Study: EU rules on corporate due diligence are welcome but more is needed to prevent unintended adverse impacts

On 27 March 2023, the Ministry for Foreign Affairs published two analysis reports on how the forthcoming EU Corporate Sustainability Due Diligence Directive would affect developing countries and their trade and companies.

The directive would oblige larger EU companies to identify, prevent and bring to an end adverse human rights and environmental impacts arising from their own operations or from their business partners’ operations. Through value chains, the obligations would trickle down to companies outside the directive’s scope of application, including companies in developing countries.

Both analyses show that the directive could have significant effects on smaller operators in the least developed countries, such as smallholders, workers and local communities.

However, a challenge is the major gap between the measures required by the EU directive and the circumstances in the least developed countries in terms of legislative environment and the resources of companies and producers. If this gap is not closed, there is a risk that companies in least developed countries will focus on markets outside the EU, without making any improvements in respect for human rights or in environmental protection.

The two analysis reports give recommendations on how to develop EU rules and the EU Member States’ support measures so that it would be possible to reach the objectives of respect for human rights and environmental protection, while supporting the continued participation of least developed countries and their populations in trade with the EU.

“The Commission’s proposal for a Corporate Sustainability Due Diligence Directive makes little mention of developing countries or least developed countries where human rights and environmental problems are sometimes common. It is necessary to raise awareness of ways to promote sustainable and fair development in these countries. Such ways include anti-corruption measures and the development of the rule of law,” says University Lecturer Kristian Siikavirta from the University of Vaasa.

“The directive can be used to redress weaknesses identified in the voluntary corporate social responsibility and to make European companies accountable for their value chains. However, our analysis shows that the directive should limit the possibilities of palming off costs on smallholders and producers in least developed countries. Moreover, the EU Member States should support local operators in getting information about the directive obligations and in improving their capacity to meet the obligations,” says Researcher Nikodemus Solitander from Hanken School of Economics.

The EU is currently preparing a Corporate Sustainability Due Diligence Directive. In Finland, the Ministry of Economic Affairs and Employment is responsible for preparing relevant national legislation. The Ministry for Foreign Affairs participates in this work as part of the Government.