Anne spoke with Forbes about the supply chain law passed in late April 2024 by the European Union parliament, the Corporate Sustainability Due Diligence Directive (CSDDD or C3D). This directive will have impacts on many companies, public and private, even with limited exposure to Europe. Brief excerpts from the article are included below and the entire article by Felicia Jackson can be found in Forbes.
Could CSDDD signal A tipping point For corporate accountability? | Felicia Jackson
This week has seen the EU agree new rules on supply chain due diligence, one of a set of laws passed including action on toxic air, packaging and packaging waste. What the Corporate Sustainability Due Diligence Directive establishes is legal liability for corporates on environmental and human rights issues in the European courts - and that could change the framework of corporate accountability.
The C3D is a companion to the Corporate Sustainability Reporting Directive which requires companies to be transparent about their ESG risks and impacts. The CSRD does not require actions to address them, it’s a requirement for transparency not behaviour change. Yet even here different Member States have implemented the rulings in different ways – France for example, has set a high bar in terms of penalties for non-compliance with CSRD, with fines of up to €75,000 and jail time for corporate directors that fail to comply.
The C3D is different and not only will some large non-EU companies find they’re subject to the new rules (even if they’re not subject to the companion EU law on ESG disclosures) but the new due diligence rules go further than the EU’s existing disclosure framework...
Corporate liability becomes a reality
...Where this is most likely to bit is in terms of the question of liability, which will see senior executives become liable for transgressions for up to 5% of company turnover. At the same time, it introduces the risk of liability, allowing victims to claim compensation from companies for damages caused by human rights or environmental violations. That could include jail time, which will likely also transform executive perception of the implications.
As Anne Clawson, principal and head of government affairs and public policy at Cascade Advisory points out, the legislation is also likely to have a significant impact on privately held companies which, she says: “Have not typically not faced the same public disclosure requirements as public companies (like from the SEC in the U.S. and from investors that lead them to publish annual sustainability reports already).”
Clawson points out another big distinction, in that companies will have to start auditing their suppliers and their customers' environmental and social performance. Many larger companies have already started internal audits of their sustainability reporting, but it only inconsistently includes suppliers and customers. She says:
“Suppliers and customers have been providing some information to larger companies already, but not all suppliers and not all information. They will face many more demands in light of these new laws.”
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