European Coalition for Corporate Justice (@ECCJorg) October 31, 2023

By requiring companies to assess climate risks and adopt and implement robust climate prevention and mitigation strategies, the CSDDD can potentially play a vital role in addressing shortcomings in corporate responses to their climate impacts. Let’s explain what we are talking about in a little more detail:

• Like a “check-up” for companies to understand how their activities affect the climate, CSDDD’s climate risk assessment requirements prompt businesses to identify and evaluate direct and indirect greenhouse gas emissions throughout their value chain. This ensures the recognition of climate-related risks and necessitates evaluations of impacts on workers, local communities, and the surrounding environment.
• Additionally, similar to a company’s measures to prevent harm (like polluting the environment) and steps to mitigate and remediate harm that occurred  (like cleaning up pollution), companies must also adopt and implement prevention and mitigation strategies, which are another vital component.

• The European Commission has set the tone with its proposal, excluding a requirement for companies to address climate impacts when carrying out environmental due diligence. Also, the Paris Agreement is not part of the body of international agreements and conventions that describe the environmental impacts that companies should cover with their due diligence. Instead, the Commission’s proposal only requires companies to adopt a climate transition plan without any obligation or enforcement provision to ensure their implementation. Put differently, companies would bear no consequences if they treated the CSDDD’s climate transition plans purely as a paper exercise.
• The European Parliament’s position is the only one that clearly defines what and how climate and environmental impacts must be addressed by the company’s due diligence. The Parliament uses recently updated OECD standards as guidance. This approach also ensures coherence with relevant existing EU due diligence legislation, such as the EU Battery Regulation which deals with the environmental and human rights impact of batteries within the entire value chain. What is important in the Parliament’s version is that companies not only have to develop but also implement a transition plan. If they don’t follow this obligation, businesses could face legal action, meaning be subject to civil liability. The Parliament’s version also explains the key elements of transition plans, which would match the rules in the Corporate Sustainability Reporting Directive and set clear goals for reducing their environmental impact, including everything from their actions to those of their suppliers and customers.
• The Council’s proposal is similar to the Commission’s in that it doesn’t require that companies conduct due diligence on their climate impacts. When it comes to transition plans, the Council’s version is mostly aligned with the Commission.

The ineffective implementation of current national due diligence laws highlights a crucial need for change. Explicit and clear climate due diligence standards, coupled with robust enforcement mechanisms, are essential. The perfect example is the French Duty of Vigilance Law, which was the pioneering legislation to introduce corporate human rights and environmental due diligence. However, six years after the French law was passed, French companies are still falling short of assessing their climate impacts and taking adequate actions. This can be attributed to the law’s lack of details on how companies should implement their due diligence obligations, insufficient oversight by government authorities, and legal complexities hindering private enforcement mechanisms offered by the law.

That’s why we call upon EU and national policymakers to:

• Incorporate climate due diligence into the CSDDD, echoing authoritative international standards such as the updated OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and establish robust enforcement mechanisms.
• Implement climate transition plans, considering them as a practicable tool within a broader Climate Due Diligence duty.
• Ensure that the CSDDD compels climate transition plans aligning with sustainability and the emission reduction goals outlined in the Paris Agreement.

Climate change is one of the most pressing issues of our time, and it demands immediate and decisive action.