Our response to the EU proposal for a Directive on Corporate Sustainability Due Diligence
On May 23, 2022, B Lab Europe and the Interdependence Coalition submitted a formal response to the EU commission on their proposed directive for Corporate Sustainable Due Diligence. It was our chance to make the powerful case for incorporating into the proposed legislation the concept of stakeholder governance for all companies, in line with the tenet of the Interdependence Coalition.
Please see our summary and full response below.
The Interdependence Coalition (IC), representing over 100 Certified B Corporations, systems change and impact driven organisations, was established to advocate for board directors of companies registered within the EU to be mandated to consider the interests of all the company’s stakeholders in their decision-making process. It offers the experiences of B Corps as a proof of concept to support this case. B Corps are companies that have met high standards of social and environmental performance, and which have voluntarily embedded in the companies’ governing articles a commitment to run the company with consideration of the interests of all stakeholders.
To this end, the IC fully supports the Commission’s efforts to pass a Directive that would include a broader duty of care of directors. The growing demand for B Corp certification (over 6,000 companies globally sought certification in the last 2 years) and the tracked evidence on increased revenue growth of the European B Corps (on average over 30% p.a for each year of certification), indicate that such regulation would be a sum gain for climate, society and for sustainable growth.
The IC welcomes Art. 25 of the draft Directive which addresses the directors’ duties in corporate governance (the core area of focus for the IC). We recommend three changes to the framing of the article. Firstly, to expand the scope of its application to all companies (not just to those within the scope of the Due Diligence obligations). Otherwise, this regulation will have a limited effect covering, for example, only 20 companies of the 830 in the European B Corp community and an estimated 1% of all EU businesses. Secondly, Art. 25 should also refer specifically to the stakeholders’ interests alongside sustainability matters, and define clearly what is encompassed by consideration of “sustainability matters”. This would ensure consistency with the framing and criteria of the CSRD and mitigates the risk of greenwashing, through misalignment between reporting and performance requirements. Thirdly, the Directive should clarify that directors while undertaking decisions are free to weigh appropriately the interests of the different stakeholders (including shareholders) and sustainability matters. Without this clarification, directors may not feel at liberty, when the situation requires, to make decisions favoring stakeholders and sustainability matters over shareholder interests.
The arguments that such an expansion of duties is either unnecessary or anti-competitive are contrary to all evidence facing us: B Corps that have voluntarily adopted such governance practices are outperforming against their peers in terms of revenue growth (on average over 30% p.a), are attracting and retaining the best of talent and are driving change in their own spheres of influence through supply chains, investors etc. However, it is no longer appropriate or possible for those that voluntarily adopt a broad duty of care in considering all stakeholders in the running of their companies to carry the load for all the other companies not covered by this directive.
This is a unique and critical moment to reset the role of business in tackling our global climate related challenges. Without an expansion of the scope and a clearer definition of the directors’ duties in Article 25, it is hard to see how business will step up to play its most important role needed in line with the ambitions of the EU Green Deal.