Corporate due diligence: what is the added value for climate?
Negotiations are under way on the Corporate Sustainability Due Diligence Directive, commonly known as the “CSDDD”. Regarding climate, an obligation of climate transition plan for companies is discussed. But let’s keep careful on this point. Europe is in the process of developing climate transition plan requirements in two other directives on corporate sustainability reporting (CSRD) and on prudential requirements for banks (CRD). We must therefore ensure that the discussions result in a final version of the CSDDD that is consistent with these other texts and at the same time complementary.
The importance of corporate climate transition plans
Before coming back to the issues of consistency between all these directives, a quick reminder on climate transition plans. It is a roadmap where the company may detail its strategic objectives, targets and actions to align its activities with the objectives of the Paris Agreement, that is, limiting global warming below 1.5°C to 2°C. The credibility of the transition plan reflects how serious the company really is in its effort to do its share in limiting global warming.
The EU has first introduced the transition plan concept with the Corporate Sustainability Reporting Directive, the CSRD. It requires companies to disclose from 2025 their transition plan – if they have a plan. But it does not ensure that companies will effectively prepare a credible plan and that they will implement their plan.
Holding companies accountable for their commitments
This is where the CSDDD can make a difference. If the final version of the directive reflects the most ambitious proposals put on the table so far, it will force companies not only to prepare a credible transition plan but also to actually implement it. More importantly, it will expose them to sanctions if they fail to do so. Two types of complementary sanctions are proposed: the first involves the company’s civil liability before the courts; the second involves an administrative authority that can impose, for example, pecuniary sanctions.
However, there is still a lot of uncertainty about how ambitious the final text will be. This calls for several points of attention for the negotiation process of the directive.
The first point of attention is that the text must clearly formulate both the obligation to implement a plan and the applicable sanctions. At this stage, the obligation to implement the transition plan only appears in some of the Parliament’s interim discussion documents. Moreover, the directive currently provides for sanctions on a wide range of environmental and human rights issues, but their application to climate is yet to be clarified.