Opinion: EU CSDDD – Concerns of upstream partners from developing countries

Opinion: EU CSDDD – Concerns of upstream partners from developing countries

In early December 2023, NordESG, along with our partner Advance Consulting of the Netherlands, was invited by Solidaridad Asia to present on the implications of the upcoming EU Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). The first workshop, titled “European Union Corporate Sustainability Due Diligence Directive (EU CSDDD) and Its Significance for the Leather Sector in India”, was conducted in Kolkata, India. A similar workshop titled “European Union Corporate Sustainability Due Diligence Directive (EU-CSDDD) and Its Impact on Bangladesh Apparel Industry” was organised by Solidaridad in association with the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

The workshops

These two workshops were of high importance since the objective of these workshops was to raise awareness among the non-EU companies who are major exporters to Europe. 

These companies form part of the upstream part of the value chain of EU firms. As I reflect on the interactions I had with the participants of these two workshops, three questions from the exporters have stayed in my mind.

The three questions were related to

1. The scope of the CSDDD in terms of additional reporting requirements
2. An equitable distribution of the additional compliance cost
3. Drawbacks in the CSDDD stakeholder consultation process.

Background

Before diving deep into these questions, here is a small background for the readers who may be new to the topic of CSDDD. On 14th December 2023, the European Council announced that it reached a provisional deal with the European Parliament on the implementation of the Corporate Sustainability Due Diligence Directive (CSDDD). 

As the press release says, “The due diligence directive lays down rules on obligations for large companies regarding actual and potential adverse impacts on the  environment and human rights for their business chain of activities which covers the upstream business partners of the company and partially the downstream activities, such as distribution or recycling”. You can read our background note on CSDDD here.  

While the intention surrounding CSDDD is no doubt noble and is undoubtedly a step towards better environmental, social, and governance standards, it’s not without its challenges. It requires large companies to monitor and manage the impacts of their business activities, including those of their upstream partners. But with these new rules come new costs – both in setting up due diligence procedures and possibly changing operations to meet these obligations.

The EU acknowledges this dynamic, and says that: 

“Businesses will have to bear:

• The costs of establishing and operating the due diligence procedures.

• Transition costs, including the expenditure and investments to change a company’s own operations and value chains to comply with the due diligence obligation, if needed.“  

Read more here. 

Three key questions from the perspective of companies in the chain of activities

Given this backdrop, let me get into more details about the three key questions from the perspective of exporters to the EU.

1. The first key question from the audience was that “We are already reporting under various global, national and customer-specific guidelines including International Labour Organization (ILO), Bangladesh regulations and so on and so forth. With the CSDDD coming into effect, how much additional burden do we have to bear?”
2. The second question was “If we have to do additional reporting to meet the due diligence requirements of our European customers, we have to invest resources including manpower and technology for additional data capture. But who is going to incur the cost? Will the entire cost be pushed onto us, or do we also get financial support in doing this? Will the cost be equitably distributed between us and our European customers?”
3. The third question was, “While extensive stakeholder consultations were conducted in the European Union when finalising the CSDDD, we as stakeholders were not consulted, especially since a significant part of the compliance pressure falls on us. When this regulation is going to affect us, why are we not consulted?”

At NordESG, we do not claim to know the answers to these questions or propose foolproof solutions. We have been covering the various regulations falling within the ambit of the European Green Deal, and we have seen how extensive the consultation process is. 

At the end of the day, given how complex these legislations and regulations are both in terms of scale and scope (involving 27 countries), the final approved regulations always have to balance contrasting and sometimes conflicting goals of various stakeholders. As such, these regulations involve a significant amount of compromise by design, and not by default.

Conclusion

Since we are fully aware of the practicalities and the political nature of these regulations, the key idea we propose to the regulators is that at the end of the day, there should be an “equitable distribution” of the burden. Good intentions should not lead to bad outcomes, and we are quite optimistic that the regulators are also acting with the same goal.

Please reach out to us with your thoughts and comments.

(PS: Solidaridad Asia is working on an EU CSDDD toolkit to help exporters to the EU. Please contact us for more information at info@nordesg.de)

Sources and Further Reading

1.     Solidaridad Asia – Workshop on ‘European Union Corporate Sustainability Due Diligence Directive (EU CSDDD) and Its Significance for the Leather Sector in India’, in Kolkata on 5 December 2023.
2.     Solidaridad Asia – Workshop on “European Union-Corporate Sustainability Due Diligence Directive (EU-CSDDD) and Its Impact on Bangladesh Apparel Industry” in Dhaka on 7th December 2023
3.     News coverage of the workshop in Financial Express of Bangladesh – Click here.