Transforming Corporate Sustainability Into Hard Law

Concern for corporate social and environmental responsibility has increased globally in recent years. When the European Commission—the European Union’s executive body—released a survey to gather views on policy options for sustainable corporate governance in 2020, over 296,000 EU citizens provided feedback, leading to the creation of the Corporate Sustainability Due Diligence Directive (CSDDD).

The CSDDD establishes a duty to address human rights and environmental impact in large companies’ operations. Corporate sustainability means conducting business operations with consideration for long-term environmental, social, and economic sustainability goals.

After individual EU member states implemented related corporate governance laws and generated momentum for a corporate sustainability directive, the European Commission published the proposed text for the CSDDD in February 2022.

Following the publication of the proposed text, the European Commission, the Council of the EU, and the European Parliament completed an intense negotiation period. In December 2023, the Council of the EU and European Parliament—the EU’s directly elected legislative body—reached a provisional agreement for the CSDDD, and the EU adopted the CSDDD in March 2024.

Before the adoption of the CSDDD, due diligence initiatives for human rights were relegated to the framework of international soft law, or non-legally binding principles such as the UN Guiding Principles of Business and Human Rights. The CSDDD presents an opportunity to create a solid, unified framework for corporate sustainability across the EU and represents a transformation into hard law—or binding legal obligations on member states.

The CSDDD went into effect in July 2024. By July 2026, EU member states must enact national laws to enforce the CSDDD.

Because some EU member states, including Italy, have already enacted legislation to promote sustainability due diligence, the CSDDD was established as a minimum harmonization directive—states must adopt minimum standards, but member states can adopt standards stricter than the CSDDD as long as they satisfy the CSDDD’s requirements. Companies cannot reduce their current, already-adopted protections following the adoption of the CSDDD, even if they have exceeded the CSDDD’s requirements.

The CSDDD will apply to companies beginning in July 2027, including approximately 6,000 EU-based companies with over 1,000 employees and approximately 900 non-EU-based companies with a total revenue of over 450 million euros generated in the EU.

Analysts predict that stakeholders in business relationships with companies covered under the CSDDD—such as labor unions and smaller companies—will benefit from the directive. As part of legislation relating to corporate sustainability in Italy, for example, the legal duty of due diligence obligates companies to consider potential social risks in contractual relationships, including any possible implications for smaller businesses subcontracted along the supply chain.

In this week’s Saturday Seminar, scholars evaluate the CSDDD’s ability to promote corporate sustainability and consider its impact.

• Even after the CSDDD’s adoption, work remains to be done on establishing a legally binding instrument to address business and human rights at the international level, Gabrielle Holly contends in a report released by the Danish Institute for Human Rights. Holly argues that although Article 20 of the CSDDD identifies an opportunity for third parties to support companies, additional measures are necessary to involve stakeholders, including trade unions. Holly contends that Article 29 of the CSDDD may undermine its effectiveness because direct obligations, including civil liability for due diligence failures, are only applied to large companies. To combat access-to-justice barriers, additional mechanisms for multi-stakeholder initiatives and for public interest litigants to file grievances are necessary, Holly concludes.
• In a recent article in the Business and Human Rights Journal, Nicolas Bueno of UniDistance Switzerland and several coauthors argue that the CSDDD is a “do no harm” instrument inspired by the UN Guiding Principles on Business and Human Rights. The Bueno team argues that its impact, however, depends on how stakeholders engage with the CSDDD’s process beyond satisfying minimum requirements for compliance. Key issues remain in how national authorities must supervise plans, and the UN lacks enforcement mechanisms for ensuring effective implementation, they contend. Bueno and his coauthors note that the CSDDD is an example of how existing soft law, especially surrounding human rights, can be transformed into binding legislation. For instance, the CSDDD’s definition of “adverse human rights impact” includes human rights enshrined in international instruments, such as freedom of expression, the Bueno team explains.
• The CSDDD provides new rights to workers, argues Maria Giovannone of Italy’s Roma Tre University in an article in the Italian Labour Law e-Journal. Giovannone contends that possible sanctions from non-compliance with the CSDDD—and hard law overall—create an operational impact on national legal systems and corporate regulation. Yet, because the CSDDD promotes broad principles related to human rights and the environment, Giovannone cautions that there may be a risk of civil liability for corporate actors’ failure to comply with ambiguous principles. Giovannone argues that the CSDDD could provide all workers with a livable income because businesses are responsible for promoting an adequate standard of living. Future discussions should focus on making due diligence effective within a company’s existing compliance structures, Giovannone suggests.
• Renegotiations and redrafting of the CSDDD weakened its regulatory stance from the original drafting, Silvia Ciacchi of the Netherlands’ Erasmus University Rotterdam emphasizes in an article in the ERA Forum. Even so, Ciacchi describes the CSDDD as a “silver lining” in improving the sustainability due diligence’s legal framework given the varied development in EU member states’ legislation. Ciacchi explains that sustainability due diligence first became institutionalized in 2011 through the UN Guiding Principles on Business and Human Rights, but it remained mostly consolidated in soft law until recently. Now, following the adoption of the CSDDD, member states bear the responsibility to implement and enforce its principles. Ciacchi concludes that the future of sustainability due diligence remains up to the member states’ adherence to the CSDDD.
• The CSDDD combines principles in existing soft law and formal legislation, including existing supply chain law in France and Germany, Julia Sinnig and Dirk A. Zetzsche of the University of Luxembourg contend in a recent paper. The combination of models raises concerns about consistency and adequacy to address human rights and environmental standards, Sinnig and Zetzche warn. They contend that some countries may take international obligations more or less seriously than other countries, and some countries may have different agencies and mechanisms for enforcement. Regulations under the CSDDD remain vulnerable to ideological compromises given the CSDDD’s adoption process and additional regulations on the member state level, Sinnig and Zetzsche argue.
• In a note in the Columbia Journal of Environmental Law, recent Columbia Law School graduate Skylar Shulman assesses how the CSDDD could inspire federal legislation in the United States. Shulman argues that the CSDDD’s use of a broad definition of human rights—“violations of rights and prohibitions included in international human rights agreements”—increases the possibility that environmental issues with a direct impact on humans could fall within the human rights due diligence operation. Several countries, for example, recognize the right to a sustainable environment as a human right. To protect vulnerable communities’ rights, the U.S. Congress should take a more holistic due diligence approach that integrates human rights and environmental impact, Shulman contends.