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Improving sustainability due diligence in EU companies’ governance

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Sustainable due diligence
Silhouette of a businesswoman – Corporate sustainability due diligence. Photo by Rose Lamond on Unsplash.

The European Commission published the Corporate Sustainability Due Diligence Directive (CSDDD) proposal in February 2022. It is a crucial step to ensure that companies will have a long-term approach in defining their strategy and risk management processes. However, its scope should be expanded and some of its aspects improved.

The Corporate Sustainability Due Diligence Directive proposal is part of the EU’s strategy to implement the European Green Deal and Sustainable Finance objectives. Specifically, the proposed directive aims to support companies to better manage sustainability-related issues across their value chains.

Although it is an important step forward, E3G and other NGOs are asking for improvements. The CSDDD needs to expand its scope beyond large companies in the EU. Moreover, some of its aspects should be improved to increase its impact on the ground. Our paper specifically addresses the parts of the proposal that relate to corporate governance and directors’ obligations, as well as to the responsibilities of the financial sector.

Recommendations on corporate governance for the EU’s Corporate Sustainability Due Diligence Directive

  1. Directors’ obligations as part of due diligence should be more ambitious and go beyond a compliance and tick-box approach.
  2. Director obligations on climate change should be properly integrated with the rest of a company’s obligations.
  3. The alignment of incentives in remuneration policies with sustainability objectives should not be voluntary.
  4. The responsibilities of the financial sector should have a broader scope, and this sector should be included as a high impact sector. 

Read the full joint paper with NGOs’ recommendations here.

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