Tension between German politicians, industry bodies and corporates has reached fever pitch as the Corporate Sustainability Due Diligence Directive (CSDDD) approaches a key vote on Friday.
The journey of the CSDDD through the EU’s governance machinery has been anything but smooth, and this shows no sign of changing.
In December, the EU Parliament, Commission and member states informally agreed on the directive, which will impose mandatory human rights and environmental due diligence and transition plan requirements on firms in scope.
The final text of the directive was published last week. It was subject to immediate pushback from the German finance and justice ministers, both representatives from liberal party FDP, who indicated that they were not prepared to support it.
On Tuesday, Germany’s Social Democrat labour minister said the country will abstain when the Council of the EU votes on the directive’s text on Friday.
Competitiveness is a key concern for German corporates, which are already subject to the requirements of the country’s own supply-chain act.
German pharmaceuticals giant Bayer was among the corporates to sign a statement this week warning that the CSDDD “offers a historic and at present the only chance for an EU-wide level playing field”.
A Europe-wide regulation “means that competitive advantages at the expense of people and the environment will finally be prevented”, the statement continued. It called on German chancellor Olaf Scholz to “secure this democratically achieved compromise and thereby provide companies with legal certainty and fair competitive conditions”.
Bayer is one of the largest members of German chemicals industry association VCI, which signed a joint letter with other German industry groups in January issuing an “urgent call” to halt the directive.
Asked about Bayer’s stance, a spokesperson for the VCI said that its position process took place within committees made up of member representatives, but that this did not rule out the possibility of members taking opposing views.
“The majority of VCI member companies, especially medium-sized businesses, are in favour of a practical EU regulation that is more balanced in terms of bureaucracy and liability. The present compromise does not achieve this. We are therefore committed to ensuring that the directive text is improved in key areas,” they said.
For Isabella Ritter, EU policy officer at ShareAction, the fact Bayer and other major corporates are backing the CSDDD “speaks volumes against FDP’s arguments, hinting at a self-serving agenda over real competitiveness concerns”.
“Business support emphasises the deal’s viability, stressing the urgent need for legal certainty and a level playing field. It also sheds light on a stark misalignment between industry stakeholders and futile political games,” she told Responsible Investor.
Politics in focus
The topic – and FDP foot dragging – has proved controversial at the highest levels in Berlin.
On Wednesday, the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) published a statement from Green party environment minister Steffi Lemke, warning that the failure of the CSDDD would send a “bad signal”.
“I regret that it has so far been impossible to reach an agreement on approval within the federal government, even though key demands for amendments from Germany were taken into account in Brussels,” she said.
“The trilogue outcome is a balanced compromise that has already addressed many concerns of the German economy and would still represent progress towards greater prosperity not based on the exploitation of nature and people.”
Axel Voss, a German MEP who co-ordinates the conservative grouping on the EU Parliament’s legal affairs committee, also hit out at the German abstention.
Voss, a member of the main opposition party CDU/CSU, said the debate in Germany has “completely poisoned” the European approach.
He also warned that if the CSDDD does not go ahead, there will be a patchwork of national regulations developed by member states.
On the experience of such a law in Germany, he slammed the “unclear concepts and exaggerated interpretations” around the rules. He added that the CSDDD is underpinned by a clearly defined risk-based approach and that its adoption will make for a more level playing field in Europe.
Voss concluded by calling the technical arguments against CSDDD “simply wrong”. Flagging concerns raised around the provisions on transition plans, he said that the requirements “were so massively weakened that they barely bring additional work for companies”.
Down to the wire
Germany is not the only member state with concerns. Spain, France and the Netherlands are backing CSDDD, Sweden and Finland have indicated they will not support the directive when it comes to a vote.
Lithuania and Estonia have also voiced concerns, while Italy is reportedly undecided as to whether to abstain or oppose.
It is not unusual for the meeting of member state representatives to result in a rejection, but the timing is such that there will be no opportunity for further negotiations before European parliamentary elections in June. A failed vote at this point in time could bring the future of the directive into question.
If the text is greenlit tomorrow, the approval vote of the Legal Affairs Committee of the European Parliament should follow. The final vote by MEPs is expected in April at the last plenary session before the elections.