As EU's new sustainability directive is agreed, UK companies warned 'not to rest on their laurels'

Despite Brexit, directive will still apply to large UK companies that make significant revenues in the EU

Following the news that agreement has been reached on the EU's new Corporate Sustainability Due Diligence Directive, Environment and Climate Change Practice Lead Sophie Tuson, a Senior Associate who specialises in climate and environmental sustainability at international law firm RPC, said:

'This is a real turning point'

"After four years in the making, agreement on the EU's new Corporate Sustainability Due Diligence Directive marks a historic moment. For the first time, all EU member states will need to pass national laws forcing companies to address negative human rights and environmental impacts in their supply chains. 

"This is a real turning point as up until now these kinds of harms have largely been unregulated and supply chain due diligence has been voluntary under various international standards. It sends a clear message to businesses that as responsible corporate citizens they must address the wider social and environmental impacts of their supply chains."

'Environment groups will lament limits on financial institutions'

"A key sticking point during the negotiations was whether the rules would apply to financial institutions. The final agreement is largely a compromise with the finance sector included, but with more limited obligations. Notably, companies in the financial sector will only have to conduct due diligence of their own operations and their upstream suppliers, but not for the downstream companies they invest in. 

"This is a big win for the European Council and particular member states who had advocated for this exclusion. However, many environmental NGOs will lament the fact that financial institutions are not required to do more to address the social and environmental impact of their investments."

'Corporate climate action crucial to delivering Paris Agreement'

"Another area of contention is the provision around climate change. Although the final text of the directive is yet to be published, it appears that climate change has been excluded from companies' due diligence obligations despite the European Parliament strongly pushing for this. Nevertheless, all companies will need to adopt a climate transition plan to ensure their business models are compatible with a 1.5°c future. Driving corporate climate action in this way will be crucial for delivering on countries' climate pledges under the Paris Agreement."

'UK companies should not rest on their laurels'

"UK companies should not rest on their laurels. Despite Brexit, the directive will still apply to large UK companies that make significant revenues in the EU. It will also apply indirectly to smaller UK companies if they are in the supply chains of EU companies that are caught by the directive. It shows that given the complexity of modern supply chains, companies will increasingly need to navigate a web of different laws across the world. 

"It's also not inconceivable that similar supply chain laws could be introduced in the UK in the near future. Just last week, the UK Government announced its intention to push ahead with new rules which would force companies to conduct checks on their supply chains to ensure products like beef, cocoa, palm and soy were produced in line with local laws. A bill has also recently been tabled in Parliament proposing a UK equivalent of the CSDDD. While this still has a long way to go before it would make it into law, it shows there's real appetite for similar supply chain laws in the UK."