- Long-awaited EU directive on corporate sustainability due diligence nears key votes in European Parliament, where MEPs must improve vital aspects of the text if the law is to have its intended impact
- Earthsight’s investigations illustrate why it is essential the law covers all parts of companies’ supply chains and why it cannot rely on flawed certification schemes
- Earthsight obtained documents which reveal European industry bodies are seeking to further weaken the proposed law and to limit firms’ obligations
The EU is one of the world's largest markets for commodities and manufactured goods which originate elsewhere, including the global South. Yet time and again, investigations by journalists and NGOs, including Earthsight, have exposed how many of the goods being consumed in Europe are linked to horrific environmental and human rights abuses in the countries of origin. Clothes are made with child labour, furniture is made by political prisoners, and pet food is linked to indigenous rights abuses and land grabbing. Faced with such scandals, European firms promise to clean up their supply chains voluntarily, but these promises are almost never kept. Responses from authorities in consumer countries, meanwhile, have been piecemeal and largely ineffective.
In September 2020, the President of the European Commission Ursula von der Leyen committed to seeking to tackle these problems with new, wide-reaching legislation. After extensive studies and consultations, this promise reached a key stage in February 2022, when the European Commission published its Proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). The planned law aims to promote sustainable and responsible corporate behaviour throughout companies’ value chains by requiring them to exercise due diligence and prevent, mitigate, minimise or bring to an end adverse human rights and environmental impacts.
The Council has since adopted its position on the Proposal, significantly weakening key aspects of the law while only strengthening some provisions. The European Parliament’s Committee of Legal Affairs (JURI Committee), the law’s lead committee, is expected to vote on its amendments for the text at the end of April. The proposed law is then set to go to the Plenary for a vote in May before final negotiations between Parliament and the Council begin.
Earthsight has identified two key ways in which lawmakers must strengthen the law for it to achieve its desired impact. The proposed text must ensure mandatory due diligence along companies’ entire supply chains, and certification schemes must not be allowed to be used by firms as proof of compliance.
Meanwhile, however, lobbyists are doing their best to further weaken the proposal.
Palm oil plantation at rainforest edge. Malaysia.
Due diligence obligations need to cover the entire value chain
A core objective of the CSDDD is to reduce adverse human rights and environmental impacts in global value chains. Yet the Commission Proposal fails to impose due diligence obligations on key parts of companies’ value chains.
While it requires due diligence measures to extend to all subsidiaries and global value chains of companies, both upstream and downstream, it only does so with respect to so-called ‘established business relationships’. Business relationships that are not, or are not expected to be, lasting in their intensity or duration would hence not fall within the scope of the directive.
This omission has been widely criticised by civil society, who have called for the CSDDD to be brought in line with the OECD Guidelines and United Nations Guiding Principles, and include due diligence demands for the full value chain of all business relationships.
Earthsight’s research shows that adverse human rights, environmental and good governance impacts often occur at the origin farm and/or production site level, which is frequently numerous tiers removed from a company’s direct business relationships and may therefore not fall within the Commission’s definition of ‘established business relationship’. This means that the environmental harms, human rights abuses and corruption exposed by Earthsight’s investigations may not even be covered by the planned Directive. European consumers would therefore still unwillingly contribute to these in the future unless lawmakers change course.
Example: Pet food and its connection to the violent eviction of indigenous peoples from their ancestral lands in Brazil
A recent joint investigation by Earthsight and Brazilian agribusiness watch group De Olho nos Ruralistas revealed how some of Europe’s best-known retailers – including Lidl and Aldi – are linked to the ongoing repression of an indigenous group. The soy farm in question, Brasília do Sul, belongs to an influential family and sits on Takuara, the sacred land of a Guarani Kaiowá community that was forcibly evicted from there to make way for agribusiness expansion. The Guarani Kaiowá’s attempts to regain access to their traditional lands have been met with brutal violence, government inaction, unfriendly courts and the interests of a powerful agribusiness lobby. Kaiowá leader Marcos Veron was killed while trying to lead his people back to Takuara. No-one has ever been convicted for his murder.
