The European Commission has missed an opportunity to make history with its proposal on Corporate Sustainability Due Diligence
The Interdependence Coalition, a union of 100+ businesses aimed at transforming the way we do business in Europe, believes today’s proposal by the European Commission on Corporate Sustainability Due Diligence is falling short of expectations as it applies to only 1% of EU registered companies, and introduces only limited requirements on directors of companies.
“The EU has the opportunity to change the way businesses meet their responsibilities to tackle the world’s most pressing societal and environmental issues. This proposal does not go far enough either in scope or reach to bring about that much needed behavior shift by all companies.” said Katie Hill, CEO of B Lab Europe and co-founder of the Interdependence Coalition.
According to Professor Alberto Alemanno, Director of The Good Lobby and co-founder of the Interdependence Coalition: “The EU might soon become the first region in the world to enforceably mandate due diligence requirements along the supply chain. Yet, despite its initial ambition, this proposal won’t mark a Copernican Revolution in corporate behaviour to tackle the climate crisis and social disparities.”
“If we do not create sufficiently strong incentives at the top of business organisations to consider all stakeholders, we cannot expect new desired outcomes that will bring us closer to a more sustainable economy” added Wojciech Baginski, co-founder of the Interdependence Coalition. “The legal concept of duty of care of directors needs to reflect the new reality we are living in – you cannot expect different results by doing the same thing over and over again. Fortunately, the co-legislators in the EU still have a chance to revise the draft of the directive.”
A legislation that only influences 1% of all EU companies is not likely to be transformational. Shifting the EU to a stakeholder corporate governance model in which all board directors of companies registered within the European Union must consider the interests of all the company’s stakeholders in their decision-making, is key to achieving a more inclusive, equitable, and regenerative economic system. This is also a fundamental principle underpinning all other regulations envisioned by the EU as part of the Green Deal. The EU Commission has failed to propose this broad obligation to think about all stakeholders on managers of companies in Europe. Instead it decided to introduce an obligation on the boards – limited in scope and applicability – to take account the human rights, climate and environmental consequences, including in the long term, of their decisions. The direction is good but it is not enough and misses the point.
The legal concept of the Duty of care is a north star in corporate law. Creating proper incentives for management boards by revising this concept so it fits to the XXI century is key to address deviant corporate behaviours and fight greenwashing. Proposing half-measures creates the risk that some more sustainably advanced countries will choose to implement the broader, more desired regulation – following for instance the benefit corporation legal language – and others will choose to stay with the very limited approach. This will further increase divergence, uncertainty and as a result will promote within companies a race to the bottom rather than a race to the top of sustainable related business practices.
About the Interdependence Coalition:
The Interdependence Coalition was formed in June 2021 by B Lab Europe in collaboration with The Good Lobby as a response to the consultation on the sustainable corporate governance directive. Over 100+ businesses have joined the coalition, including many B Corporations. It advocates for changes in regulation, but also demonstrates there is a better way of doing business through our mission, values and operations. See the full list of supporters to date here.
Contact point: Laurence Modrego | email@example.com | +32 496 23 73 78