EU leaders seek to kill due diligence requirements despite warnings

French and German leaders are pushing to kill the Corporate Sustainability Due Diligence Directive (CSDDD) as part of the EU’s Omnibus revision – despite economists’ warnings that doing so would result in “deep costs”.

France’s President Macron this week told business executives that CSDDD should not just be postponed by a year – as is already the case – but should instead be scrapped entirely, echoing similar comments by German Chancellor Friedrich Merz.

Recent signals sent by European lawmakers suggest this is the direction they are choosing regarding the EU’s landmark ethical supply chain rules. Last week, the EU Council confirmed an intention to limit the amount of information required under CSDDD, and this week the European Commission proposed postponing its battery due diligence regulation (which was meant to come into force this August) by two years, in light of the CSDDD’s uncertain fate.

This is despite repeated warnings by companies, legal scholars and economists that dismantling the EU’s hard-fought supply chain due diligence law would be a mistake – and despite the fact that firms overwhelmingly support the EU’s sustainability regulation in its current form. 

‘Economic choices are political choices’

This week, 90 prominent economists from across the EU issued a joint statement urging the EU to protect CSDDD: “As economists, we therefore decisively advocate for a swift and ambitious implementation of the CSDDD and oppose the Omnibus I package proposal of the EU Commission, which would significantly limit the effectiveness of the directive.”

In their letter, the economists say they disagree with a concept of “competition that accepts the externalisation of social and environmental costs at the expense of nature, the climate, workers and other affected”, and argue that inaction in the face of environmental and social abuses is more costly than regulation to avoid them.

Quoting a study by the London School of Economics (LSE) estimating the implementation costs of human rights and environmental due diligence obligations for large companies at an average of 0.009% of their revenues, the economists add that the argument that the CSDDD would impose excessive burdens on companies is “fundamentally flawed”.

Companies vs lobbyists

The debate around the future of due diligence regulations in the EU is evidence of deepening misalignment between companies and their trade associations’ lobbying efforts. 

“Independent studies indicate that many companies support supply chain laws while corporate lobbying associations often oppose them,” the 90 economists write, giving the example of Germany, where only 7% of companies reject mandatory due diligence.

A recent study by InfluenceMap showed a similar gap between individual companies’ policy preferences and the actions of the trade bodies of which they are members.

The study found that 52% of EU firms advocate individually for 1.5ºC-aligned climate policies, compared to just 12% of European industry associations. “Industry associations in the EU appear to be fighting a losing battle against the tide of positive corporate action on climate policies and need to urgently reassess their priorities if they are to continue to act as true representatives of the majority of their membership,” said Venetia Roxburgh, European Programme Manager at InfluenceMap.

Awareness of this contradiction is rising among companies, who are now actively engaging with their associations to correct course – and threatening to end their membership if they don’t.