Driven by ever-increasing social pressure, both European and Dutch legislators are intensively developing new, more stringent legislation in the field of Corporate Social Responsibility (CSR). In this article, we provide an overview of the most recent developments regarding CSR legislation: the European Corporate Sustainability Due Diligence Directive (CSDDD), the Dutch IMVO law and the revised OECD CSR Guidelines.
CSDDD
A day after the European Parliament approved her CSDD bill, Lara Wolters (EU parliamentarian for the Dutch Labour Party) was already sitting down with us to talk about “her” CSDDD. The CSDDD is to be seen as a European CSR law and thus will apply to all member states. And Lara’s enthusiasm shines through. Rightly so, because this is the first time that CSR will be mandatory in Europe and the Netherlands. In the coming months, Parliament will negotiate the final text of the law with the EU Commission, after which the law will be adopted at the European level. It will then be up to the Dutch parliament to turn this into national regulations. We previously wrote this article about this.
Discussion points CSDDD
The main discussion points in the coming months are expected to be on the scope of the law, the scope of chain responsibility and the audit issue. An overview.
Scope CSDD
In short, the CSDD could apply to all companies with a turnover of more than €40 million and more than 250 employees. The scope would then match 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. These countries already have CSR laws in place, but there the limit in terms of company size is considerably higher. 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 stages, which means that the largest companies will have to participate first and, at a later stage, the other large companies. 99 percent of European companies will not be directly affected by this legislation, as they are not big enough anyway. However, we do expect that a large proportion of SMEs will be indirectly affected by the CSDD because of their role in the supply chain of large companies.
Scope of chain responsibility
A second point of discussion concerns the scope of this law; how far into the chain will a company soon have to go and be accountable for this? According to the OECD guidelines, this concerns the entire chain. The CSDD – as adopted by the European Parliament – is milder in this regard: only companies in high-risk sectors will be required to report on the entire chain. The European Commission also seems to want to keep the mandatory character to the direct suppliers of companies for the time being. The negotiations will shed more light on this.
Control issue
Third, the monitoring mechanism is an important issue that will be debated in the coming months – and later in national parliaments. The CSDDD draft law indicates that national governments should establish their own mechanisms for this. This may lead to governments imposing a form of self-regulation on companies. Companies are then responsible themselves for working in accordance with this legislation and must report on this according to standards. Thus, a kind of CSRD approach.
By the way, the CSDDD also prescribes that companies can be convicted by judges in cases of real wrongdoing. And no, directors of these “wrong” companies will not then go to jail. That part of the law was defeated by an amendment.
IMVO Initiative Act
In parallel with the discussions in Brussels, a Dutch version of the CSDDD is being worked on in The Hague. The key question here is whether we will have a Netherlands law that will broadly follow the CSDDD, or whether the IMVO initiative law (already submitted in 2022) will be adopted. The latter is composed on the basis of the (stricter) OECD guidelines and has the same scope as the CSRD now. Instead of self-regulation (as the CSDD is expected to prescribe), the IMVO law will have the ACM supervising it. In other words, that means that if the IMVO Act is passed, all companies with a turnover of €40 million or more and/or more than 250 employees will be required to comply with the OECD Corporate Responsibility Guidelines.
The (now outgoing) Minister of Economic Affairs and Climate, Micky Adriaansens, has expressed that the preference of the (current) cabinet is for a law in line with the European CSDD. The main reason given by the minister for this is that it would create one law for the entire internal European market. However, it is not expected that the current cabinet will cut this knot yet, but that this key question will fall to the next minister.
Adoption of revised OECD guidelines.
Back for a moment to 2011. That’s 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 been expecting Dutch companies (and foreign companies operating in the Netherlands) to comply with this guideline for corporate social responsibility, or Responsible Business Conduct (RBC). In 2018, this was joined by the OECD Due Diligence guideline: an approach of six process steps for companies to actually use the OECD guidelines.
Committing to the OECD guidelines is still voluntary for companies. By now, however, most large multinationals in the Netherlands have committed to the OECD guidelines. In terms of content, the OECD guidelines, as mentioned, go further than the proposed CSDD. For a complete analysis of the differences between the OECD guidelines and the envisioned European approach, please refer to the Tilburg University website. A follow-up study is expected to be published in 2024, at the time the CSDDD will have been adopted in its entirety.
An important fact here is that in June 2023, the minister, on behalf of our government, approved the revised version of the OECD Guidelines. This revised version has a number of important changes to which companies committed to the OECD guidelines must adhere:
- Climate change is included, in line with the CSRD’s climate requirements.
- Stakeholder engagement has become a lot more important.
- The Due Diligence process is now also mentioned in the directive.
- The scope of Due Diligence now explicitly covers 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-committal nature of CSR is disappearing. Not only the new regulations, but also stakeholder expectations will force organizations to further mitigate CSR risks and adapt to the new legislation. In our view, however, these adjustments are only part of the story. We believe 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. Want to know more? If so, please contact us.
Note: part of the CSDDD law deals with climate targets and requires companies with large carbon emissions to be climate neutral by 2050. We excluded this part of the law from the above analysis.