Joint FIEC-EIC Position on proposed EU Directive Corporate Sustainability Due Diligence
On 23 February 2022, the European Commission adopted a proposal for a Directive on Corporate Sustainability Due Diligence (CSDD) which has the objective to anchor human rights and environmental considerations in companies’ operations and corporate governance. The proposed Directive aims to prescribe large companies and smaller companies in high-risk sectors to carry out human rights and environmental due diligence in their business operations, as well as in their subsidiaries and in global value chains.
EIC already signalled in its submission to the corresponding EU Consultation in February 2021 that European contractors are in favour of a European legal framework for supply chain due diligence to address adverse impacts on human rights and environmental issues if and to the extent that it is confined to promoting an effective and uniform EU-wide application of the UN Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises (MNE). Conversely, we criticise that excessive regulation will only lead to additional cost burden for European businesses at a time where they are still sensing the repercussions of a unique pandemic and are confronted with the impact of a war in Europe on their supply chains.
Over the past weeks, FIEC and EIC have collaborated on a joint Position Paper on the proposed CSDD Directive in which we have noted that the concepts and wording of the proposed legislative act are modelled on the business model of the manufacturing sector where companies have established persistence and permanence in their supply chains. By contrast, the operations of the construction industry are to a large extent project-based with constantly changing work locations, clients, suppliers, subcontractors and other involved third parties. Therefore, certain concepts and certain wording of the proposed Directive or Regulation are incongruent with the construction business model and that there is a need for more legal clarity, alternatives, or at least definite orientations about how to adapt the proposed sustainability due diligence approach to project-based activities.
Going further into detail, FIEC and EIC raise the following points:
Due diligence requirements should be limited to direct (‘tier-1’) subcontractors and suppliers in the supply chain;
Alternatively, a nominal threshold or percentage should be introduced for indirect suppliers;
Threshold calculations for EU (150 mil €. world-wide turnover) and non-EU companies (150 mil. € EU-turnover) should be aligned and criteria should be assessed at group level, because otherwise Chinese SOE may escape from liability;
All bidders for public tenders in the EU Internal Market and/or all public tenders financed from EU funds should be required to comply with the due diligence requirements of the Directive;
Proposed civil liability regime raises fundamental concerns about proportionality, legal certainty, and interference with international private law and practicability for waiver in relation to activities of indirect partners is doubtful;
Complaints should only be raised by stakeholders with a ‘legitimate concern’;
Standardisation and certification are key factors for making due diligence requirements manageable;
Provisions related to climate and directors’ duties are not related to due diligence but rather concern corporate governance questions which should be dealt with in other existing or proposed dedicated pieces of legislation. Articles 15, 25 and 26 should be deleted.
Considering the fact that the European Parliament’s Commission on Legal Affairs (JURI) will intensify its discussion on the dossier after the summer break, EIC and FIEC will forward the joint FIEC/EIC Position Paper to the Rapporteurs in the JURI Committee of the European Parliament as well as to the national governments through their members.