Brasília do Sul sells soy, a key ingredient in chicken feed, to Brazil’s fourth largest chicken producer, Lar Cooperativa Agroindustrial, which supplies large quantities of chicken products to the EU. In Germany, Paulsen Food is Lar’s only major European buyer of chicken products for the manufacture of pet food. Paulsen supplies poultry products to pet food manufacturers that in turn serve some of Germany’s largest supermarkets, including Lidl, Aldi, Netto and Edeka.
In comments provided to Earthsight, it became clear that European retailers and manufacturers did not even know about the presence of the Brasília do Sul farm in their supply chains. This indicates the need for better and broader due diligence and monitoring to identify, prevent and/or bring to an end the adverse human rights impacts on the Guarani Kaiowá.
Guarani Kaiowá people in Mato Grosso do Sul, Brazil, mourn the killing of a community member by a farmer.
Cases such as that of the Guarani Kaiowá demonstrate that it is essential the directive includes clear language requiring companies to carry out due diligence for their entire upstream value chain if the law is to achieve its desired impact. In the example above, this would include due diligence back to the farm where the soy for the chicken feed – which is later sold in Europe – is grown. This is at least four tiers removed from the German retailers.
Yet businesses are trying to limit their due diligence responsibilities to direct suppliers only. In a position document sent to the German Ministry of Justice and the European Commission, the Federation of German Industries (BDI) argues:
“[W]ith regard to indirect suppliers, the influence on them is only possible to a very limited extent, especially since there are no direct contractual relationships. Mandatory legal and sanction – as well as liability-linked requirements – must therefore be limited to direct suppliers (tier-1) with whom businesses have direct contractual and thus influential relationships.”
The same claim was made in a joint letter from the BDI and the Confederation of German Employers' Associations (BDA) to the German Minister of Justice Marco Buschmann. At the same time, the BDI argues in its position document that German businesses are already doing all they can:
“German companies want sustainability in their supply chains and are already doing what they can to live up to their responsibilities. They actively contribute to higher social and environmental standards, better living and working conditions, better education and sustainable development through their engagement abroad.”
This statement makes a mockery of the struggle of the Guarani Kaiowá, who are still fighting to regain their ancestral lands that are now used to grow soy connected to pet food sold in German supermarkets, including Lidl and Aldi.
It is obvious that what the industry wants is business-as-usual. However, this would also mean little or no change to the lives of the Guarani Kaiowá and others negatively impacted by European consumption and European companies.
Thankfully, the Council took a different stance. It abandoned the concept of 'established business relationships' in its position, and sought to ensure that the rules of the directive will apply to a company’s ‘chain of activities’. On the one hand this would likely cover companies’ entire upstream supply chains, thus potentially addressing cases such as that of the Guarani Kaiowá. On the other hand, civil society has pointed out that it would not fully cover the downstream value chain, and therefore, for example, shield companies producing weapons from doing due diligence for the harm their products create.
MEPs ought to make sure they don’t fall for industry claims like those made by the BDI, and instead strengthen the Commission’s Proposal as well as the Council’s approach. The law’s MEP Rapporteur, Laura Wolters, seeks to improve the text by replacing the concept of ‘established business relationships’ with ‘business relationships’ in a company’s value chain, which she defines to include all upstream and downstream activities. These amendments would ensure that all tiers of a company’s supply chain are subject to due diligence obligations under the directive and should therefore be supported by MEPs.
Cattle grazing on deforested land in the Amazon.
The law needs to remove risks associated with the reliance on industry initiatives or third-party verification
Weak industry initiatives or third-party verification, for example in the form of voluntary certification schemes, pose a major threat to the potential effectiveness of the planned Directive. As currently written, the Commission’s Proposal allows for industry initiatives or third-party verification to be relied upon to prove compliance with contractual assurances by a company’s partners and their partners as part of its due diligence obligations.
However, Earthsight’s research has repeatedly exposed serious flaws in certification schemes and shown that they do not assure what they claim to. Riddled with structural flaws and conflicts of interests, and captured by industry, they systematically fail to spot illegalities and human rights abuses by certified companies. They should therefore be deemed unfit to fulfil a company’s due diligence obligations.
Another major weakness of the Commission’s Proposal is that a company’s use of certification schemes could lead to a reduced liability on the part of the companies. According to Article 22(2) of the Proposal, a company’s use of industry initiatives or third-party verification shall be taken into account when assessing the existence and extent of liability.
