The Chamber is concerned, however, about the misalignment between the CS3D’s goals and potential requirements, and what business can practically accomplish. Legal certainty and proportionality should be key tenets of any regulatory approach regarding due diligence.
The EU is currently engaged in trilogue discussions between the Commission, the Council, and the Parliament on the final text of the proposed Directive. The proposal introduces specific due diligence requirements for around 17,000 EU and non-EU businesses, intended to mitigate adverse impacts on the environment and human rights within supply chains.
CS3D principally consists of two pillars: introducing mandatory supply chain due diligence requirements for companies; and introducing new duties for the directors of EU companies. Under the due diligence component, companies will need to identify, mitigate, and prevent adverse human rights and environmental impacts to the extent that those activities are present in a company’s value chain.
Under the governance component, directors assume direct responsibility for due diligence, and must consider sustainability in their decisions. Additionally, the Parliament’s proposal makes directors accountable to ‘stakeholders’ (a vaguely defined term) via legal action if they fail to adequately identify or address risks. In case of non-compliance, the Directive contemplates both administrative sanctions from supervising authorities and liability to third parties for damages.
If enacted without significant moderation, CS3D will impose heavy and potentially unfeasible burdens on companies, and risks the constant threat of frivolous, excessive, and expensive litigation.
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