We are pleased that companies subject to the EU’s Sustainable Corporate Governance Directive will have to integrate human rights, the environment and climate into their decisions, to ensure their business model and strategy are compatible with the transition to a sustainable economy. This includes that companies must identify the extent to which climate change is a risk to their operations. However, we are concerned by the removal of corporate governance requirements and watered down obligations on potential adverse environmental impacts. Furthermore, the lack of clarity on supplier contracts and third party verification will not achieve the required transparency on the supply chain. Moreover, a loophole introduced means companies could be safeguarded from civil liability claims, in situations where suppliers who have not fulfilled their obligations are able to provide verifications based only on generic contractual clauses.”

The limited scope of the Directive – to apply to around 1% of European companies (14,000 businesses) and 3,000 firms outside of Europe – is a missed opportunity. Findings from the Business & Human Rights Resource Centre indicate they have approached 600 European companies since 2020 about alleged human rights abuses, of which the vast majority occur outside the EU. There are already over 10,000 companies voluntarily using the GRI Standards for reporting and managing their impacts. We are at a critical time in protecting human rights and the environment, across the whole supply and value chains. For this Directive to be truly effective, it must be more ambitious in reach and scope.”