What is corporate sustainability due diligence?

Big changes are being implemented in the ways we have done traditional business for decades now. There is a light at the end of the tunnel when it comes to topics regarding ethical and sustainable business practices. The time has come for businesses to take responsibility for their own labor practices and environmental impacts that they have been able to hide up until this point. The earth is bleeding and people are dying due to our unethical corporate mindsets and it is time to put an end to it. 

Shortly after the pandemic, during 2022 the European Commission implemented a proposition for a “Directive on corporate sustainability due diligence”. This directive is aimed at cultivating ethical, sustainable corporate actions and to integrate human rights (particularly in labor practices) and environmental impacts in the way corporations operate. The idea is for this directive to guarantee that companies face the real consequences of their actions, extending to their worldwide operations and value chain. 

So what does this Directive mean for:

• Companies?

• A EU regulated conjoined legal structure, ensuring legal liability and an equal playing field.
• Enhanced trust from customers and internal dedication between employees.
• More transparency about environmental impacts.
• Enhanced innovation.
• Better public reputation, increasing the potential for attracting sustainable investors. 

• Citizens? 

• Human rights (particularly labor rights) are more protected.
• Well conditioned working environments build to last.
• Higher levels of trust on a corporate level.
• Increased transparency, ensuring informed decisions can take place. 
• Victims are more likely to be justified.

• Developing countries?

• Human rights (particularly labor rights) and the environment is more protected.
• Investing becomes more sustainable.
• Transparency and education to all potential stakeholders involved. 
• Practical sustainable activities are enhanced. 
• Living conditions and labor practices are treated better.

How is it affecting business?

This Directive will hold companies liable to: recognize, stop, avoid, alleviate and account for all company activities (including that of their subsidiaries and own value chains)  that negatively impacts human rights and environmental impacts. This Directive is extended to a point where particular bigger companies are liable to come up with a plan to ensure their activities are aligned with restricting climate change to 1.5 degrees, aligning with the Paris Agreement. Along with this, there are also duties lined out specifically for directors of the EU companies included. Examples of these duties are: creating and implementing the due diligence directive into their business strategy. Directors must therefore include human rights, global warming and their own environmental impacts into their business strategy and ensure their practices are aligned with it. 

What to prepare for as a young entrepreneur entering the world of business: 

Stay updated with regulations: Sustainability rules and regulations are at full speed at the moment and it will only become more and more frequent. Taking this fast paced change into account, as well as the complicated standards to be met by businesses, it is essential to determine adequate ways to stay up to date with the latest information. A sort of filtering method is also needed to determine which things are most important. 

Narrow it down to the basics: First things first: make sure your own company has clearly established what exactly sustainability means for the company itself and on a clear strategic level too. In order to comply with this new Directive, there needs to be a set plan of action as to how your company will align itself to meet necessary sustainable requirements. There are suggestions and guidelines as to how to go about these which can be found in the “UN Guiding Principles on Business and Human Rights” and also in “the OECD Guidelines for multinational companies.” 

Be open to receiving help: There are many companies (including sustainable consulting companies) who are there to support companies through these big changes. The more open your company is to receiving help the better the outcome for the greater collective. Together companies can figure out the contractual aspects that need to be led within the value chain. The best time to start is right now, since the Directive is still considered a “soft law” but in a few years this will for certain turn into a “hard law” which means treaties will turn into obligations and impacts on modern day business will be harsh and real. 

Corporate Responsibility is not something we need to fear but rather something we need to embrace. It is being established to ensure a better future for all of us and to make use of new innovations to solve the bigger issues the world is facing. 

European Commission. 2023. Corporate sustainability due diligence. Read on 20.6.203. https://commission.europa.eu/business-economy-euro/doing-business-eu/corporate-sustainability-due-diligence_en

Marinen, H. 2022. Directive on corporate sustainability due diligence – What, who, and when? Read on 19.6.2023. https://www.dittmar.fi/insight/corporate-sustainability-dd/ 

Eetti. 2023. The Corporate Responsibility Directive is moving forward, hooray! Read on 17.6.2023. https://eetti.fi/2023/06/02/yritysvastuudirektiivi-etenee-hurraa/