The voting on 1 June by the Members of the European Parliament (MEPs) resulted in 366 votes in favour, 225 against and 38 abstentions.

The negotiating position was on incorporating a set of corporate accountability amendments to safeguard human rights and environmental impact as part of CSDDD.

Not entirely ‘pragmatic’

FESI explained that it supports the objectives of the proposed directives but also believes it is not entirely “pragmatic”, given the inherent “complexity and sensitivity” of the subject, which took international organisations decades to address.

Additionally, the Federation was appreciative of the European Parliament’s progress towards harmonisation and avoidance of further internal market fragmentation but pointed out that concerns regarding insufficient harmonisation were only partly addressed. This loophole, FESI added, potentially allows 27 due diligence legislations to flourish beyond the existing proposal in the coming years.

The maintenance of the references to the directors’ duties of care will have negative side effects, including the disruption of existing and well-established governance models, without added value to the ability of companies to apply effective due diligence, it added.

Although considering the deletion of Article 26 on “enforcement of directors’ duties” was welcomed by FESI, the Federation highlighted the newly created incoherence with the remaining reference to the directors’ duties in the adopted text, hoping that the upcoming trilogues will clarify the gap and consider asks of the companies operating on the EU market.

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Jérôme Pero, FESI secretary general, said: “For some parts of the text, such as alignment with existing international standards, the Parliament’s position represents a positive development in relation to the original proposal of the Commission and for that, I congratulate the Rapporteur and Shadow Rapporteurs in the Parliament for their efforts.

However, he continued: “There is still a number of issues in need for improvement, in particular as regards “directors’ duties” that are redundant with Corporate Governance law and a certain lack of harmonisation. I’m hopeful that the trilogues will be an opportunity to further improve the text in the interest of companies but also enforcement authorities.”

FESI elaborated that the adopted text follows a risk-based approach and prioritisation of potential and actual impacts based on the severity and likelihood of the said impact which is a step in the right direction.

The Federation said it is looking forward to the launch of the trilogues and is urging the policy-makers to address the most salient issues around harmonisation, adequate prioritisation, and unnecessary interference with corporate governance through such tools as directors’ duties.

Burden of proof for victims of corporate abuse

EEB also advocated for the text adopted as part of CSDDD, saying it had huge potential for the climate.

Based on the amendment, companies’ transition plans will be mandatory, evaluated based on strengthened criteria and include short, medium and long-term objectives. The Environmental Bureau said the MEPs position represents significant improvements in this area compared with the Commission and Council proposals.

EEB pointed out that despite some efforts to remove barriers for victims of corporate abuse seeking justice, the text falls short of being “truly meaningful” in this area, leaving the burden of proof on the victim’s shoulder.

Patrizia Heidegger, director for EU governance, sustainability and global policies, said: “The text adopted [on 1 June] is a landmark in the EU’s due diligence framework, despite political compromises that watered down the ambition and potential of harmonised environmental and human rights obligations for businesses.

“Although this position falls short of the expectation of many, it is the closest the EU has ever been to turning long-standing OECD standards into law and to ensuring justice for victims of corporate abuse and corporate accountability for environmental harm.”

The CSDDD proposal was adopted on 23 February last year. Following this, the Legal Affairs Committee (JURI) of the European Parliament held its first round of voting on new rules under the Corporate Sustainability Due Diligence Directive (CSDDD) proposal earlier in April.