I. What African businesses need to know
Parliament and Council negotiators have reached an agreement on a groundbreaking new directive that will require companies to integrate human rights and environmental impact into their management systems. Here’s a summary of the key points:
1. Scope
The directive applies to EU companies and parent companies with over 500 employees and a worldwide turnover exceeding €150 million. It also applies to non-EU companies with equivalent turnover in the EU.
2. Obligations
Affected companies will be required to conduct due diligence to mitigate their negative impact on human rights and the environment. This includes addressing issues like child labor, slavery, pollution, deforestation, and more.
3. Risk Management
Due diligence must be integrated into company policies and risk-management systems. This includes outlining approaches, processes, and codes of conduct. The financial sector is also obligated to adopt a plan aligned with limiting global warming to 1.5°C.
4. High-Risk Sectors
The legislation applies to EU companies with over 250 employees and a turnover of more than €40 million, if at least €20 million is generated in sectors such as textiles, agriculture, food manufacturing, mineral resources, and construction.
5. Responsibilities
Affected companies must identify, assess, prevent, mitigate, and remedy their negative impact on people and the planet throughout their supply chains. They may need to invest, seek contractual assurances, improve business plans, or support small and medium-sized enterprises.
6. Engagement and Transparency
Affected companies must meaningfully engage with affected parties, establish a complaints mechanism, communicate their due diligence policies, and regularly monitor their effectiveness. EU governments will create information portals to support companies in meeting their obligations.
7. Sanctions and Liability
Each EU country will designate a supervisory authority to monitor compliance. Penalties for non-compliant companies could include fines of up to 5% of net worldwide turnover. Victims of breaches have the right to seek compensation.
8. Public Contracts
Compliance with due diligence obligations may be considered in awarding public and concession contracts, incentivizing companies to prioritize sustainability.
The agreed draft law now requires formal approval by the Legal Affairs Committee, the European Parliament, and the Council before it can come into effect.
II. What African companies that do business in the EU or with EU companies that are affected by the CSDDD can expect:
1. Increased Scrutiny
African businesses involved in supply chains that extend to the EU may experience heightened scrutiny and due diligence requirements. EU companies will likely demand transparency and compliance with sustainability standards, including environmental and human rights considerations.
2. Potential Market Access Barriers
Compliance with the CSDD directive may become a prerequisite for accessing the EU market. African businesses that fail to meet the due diligence requirements may face barriers to trade and may need to adapt their practices to align with the directive’s provisions.
3. Collaboration Opportunities
The CSDD directive may create opportunities for collaboration with EU companies. African businesses that prioritize sustainability and demonstrate compliance with due diligence requirements may find themselves sought after as partners for EU companies seeking to align with the directive’s provisions.
4. Regulatory Harmonization
The CSDD directive may influence African regulatory authorities to align their own sustainability and due diligence regulations with the EU standards. This could lead to a more harmonized regulatory environment, attracting international research collaborations, investments, and partnerships.
5. Shaping Sustainable Business Practices
The CSDD directive’s focus on sustainability and responsible business practices can serve as a catalyst for African businesses to prioritize and improve their own sustainability efforts. This can lead to long-term benefits, such as enhanced reputation, access to new markets, and improved relationships with stakeholders.
It is important for African businesses to stay informed about the progress and implementation of the CSDD directive, adapt business practices to align with the applicable sustainability standards, and seize opportunities for collaboration and growth in the evolving global business landscape.