Getting down to business: EU legislation on transparency in the production chain

CSDDD aims to make production chains fairer and more transparent. For companies operating in international trade chains, decisions in the Netherlands about production and procurement can affect people in countries far from our borders. Raw materials, for instance, may be mined in countries that play fast and loose with workers’ rights or have little regard for environmental impact. And clothing is often manufactured by severely underpaid labourers in poor working conditions.

CSDDD requires that companies report on areas in which they have a negative impact on human rights and the environment. They will also have to make a plan to minimise such impact and compensate damage or loss. Companies will thus be held accountable for their actions as well as those of their suppliers. While some member states have already introduced their own national legislation in this area, only voluntary directives have so far been put in place at EU level. CSDDD will make these binding and uniform across all member states.

The final version of the legislation should be published later this year. Nelleke Hoffs, business and human rights adviser at ABN AMRO, further emphasises that the exact scope of the new directive has yet to be determined and that things may still change. Another unknown is exactly which companies will be required to comply with CSDDD.

The moment is now

At this stage of the legislative process, when things are not yet set in stone, it can help to engage with public and private stakeholders to understand the impact of the directive. Nelleke says, “Because banks have so many clients, manage data in such quantities and exert influence as lenders, governments and NGOs see them as crucial partners – or ‘multipliers’ – in making the economy more transparent.”

With a view to the changes CSDDD will be introducing, ABN AMRO organised a masterclass at the end of May in which stakeholders took a closer look at the legislation. These included the Dutch Ministry of Economic Affairs and Climate Policy, Oxfam Novib, the Confederation of Netherlands Industry and Employers (VNO-NCW), MVO Nederland, the Dutch Banking Association (NVB) and NautaDutilh. Experts representing all the stakeholders stressed that business owners should start taking steps now to prepare for the new legislation.

“Multinationals and big companies have their own teams to sift through these regulations and integrate them into company policy. But for SMEs, it’s different,” Nelleke says. “We have to be careful it doesn’t become an exercise in ticking off a list of minimum requirements. The spirit and purpose of the law should be front and centre.”

Impact on SMEs

The trend towards greater transparency is nothing new. In fact, plenty of business enterprises have been making strides in this area for years. Nelleke continues, “Soon the bar will be higher for all of us, and that represents a real opportunity for companies in particular. New insights help companies negotiate better contracts and project a positive, defining image of themselves to the outside world.” ABN AMRO is keen to help its clients prepare for CSDDD, says Nelleke: “Companies will have to engage with their suppliers more often, asking questions like, where do the raw materials we buy actually come from? What about employment conditions? Companies will soon have more insight into their own operations and will be sharing that with key trading partners and perhaps even with banks.”

Sitting down with clients

Banks have learned a lot from the Know Your Client processes put in place as a result of the Financial Supervision Act (Wet op het financieel toezicht). One unintended consequence of these rules is that it’s now more difficult for charities or sex workers to open a bank account. “We don’t want to make the same mistakes again, so that SMEs operating in certain sectors won’t be able to secure financing, for example,” stresses Nelleke. “It’s important that we sit down with our clients and discuss the nuts and bolts of the legislation once it comes into force.”

Obviously, the bank itself will also have to comply with CSDDD and sees the directive as a welcome development, even if the exact details still have to be worked out. “For years, ABN AMRO has been reporting on human rights, social impact and, more recently, biodiversity. By better understanding trade chains and their impact on human rights and the environment, we can make better choices in terms of our own operations and help our clients become more sustainable.”

“Due diligence comes down to common sense”

“Due diligence may sound complicated, but it basically comes down to common sense. Essentially, it means that the extent to which we benefit from, and can make choices in, relationships determines how much influence or power we wield. And with power comes responsibility – otherwise, those relationships can become unbalanced, inequitable or toxic.

“Big companies benefit greatly from the societies in which they operate and can pick and choose who they do business with. That gives them power, and power brings responsibility. Taking responsibility cannot and should not be optional. It must be enshrined in law, so that responsibility represents an acceptable, collectively agreed minimum.”

Ioan Nemes, private sector lead, Oxfam Novib