Opinions on it vary, and as a result, almost everyone is more or less disappointed, for very different reasons. There is a sense of unease and uncertainties about the future, although reconciling human dignity with profitability/competitiveness should naturally prevail, as they are far from being oxymorons. Today, indeed, we are all a bit lost, including as we navigate a never-ending number of acronyms.
Originally, in 1999 at Davos, Kofi Annan simply asked companies and their leaders to contribute to "giving the market a human face". Essentially, this meant extending the respect for universally recognized values, namely human rights, to businesses.
At first, businesses were somewhat reserved and cautious about this new approach, but not necessarily opposed to it, as many already perceived the benefits for their long-term sustainability.
Moreover, tools were needed to achieve this objective and build a business world of another dimension.
It was from this announcement that, in 2000, came the United Nations Global Compact, the largest corporate sustainability initiative in the world was born. This voluntary commitment framework invites companies to align with 10 principles related to human rights, international labour standards, the environment, and the fight against corruption.
After consulting extensively with representatives from businesses, states, and civil society, this initiative was followed by the development of a "toolbox" by Professor John Ruggie : the 2011 United Nations Guiding Principles on Business and Human Rights (known as UNGPs). These Principles constitutes a roadmap with universal intent/global standard/ international standards that apply to all states and all companies, although they remain non-binding.
These Guiding Principles/Toolbox, referred to as "soft law," naturally apply to all businesses worldwide, regardless of their size, their activities, or their value chains.
Admittedly, this represented a certain (r)evolution, not only for businesses primarily focused on the need to generate profit but also for the law. Public international law, which had been so far traditionally reserved for states, becomes in some ways a "component" of business law when it came to human rights.
Yet, the Guiding Principles quickly became the reference for many companies that adopted and applied them (sometimes to distinguish themselves from their competitors...) thereby crafting their own "hard law" (self-regulation) even before the adoption of broader due diligence laws in some countries such as France, Germany, Norway, the Netherlands, and/or "reporting" laws like those in the UK, China, and others, as well as in the EU with the CSRD and CSDDD.
Within this context, what is happening today with the CSRD, CSDDD, and the taxonomy ?
These texts, which were negotiated for years, are now suddenly being revised hastily. This is due to a combination of, on the one hand, a lack of or poor reading of the CSDDD, and, on the other hand, the overly complex nature of the ESRS standards within the CSRD (and the Taxonomy), which, unfortunately, have sometimes been exploited excessively by some advisors. This narrative might have given to some this opportunity to criticize the European bureaucracy and its supposed impact on the businesses’ competitiveness.
As with any debate, there is truth, half-truth, and falsehood in all of this. And from all of this comes the Omnibus.
The stated aim of the Omnibus package is essentially to reduce costs, strengthen competitiveness, and promote more innovation and investment. It is worth highlighting that it is precisely through the implementation of these Directives that many businesses have found opportunities for innovation, investment, and even new jobs. The desire for harmonization to ensure fair competition within the EU is a strong point (except unfortunately regarding civil liability), although fragmentation was regularly denounced.
Regarding the CSRD (including the ESRS standards), much can be regretted in terms of its presentation and communication, which made it look like an unnecessarily complex and costly toolbox. However, a careful reading (and better communication) would have shown that the proposed tools could be selected depending on the context to ensure they contribute to better business construction/management and generate a return on investment, at least over time.
But it is not too late. We can adapt the text constructively, in the interest of good management for businesses potentially exposed to financial risks caused by environmental and social risks or in the search for financing, not to mention their reputation and its impact on profitability.
Knowing less about where it stands, a company will know less about where it is headed.
As for the CSDDD, the text has too often been poorly or insufficiently read or understood. Yet, it offered, with some calrity, useful tools to simply be... vigilant... depending on the geographical and cultural contexts, to always avoid and, at worst, repair serious impacts on human rights resulting from their or their value chain’s activities.
This text was also contested before it even being implemented, making it difficult to claim it is the cause of a loss of competitiveness for European industry. On the contrary, it could even be argue that its implementation could lead to better competitiveness against companies that disregard fundamental rights, which, in many countries, could also lead to serious disruptions in project execution (the examples in the extractive, forestry, agri-food sectors and others are telling).
The new Omnibus package, resulting from hasty discussions and purely political compromises, is ultimately highly disappointing in its imprecision and thus a source of insecurity for businesses.
Indeed, it is noted that :
- The duty of vigilance would extend beyond the first tier (direct business partners) in cases where the company has plausible information suggesting that negative impacts have occurred or may occur in the value chain ;
- Periodic assessments are now required every five years, unless a company has reasonable grounds to believe that the measures are no longer adequate or effective.
- Requests for information from SMEs are limited (ripple effect), unless a company needs additional information to map the situation and cannot obtain it in another reasonable way.
- Stakeholders to be consulted (strictly defined as those directly affected) are extended to include persons and communities whose rights or interests are or could be directly affected, including by their business partners.
- The obligation to terminate a business relationship as a last resort when an infringement is found is removed and replaced by a suspension... until a solution is found, without further clarification.
- The conditions for civil liability are referred to national legislation (thus risking fragmentation and forum shopping).
These imprecisions (and others), if maintained, will likely need to be interpreted in light of the preamble of the adopted texts (e.g., on "plausible information") and texts such as the United Nations Guiding Principles and the OECD Guidelines for Multinational Enterprises, which form the foundation of the CSDDD.
In seeking to create "flexibility", there is a risk of creating a legal framework that is difficult to read and therefore unreliable for businesses. they will thus be more exposed than ever to their "new judges" - consumers, shareholders, financiers, stock markets, communities, and affected individuals - whose judgments are often swift and irreversible.
In this context, so uncertain and more fragmented than ever, businesses are strongly advised to stay the course and favor the application of the most protective principles for individuals, their reputation, but also, depending on the context, to avoid potential lawsuits or challenges before courts or administrations (e.g., customs).
Let us be humble, but united in Europe, to boldly defend the values that represent humanity for humanity, as Kofi Annan had asked of business leaders.
