Support for the proposed Corporate Sustainability Due Diligence Directive is quickly eroding as Finland joins Germany in expressing its intent to abstain from a Council vote on Friday, February 9. The final draft of the CS3D, released on January 30, appeared poised for easy approval. However, Germany, and now Finland, have indicated that they will be abstaining from the Council vote, signaling that the current CS3D draft will most likely fail, with little chance of revival.
As the name implies, the CS3D, also called the CSDDD, establishes a corporate due diligence standard for sustainability issues for businesses operating in the EU. In this case, sustainability most directly applies to environmental concerns, climate change, and human rights.
The proposed due diligence standard adopts a risk-based approach, where companies must identify risks where they are most severe or most likely to occur, then prioritize the order of mitigation based on severity and likelihood. Failure to act will result in regulatory liability from member states, as well as opening them up to civil litigation from those who are impacted.
(For my full analysis of the development of the CS3D, and its companion legislation, please read an earlier article on Germany’s announcement they will abstain from the vote.)
For EU legislation like the CS3D, three proposals are passed, then negotiated to the final agreement. The proposals come from the European Commission, the European Parliament, and the European Council through individually passed legislation. Those differences in the proposals are then negotiated by representatives of each body to reach a final draft proposal that is then brought back to the original three for final approval. Once approved, member states have two years to enact it into state law.
When the final draft of the CS3D was released on January 30, it was met with significant support. Organizations, professionals, experts, and activists from throughout Europe chimed in with official statements of support for the proposal. It seemed like it was on the path for a smooth adoption. However, that quickly changed throughout the day on Wednesday, February 7.
First, Germany announced that they will abstain from the Council vote on CS3D, an action that signaled a high likelihood that the proposal would fail. Soon thereafter, Finland joined with their own declaration they would abstain. Other member states are rumored to be signaling similar intent behind closed doors.
According to Heidi Hautala, a Finnish Member and Vice President of the European Parliament, Finland released an official position paper that is being circulated among EU leaders. In the paper, Finland stated it had achieved key objectives it was required to meet in preparation for the CS3D. However, it claimed that certain aspects of the proposal are incompatible with existing Finnish law.
These objections seem to relate to the creation of civil liability of corporations and the ability of victims to file class action lawsuits to recover damages. Class action lawsuits are a relatively new, and largely unused aspect of the Finnish legal system. The Finnish Act on Class Actions entered into force in October 2007. However, the first class action lawsuit was not filed until 2019.
Hautala called on the Grand Committee of the Finnish Parliament to reverse course and change Finland’s position at their meeting on Thursday, but that seems unlikely.
While the final vote of the Council will not occur until February 9, the erosion of support for the CS3D throughout the day on Wednesday is a bad sign for the future of the directive. Experts are rightly concerned that the shift in support will not only delay implementation, but ultimately result in the death of the CS3D.