Under the influence of increasing societal pressure, both the European and the Dutch legislature are intensively developing new, stricter legislation in the field of Corporate Social Responsibility (CSR). In this article, we provide an overview of the most recent developments in CSR legislation: the European Corporate Sustainability Due Diligence Directive (CSDDD), the Dutch CSR law and the revised OECD guidelines for CSR.
A day after the approval of her CSDDD bill by the European Parliament, Lara Wolters (Dutch EU parliamentarian for the PvdA) sat down with us again to talk about ‘her’ CSDDD. The CSDDD is to be seen as a European CSR law and will therefore apply to all Member States. And Lara’s enthusiasm shines through. Rightly so, because this is the first time that CSR has become mandatory in Europe and the Netherlands. In the coming months, Parliament will negotiate with the EU Commission on the final legal text, after which the law will be adopted at European level. It is then up to the Dutch parliament to make this into national legislation. We wrote about this earlier in this article.
Discussion Points CSDDD
The main points of discussion in the coming months are expected to be the scope of the law, the scope of chain responsibility and the control issue. An overview.
Scope of application CSDDD
In short, the CSDDD could apply to all companies with a turnover of more than € 40 million and more than 250 employees. The scope would then correspond to that of that other European law on CSR transparency: the CSRD.
Another option is to take French and German legislation in this area as a starting point. CSR laws already apply in these countries, but the limit in terms of company size is considerably higher there. In Germany, for example, the law only applies to companies with more than a thousand employees.
We expect that the negotiations will lead to a solution in phases, whereby the largest companies will first have to participate and at a later stage also the other large companies. 99% of European companies will not directly be affected by this legislation, as they are not big enough anyway. We do expect that a large proportion of SMEs will be indirectly affected by the CSDDD, due to their role in the supply chain of large companies.
Scope chain responsibility
A second point of discussion concerns the scope of this law; how far will a company have to go in the chain and be accountable for this? According to the OECD guidelines, this concerns the entire chain. The CSDDD – as adopted by the European Parliament – is more lenient in this regard: only companies in high-risk sectors will be obliged to report on the entire chain. The European Commission also seems to want to keep the obligatory character to companies’ direct suppliers for the time being. The negotiations will provide more clarity on this.
Thirdly, the control mechanism is an important point that will be debated in the coming months – and later in national parliaments. The CSDDD draft law indicates that national governments must set up mechanisms for this themselves. This may lead to governments imposing a form of self-regulation on companies. Companies are then responsible for working in accordance with this legislation and must report on this in accordance with standards. So a kind of CSRD approach.
The CSDDD also prescribes that companies can be sentenced by judges in the event of genuine abuses. And no, directors of these ‘wrong’ companies will not go to prison. That part of the law has been rejected by an amendment.
CSR Initiative Act
Parallel to the discussions in Brussels, work is underway in The Hague on a Dutch version of the CSDDD. The key question here is whether we will get a law in the Netherlands that will broadly follow the CSDDD, or whether the CSR initiative law (already submitted in 2022) will be adopted. The latter has been compiled on the basis of the (stricter) OECD guidelines and has the same scope as the CSRD now. Instead of self-regulation (as the CSDDD is expected to prescribe), the CSR Act will allow ACM to supervise. This means that when the ICSR Act is adopted, all companies with a turnover of more than €40 million and/or more than 250 employees will be obliged to comply with the OECD Guidelines for Responsible Business Conduct.
The (now outgoing) Minister of Economic Affairs and Climate Policy, Micky Adriaansens, has stated that the preference of the (current) government for a law is in line with the European CSDDD. The main reason given by the minister for this is that this will result in one law for the entire internal European market. However, the expectation is not that the current cabinet will take this decision, but that this key question will be left to the next minister.
Adoption of revised OECD guidelines
Let’s go back to 2011, when the Dutch government declared its support for the – then new – OECD Guidelines for Multinational Enterprises. This means that since 2011 the Dutch government has expected Dutch companies (and foreign companies active in the Netherlands) to comply with this guideline for corporate social responsibility, or Responsible Business Conduct (RBC). In 2018, the OECD Due Diligence guideline was added: an approach of six process-based steps for companies to actually use the OECD guidelines.
Commitment to the OECD guidelines is still voluntary for companies. However, most large multinationals in the Netherlands have now committed themselves to the OECD guidelines. As stated, the OECD guidelines go further than the proposed CSDDD in terms of content. For a complete analysis of the differences between the OECD Guidelines and the intended European approach, we would like to refer you to the Tilburg University website. A follow-up study is expected to be published in 2024, by which time the CSDDD will be adopted in its entirety.
An important fact here is that in June 2023 the minister approved the revised version of the OECD guidelines on behalf of our government. This revised version has a number of important changes that companies committing to the OECD Guidelines must adhere to:
– Climate change is included, in line with the climate requirements of the CSRD.
– Involving stakeholders has become a lot more important.
– The Due Diligence process is now also mentioned in the guideline.
– The scope of the Due Diligence now explicitly concerns the entire chain.
– Corruption and animal welfare are also included.
– For a complete overview, read the NGO briefing: OECD-Watch.
What does this mean for our organization?
The most important take-away is that the non-commitment of CSR is disappearing. Not only the new regulations, but also the expectations of stakeholders will force organizations to further mitigate CSR risks and to adapt to the new legislation. In our eyes, however, these adjustments are only part of the story. We believe that there are great opportunities for organizations that dare to look beyond the legal frameworks and can make sustainability an integral part of their business processes. Knowing more? Then please contact us.
Note: part of the CSDDD legislation deals with climate targets and obliges companies with large CO2 emissions to be climate neutral by 2050. We have not considered this part of the law in the above analysis.