Gregory GjiniNorwegian companies have gotten a head-start on the upcoming requirements of the Corporate Sustainability Due Diligence Directive (CSDDD). Utilizing digital tools, many experience that beyond more compliance lay cost-savings, risk reduction and better budgeting.
The CSDDD will require businesses to check and ensure that their activities don't harm the environment or people. And the directive is moving forward within the EU. On June 1, the European Parliament decided on its stance regarding the European Commission's proposal.
Background: The European Green Deal and the EU Taxonomy
The European Commission has proposed a plan called the Corporate Sustainability Due Diligence Directive (CSDDD). If the proposal is accepted, companies would have to create procedures to prevent negative effects on people's rights and the environment, including in all the steps they take to produce their goods or services around the world. The goal is to encourage companies to behave in a way that's good for people and the planet, and to think about sustainability in everything they do.
The CSDDD is part of the European Green Deal, which is a group of plans from the European Commission aimed at improving Europe's climate, energy, transportation, and tax policies. The goal is to decrease Europe's greenhouse gas emissions by at least 55 percent by 2030 (compared to 1990 levels) and to have no net emissions by 2050. The CSDDD, along with other regulations like the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation, is another step towards doing business in a way that's sustainable under consistent European rules.
All companies that fall under this rule will need to take steps to identify and deal with any negative impacts their actions have on people's rights and the environment. For example, they would have to
- create and put into action plans to prevent these negative effects,
- get promises from their direct business partners that they're doing the same, and
- then check to make sure these promises are being kept.
These companies would have to make sure they're doing these things not just for their own activities, but also for the activities of all businesses they work with, directly or indirectly, in all the steps that go into making their products or services.
Interestingly, this proposed rule would make top-level leaders in companies responsible for sustainability. Directors of companies in the EU would have to make sure due diligence (careful checks and balances) is set up and being followed, and also make it a part of their overall business plan. This new rule would add the responsibility of considering people's rights, climate change, and environmental effects to the existing duties of directors, who are supposed to act in the best interests of the company.
OECD guidelines updated
The CSDDD is based on the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. These guidelines are advice from governments to multinational businesses. Their goal is to make sure businesses help sustainable development and limit the negative effects they have on people, our planet, and society.
On June 9, ministers at the 2023 Meeting of the OECD Council at Ministerial Level approved new versions of the guidelines. Several updates are within the scope of CSDDD:
- Businesses are encouraged to line up with the international goals on climate change and biodiversity. They should also make sure their lobbying activities follow the guidelines.
- Expectations for due diligence (thorough research) on technology development, financing, sale, licensing, trade, and use, including the collection and use of data.
- More protection for people and groups at risk, including those who speak up about business misconduct.
- Advice on how businesses should conduct due diligence on the impacts of their products and services.
- Updated advice on how businesses should share information about their responsible business behavior.
- Added advice on due diligence for all types of corruption.
Head-start in Norway
While it will still take a few more years before the CSDDD turns into effect, Norwegian businesses have gotten a “head start”. The Transparency Act already requires Norwegian businesses to carry out due diligence to identify, prevent, and mitigate their potential and actual adverse impacts on human rights and labor standards.
Before the end of June, some nine thousand Norwegian businesses must publish their first report on how they have carried out the due diligence. The Transparency Act requires even smaller companies (50+ employees) to map human rights and labor standards among their suppliers. A common practical approach is to get an overview of all the suppliers, and then group them according to importance/size and various aspects of risk.
To ease compliance, a lot of Norwegian companies are utilizing digital tools for due diligence. By using a tailored survey tool, they save time, standardize methodology, and lay the groundwork for future due diligence. With structured data, the companies can monitor the major developments over time, and it is also a smart one-stop shop to follow up individual suppliers.
Even if the requirements of the CSDDD may still be a few years ahead, we advise all companies to get started. That’s because compliance has a silver lining. The Transparency Act as well as the CSDDD calls for better supplier and contract management. Companies with first-class contract management reduces risk and cut costs while saving time on budgeting. What’s not to like!
New OECD environmental requirements
The Norwegian Transparency Act does not include environmental requirements the way the CSDDD draft does. The OECD guidelines are updated on several points relating to environmental standards. The common denominator is that companies need to think about and fix any negative environmental effects they might cause with their work, products, or services. This includes problems related to climate change and harm to various species.
1. Environmental Effects and Due Diligence
Companies should do their homework to figure out and fix any negative environmental effects they might cause. This includes things like climate change, harming different species, ruining different ecosystems, deforestation, pollution, and improper waste management.
- Does the company directly cause harmful environmental effects?
- Does the company contribute to a negative environmental effect by doing something, along with other companies, that results in a problem?
- Can negative environmental effects be tied to your company's operations, products, or services because of a business relationship, even if your company didn't contribute to the problem?
Sometimes, it'll be possible to figure out how much a company is contributing to a negative environmental effect. In other situations, it might be based on how much the company's actions line up with certain standards and goals.
There can be problems in doing environmental homework, like not having enough data or the right technologies. It's also important to help smaller businesses. Bad environmental effects often overlap with other topics like health and safety, effects on workers and communities, and access to jobs or land. This means that doing environmental homework often involves considering several different environmental, social, and development issues.
Companies also need to think about and fix social problems, like effects on their workers, as they move away from harmful practices and towards more environmentally friendly ones.
2. Climate Change Mitigation and Adaptation
Companies should make sure that their greenhouse gas emissions are in line with internationally agreed goals. They should also have plans in place for reducing their impact on climate change and dealing with its effects. This includes setting goals for reducing their greenhouse gas emissions, reporting on their progress, and updating their goals as needed.
Companies should focus on getting rid of or reducing their emissions rather than making up for them. They should also avoid doing things that make it harder for communities, workers, and ecosystems to deal with climate change.
3. Biodiversity
Companies should help to protect different species and use resources in a way that's fair and sustainable. They should also avoid and address problems like deforestation. If they can't avoid damaging biodiversity, they should try to reduce or minimize the damage, and only use offsets and restoration as a last resort.
Companies should also contribute to sustainable land and forest management, which can include things like planting trees and reducing land degradation.
4. Sustainable Consumption and Production
Companies should use technologies to improve their environmental performance and provide products or services that don't have bad environmental effects. They should make their products safe, long-lasting, repairable, reusable, recyclable, and easy to dispose of safely. They should also educate their customers about the environmental impacts of their products and services.
5. Animal Welfare
Companies should treat animals well, in line with international standards. Good animal welfare means that an animal is healthy, comfortable, well-fed, safe, not suffering, and able to act in ways that are important for its well-being.