Why Confindustria criticizes the EU directive on corporate sustainability
All the consequences for companies of the European Corporate Sustainability Due Diligence directive. Sergio Giraldo's article
An inextricable forest of obligations and obligations worthy of the worst bureaucracy of the late empire: welcome to Europe. Yet another noose tightened around companies takes this time the evocative name of Corporate Sustainability Due Diligence (CSDD) and is the new directive that Brussels has in store for companies in the European Union. This idea is also part of the maxi-package called the Green Deal, launched by the current commission in the autumn of 2019, a geological era ago.
WHAT DOES THE DIRECTIVE CONSIST OF
In February 2022, the European Commission adopted a proposal for a directive on corporate sustainability due diligence. The purpose of the directive is “to promote sustainable and responsible business behavior and to anchor human rights and environmental considerations in the operations and corporate governance of companies. The new rules will ensure that companies address the negative impacts of their actions, including in their value chains inside and outside Europe." This is the Commission's statement. The text, therefore, had been hanging over the heads of companies for almost two years. On 14 December, the agreement between the European Parliament and the Council on a final text was signed, which will now have to be formally adopted by the two institutions. Almost certainly before the June 2024 elections.
In practice, companies will have the obligation to adopt due diligence in isolating, avoiding and reducing conduct that is harmful to human rights and the environment. Companies will therefore have to have plans, divided into processes for identifying, mitigating, stopping and reporting behaviour, constantly monitoring the situation. These plans will also have to extend beyond company boundaries and go back up the value chain to upstream suppliers. In the case of companies that have other companies as customers, the due diligence must also cover those customers.
If this seems abstract, unrealistic, complex and cumbersome, there's no need to worry: it's exactly like that. This is another of Brussels' many "ambitious" moves. This time it's about eliminating evil from the world through market rules made in Brussels.
The Due Diligence Directive sets out the rules on the obligations of large corporations regarding serious adverse environmental and human rights impacts for their chain of activities, which includes the company's upstream business partners and, in part, downstream activities, such as distribution or recycling.
The directive also defines rules on sanctions and civil liability in case of violation of these obligations; requires companies to adopt a plan that ensures their business model and strategy are compatible with the Paris Agreement on climate change.
NEW OBLIGATIONS
The directive will apply to companies with more than 500 employees and a global net turnover of more than 150 million euros, excluding the financial sector. Three years after entry into force, the directive will also apply to third-country companies with a net turnover of more than €150 million generated in the EU.
Large companies have an obligation to make every effort to adopt and implement a transition plan for climate change mitigation. Regarding civil liability, the agreement strengthens stakeholders' access to justice. It establishes a five-year period within which those affected by adverse impacts can bring legal action.
Companies that detect negative environmental or human rights impacts on their business partners will have to terminate their relationships if the conduct does not cease. Penalties of up to 5% of turnover are foreseen for those who do not comply.
Furthermore, there is already legislation that concerns sustainability reporting, not only environmental, but understood in a very broad sense. It is the Sustainability Report Directive (CSRD), which already requires an incredible series of obligations. Above all, what makes this directive onerous is the indeterminacy of the boundaries, i.e. the apparently infinite extension of the obligations. Both regulations require an extension of processes for verifying sustainability that go beyond the limits of the company and even beyond continental borders.
THE COMPLAINTS OF CONFINDUSTRIA, MEDEF, BDI AND BDA
The industrial associations of the three largest countries, the Italian Confindustria, the French Medef and the German Bdi and Bda, have written to Brussels highlighting a series of very significant problems. “Businesses need regulation that puts competitiveness and growth at the centre. On the contrary, in recent years we have witnessed a trend towards increasingly invasive regulation at EU level, which impacts in particular on SMEs and their ability to compete. The proposed directive on due diligence is a clear example of this,” Stefan Pan of Confindustria said a few days ago.
Indeed, the real risk is, quite simply, to suffocate businesses, already burdened by a mountain of bureaucratic burdens, and to expose them to risks that they are actually unable to manage. How and to what extent can a company influence the behavior of another? Up to a certain point it is possible, but how broad is the responsibility of one company compared to another? How "objective" is the responsibility of subjects subject to Brussels regulation?
THE RISKS
The scope of the rule is very broad, so much so that, as the industrial associations underline in their letter, there is a well-founded risk of going beyond the sectoral regulations already in force, generating confusion and overlapping of rules.
Another real risk is that companies will be forced to become real policemen, tasked with discovering illicit or reprehensible conduct on the part of others. Tasks that fall to the States, in their judicial structure. The obligation to have processes for reporting "unsustainable" conduct (whatever this means) represents a sort of substitution of the judicial arm. How deep (i.e. invasive) can the monitoring of other subjects' conduct be?
Once again, we are witnessing the grotesque pile-up of European standards that cover the entire world without taking into account the production reality and the specificities of many sectors and many countries. Brussels' regulatory bulimia is putting a straitjacket on the European economy, already crippled by high rates and fiscal governance that stifles growth. It is curious, for example, that what is called the Stability and Growth Pact had to be suspended to generate growth. Instead of worrying about putting police uniforms on businesses, the Commission should think about how to relaunch real economic growth in Europe.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/direttiva-csddd-impatto-ue/ on Sun, 14 Jan 2024 05:40:26 +0000.