In an era where the pursuit of profit often takes precedence over ethical responsibility, many have come to view corporations with a degree of scepticism. The decisions of the business elite, swaying to the rhythm of personal economic gain and unmitigated greed, often seem immune to change - unless, of course, the law intervenes. Is legal action the only way to initiate a seismic shift in such a landscape?
But what about the collective voice of the people? Amidst the outcry for more transparency and sustainability, some argue that not every business leader is deaf to the echo of public sentiment. True, some industry giants may seem to lack a heart, but many have shown they can respond to the drumbeat of social pressure. Legislative action, too, has a crucial role to play. Take for instance the potent force of the Corporate Sustainability and Due Diligence proposal issued by the EU. Despite the voices of dissent, this transformative initiative was recently adopted, securing a solid 366 votes in favour against 225 votes and 38 abstentions.
The Corporate Sustainability and Due Diligence proposal is the EU's most audacious plan yet to ensure that businesses operating within the bloc adhere to rigorous standards of ethical and sustainable practices, including human rights and environmental protection. This means that companies must take a more proactive approach to vetting their suppliers and subsidiaries to ensure that they also meet these high standards.
The Human Rights & Climate Change Guide for Institutional Investors, published in 2021 by KPMG, suggests that the vote is expected to have a big impact on large financial institutions across the globe. This will require companies to identify, prevent, or mitigate the impacts of their activities on the environment and human rights. It's not just about what they do, but also about their subsidiaries and business partners. Businesses will need to create action plans, get assurances from their partners, and check compliance. This could mean a significant increase in oversight and responsibility for companies, which KPMG believes could have a major impact on their operations.
KPMG reports that enforcement will be at the Member State level, with directors of EU companies responsible for overseeing due diligence requirements. Companies could be liable for damages if they fail to comply. This potential for liability, KPMG suggests, could have a significant financial impact on companies and could lead to a greater focus on compliance and risk management, also mentioning that companies should consider how to best align their practices with the CSDDD in order to improve business practices to demonstrate due diligence.
Well, the EU has a notable track record of setting global standards. And this time, it's all about sustainability! The CSDD urges companies worldwide to be more responsible in their operations and value chains, both inside and outside Europe. This directive isn't just about legal compliance, it's about being a part of the global move towards greater corporate sustainability.
EU Parliament backs proposed directive establishing duty of corporate due diligence published in 2023 by Feed Navigator, noting that companies who fail to comply may think they are saving time or cutting costs, but the consequences of non-compliance can be severe. From liability for damages to sanctions imposed by national supervisory authorities, the stakes are high. And it's not just about fines. Sanctions can come in many forms; removal of goods from the market can also be a costly and embarrassing consequence. And let's not forget about the financial hit - fines can amount to at least 5% of the company's net global turnover.
Fair warning! Non-compliance could lead to legal proceedings against your company, resulting in financial penalties and damage to your brand's reputation. On the other hand, embracing these regulations can demonstrate a corporate commitment to ethical business practices, which not only helps businesses maintain a clean conscience but also can increase their competitiveness in the market, and customers are increasingly appreciating that kind of behaviour.
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Sources: KPMG and FeedNavigator
