There was no shortage of disappointment and discourse from all sides during the recent negotiations on the EU’s Corporate Sustainability Due Diligence Directive (CSDDD). Opinions were plentiful, diverse and passionate, and the gloves certainly came off in the final round.

The debate played out in the columns of Responsible Investor (for example, here and here) and on LinkedIn among the authors of this piece, demonstrating how the legislation has sparked a fervent debate – even among friends and colleagues – and underscoring the complexities of aligning corporate practices with sustainability goals through legislation.

All three of us came to the discussion with a different geographical lens. As most will already know, Eccles is neck-deep in the anti-ESG war that continues to rage in the US, very much bringing the US context to the discussion.

Gardiner is a seasoned Brussels operative, immersed in the nuance of European legislation. Webster, having spent the majority of her career in asset management in Asia, brings an emerging markets lens and experience on how extraterritorial reach passes down value chains and influences finance.

Together, we watched a highly unusual political process unfold, seeing tectonic shifts in how the business happens in the EU. Where once consensus would be found sooner, an unexpected vacuum was created by the lack of a readily emerging clear majority. However, at the eleventh hour, thankfully, consensus was finally reached.

The result is that the CSDDD is now moving towards the final political approval stage.

We agree that the directive appears to have landed at a unique compromise of ambition versus pragmatism. However, we would add the caveat that the intended positive impact of the law will depend on how well it is enforced, how directly companies address their core responsibilities, and how non-EU based firms respond to their inclusion.

Corporate accountability

The final result has rightly been applauded as a key step in the right direction for greater corporate accountability. But it is just that, a step, not a silver bullet.

Presuming there is full political sign-off on the law this year, it will still take another three years before it fully comes into force in 2027. Before then, there are a number of challenges and hurdles to overcome to make sure the CSDDD has the positive impact we all hope it will.

Setting minimum legal standards and initially applying them to large companies that have the resources and expertise to meet them through the CSDDD makes perfect sense. It will build a common understanding of what good supply chain due diligence looks like and help prepare the rest of the market.

But such standards are only going to be as strong as their enforcement and the spirit in which business adopts them.

While the CSDDD mandates that each EU member state appoint a supervisor to police the application of the directive, even suggesting the creation of a “supervisory network”, for the vast majority of member states this will be the first time they appoint such a supervisor.

A significant investment of time and money will be needed to train staff and put in place systems to track and respond to harms in company supply chains.

Governments will also need to develop and build the means of alerting them to issues and problems. Currently, the majority of issues are raised by civil society or via the press, which will need formalising to ensure correct follow-up procedures and investigation.

The value-creation potential of the CSDDD will also depend on the approach companies take to its implementation.

Every effort must be made to support those companies that embrace the spirit of the CSDDD and leverage it to unlock new opportunities, drive innovation and productivity, and ultimately build resilience against future structural supply shocks from changing policy, client and employee demands.

The worst outcome of the legislation would be one where companies ignore their responsibility to engage with the risks in their supply chains, and simply draw up a list of “good” and “bad” suppliers to protect themselves from any wrongdoing.

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