Episode 86: How the EU's Corporate Due Diligence Directive is reshaping Sustainability standards

 

TOPICS:

 

  • The importance of legislation in current conversations
  • Explanation of CSDDD and its global impact on companies
  • The relationship between CSDDD and CSRD
  • The role of sustainability legislation in achieving environmental goals
  • The importance of traceability for brands
  • Impact on multinational corporations and suppliers
  • Relevance for Australian retailers
  • Significance of observing and understanding the unfolding legislative landscape

RESOURCES


Welcome to episode 86 of the Fashion Unearthed Podcast. Today I wanted to talk a little bit about legislation. It's a topic that has been coming up a lot in conversations that I've been having, and today I just wanted to delve into one in particular that a lot of Australian businesses are watching closely. But before I get into that, I wanted to mention that I will have some availability coming up in the next couple of weeks for an ongoing retainer client. What that means is that you could have me for one, or two days a week as your designer offsite working on women's or men's apparel, and included in that, you would also get access to my relationships with factories, fabric suppliers, mills, and other industry contexts that could benefit your business indirectly as well. 


If that's something you're thinking about, and you need extra support with design or research, sourcing, and all the things that designers do, please get in touch. I would love to talk to you about what your plans are. You can send me an email at info@belindahumphrey.com, and we can just set up a little chat and see how it goes, and see if we're a good fit. 


There are a lot of different legislations on the table or in work at the moment. I think I read that there are up to 60 different legislative initiatives in work. But today I wanted to talk about one in particular, and it's the EU Corporate Sustainability Due Diligence Directive, the CSDDD or I've seen it abbreviated to CS3D. Essentially, it's creating an obligation on companies globally that meet different standards or thresholds, which we'll get into a bit later, to conduct human rights and environmental due diligence and make available a complaints procedure. It's likely to come into effect in less than five years.


It's in the final stages. I think they're just ironing out, some scope issues in terms of how far and wide the scope goes and definitions, but it's looking to be adopted by next year. Then depending on business size, they'll give businesses in those thresholds two years to comply. The CSDDD is intended to complement the proposed EU Corporate Sustainability Reporting Directive or the CSRD. The CS3D imposes legal obligations on companies within the scope within the range to manage the human rights and environmental risks. The CSRD requires the companies within that scope to report on how they're managing those risks. The two are sort of going hand in hand. The CS3D is the overarching bigger legislation, and the CSRD is the one sitting under that informing or helping businesses show how they're changing and managing risks.


There are a couple of things driving it, particularly governments in the global North are trying to achieve those plans of a transition towards climate neutrality and inclusive and sustainable growth. To be able to meet those goals, they are using sustainability legislation and expanding on those rapidly. The European Green Deal is the cornerstone of the EU’s industrial strategy, and it comprises a series of proposals to make the EU’s climate energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030. Included in that goal is to secure the global competitiveness and resilience of the European industry. The EU is using legislation to hold companies accountable for their social and environmental impacts, both within their own operations and throughout their supply chains. I think brands are driving this as well because they want greater traceability.


They want to understand where things are coming from, and they also want a bit more of an even playing field. No one wants to move first and incur what at the moment, is a bit of a financial risk or disadvantage. Why does it matter to Australian businesses? Why are Australian businesses watching this piece of legislation? We know that we live in a global economy, and many corporations are multinational and deal with suppliers across many different countries. It makes sense that those larger businesses that are operating globally will be impacted by this legislation. Knowing that the CSDDD will apply to non-European countries and parent companies that meet certain levels of turnover within the EU. Specifically at the moment, I've found that non-EU companies on a larger scale with a net turnover of 150 million euros within the EU will be one bracket of businesses that this legislation will apply to.


Then smaller non-EU companies with a net turnover within the EU of 40 million Euro will be the second bracket that this legislation will apply. This is provided that at least 50% of that turnover was generated in certain sectors, including the manufacturer of clothing and textiles, agriculture and manufacturer of food products and extraction of mineral resources. I know a couple of large Australian retailers come to mind when I think about those thresholds and who might be watching this legislation more closely than others. But I also imagine Australian cotton and wool farmers would also be watching this to see how it would affect them as a supplier of raw materials to businesses operating in the EU. Anecdotally, I predict much like the circular economy Australia leveraged the work that Europe had been doing on this for our own progression. I predict this will also be something Australian governments are watching to start from when formulating our own legislation as well.


One interesting point that I wanted to draw attention to is that companies directors and their actions are included in this too. Directors of EU companies in scope or within the range, will be required to consider the consequences of their decisions or sustainability matters, including where applicable human rights, climate change and environmental consequences. EU countries will be required to change national laws so that directors who fail to do so will be considered to have breached their duty to act in the best interest of the company. Companies with more than a thousand employees must have a relevant and effective policy in place to ensure that a part of any variable remuneration for directors is linked to the company's transition plan for combating climate change. I think this is important because of attributes, financial success or benefit as well as a potential loss of that benefit, if those measures aren't followed, and these metrics haven't been attached to those bonuses before.


I think this will be very interesting to watch and see how this plays out. I hope that's all helped. Maybe give a little bit of insight into what's happening in Europe. There is a lot happening over there when it comes to legislation, and I'm still not through all of my saved articles to really get my head around it, but this is probably the main one that a lot of Australian businesses are focusing on. Which brings us to the end of today's episode. As I said, if you are looking for design, sourcing, and research support on an ongoing basis, please get in touch. My email is info@belindahumphrey.com. I would love to learn all about your business and what you need help with. And like always, you'll find the show notes and any links for today's episode on the website to belindahumphrey.com in the podcast section. Thanks so much for reading. See you next time. 


As always, you'll find the show notes and any links for today's episode on the website, belindahumphrey.com in the podcast section. Thanks so much for reading. See you next time. 

 

Disclaimer: Whilst every effort is made to ensure that information is accurate at the time of recording, much like the fashion industry itself, this information may change. 

Belinda Humphrey   |   Posted on November 13 2023

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