As it is currently written, the Proposal creates a serious risk that adverse human rights, environmental and good governance impacts will not be sufficiently prevented, mitigated or ended, while flawed private sector third-party certification schemes could expand. In short, the law would be a failure.
Example: Certified furniture and its connection to forced prison labour and torture
In 2022, Earthsight connected the use of forced prison labour and destruction of some of Europe’s last primeval forests in Belarus to furniture sold at almost every major furniture retail chain in Europe, including IKEA, BUT and Poco, part of furniture group XXXLutz, the second largest furniture retailer on the continent.
Belarus’s prison service, Earthsight found, is the country’s largest timber company. It uses the forced labour of 8,000 inmates to harvest trees – including trees from some of Europe’s last primeval forests in Belarus – and process them into a wide range of wood products for export, including furniture. Earthsight interviewed past and current political prisoners at some of the penal colonies where wood processing takes place. They testified to torture and maltreatment of political prisoners, the compulsory nature of the work in the woodshops, and the terrible working conditions.
Despite plentiful red flags, FSC and PEFC have given their stamp to both the forests and the prisons in question for years. Some of the prisons had their certificates issued in late 2020 despite the widespread imprisonment and torture of pro-democracy protestors in Belarus having made worldwide headlines shortly beforehand. Torture and maltreatment of two of Belarus’s most prominent human rights activists and political dissidents at one prison had been well publicised before it received an FSC certificate.
Following Belarus’s complicity in the Russian invasion of Ukraine that led to its being isolated internationally, IKEA voluntarily halted all purchases from Belarus or use of Belarusian timber, the EU banned imports of some wood products (though not furniture) from Belarus, and FSC and PEFC pulled all their certificates. Were it not for the war, however, none of this would have happened.
Prisoners preparing logs for sawing at IK-22 in Belarus, 2017.
Structural flaws of certification schemes render them unfit to provide assurances of compliance with a future due diligence law. For example, certification schemes usually assume companies - once certified - are innocent until proven guilty. FSC’s Policy of Association specifically states that firms can remain certified even where the ‘preponderance of evidence’ suggests they are guilty of massive illegal logging or serious human rights abuses.
In 2021, more than 30 NGOs published a letter to FSC, the world’s largest green wood label, calling out major structural flaws and demanding it make immediate changes to its systems to adequately reflect the global deforestation crisis. A major study by Greenpeace has shown how flawed certification schemes have not helped companies meet their commitments to exclude deforestation from their supply chains. A recent investigation by the International Consortium of Investigative Journalists (ICIJ) exposed how industry sustainability schemes overlook deforestation and human rights violations when granting environmental certifications.
For the industry, being able to rely on certification schemes to fulfil their future due diligence obligations under the CSDDD would be yet another comfy way to continue business-as-usual. According to them, the already flawed approach taken by the Commission doesn’t even go far enough.
In its position statement, BDI criticises the lack of a clear role for certification schemes as “the draft defines the possibility that the Commission, cooperation with the Member States, will first issue guidelines for assessing the suitability of industry regulations and multi-stakeholder initiatives.”
The industry body also complains that the “wording in the draft on industry regulations and multi-stakeholder initiatives (Art. 7 and 8, 22) does not standardise a safe harbour regulation.” A ‘safe harbour’ provision for companies using industry regulations and multi-stakeholder initiatives would mean these companies could not be held liable for damages caused unless they were caused intentionally or through gross negligence. This would create a massive loophole.
Calls for a safe harbour clause were picked up by the German Ministry of Justice after lobbying efforts by a number of industry groups, as the investigative magazine Correctiv and a briefing by Misereor and Global Policy Forum revealed.
Thankfully, this position did not prevail in the Council. However, the Council failed to introduce language to ensure companies cannot outsource parts of their due diligence obligations to flawed industry initiatives or third-party verification.
MEPs now ought to ensure that companies cannot rely on industry initiatives or third-party verification schemes to fulfil their due diligence obligations. They should therefore support a safeguard proposed by Laura Wolters which would add language stating that “the sole reference to such initiatives or verification shall not be sufficient to satisfy the due diligence requirements of this Directive.” In addition, MEPs should change the Proposal to clarify that the reference to industry initiatives or third-party verification schemes does not absolve the company from its own due diligence obligations or liability – whether entirely or in part.
