Measures to streamline the EU Green Deal into a single piece of Omnibus legislation could undercut risk-based due diligence in the field of human rights, according to the United Nations (UN).

An in-depth commentary on the Omnibus proposals emerged from the UN’s Office of the High Commissioner of Human Rights (OHCHR). The analysis leads with a stern critique of lawmakers’ plans to simplify the Corporate Sustainability Due Diligence Directive (CSDDD), a key pillar of the Green Deal.

In particular, the commentary takes issue with the European Commission’s suggestion to amend the CSDDD “in a way that relieves companies from the obligation to pro-actively assess actual or potential adverse impacts at the level of indirect business partners (ie, those beyond the first tier) in the absence of specific circumstances”.

For the OHCHR, that proposal disregards not just the pragmatic approach of the UN’s Guiding Principles on Business and Human Rights (UNGPs), but the CSDDD as already adopted – including its measures to address complex value chains.

As such, the critique warns the European Commission that it runs the risk of creating “massive blind spots” in companies’ due diligence efforts.

Escalation of harms

Under relevant international standards, the OHCHR notes, businesses are expected to carry out a risk-based approach to human rights due diligence. So, as a top priority, companies should focus on the most severe and probable impacts they are likely to encounter – regardless of where in the value chain they may occur.

“Only then can a business know where to focus its efforts, including to address those impacts that are most severe,” the commentary points out.

In the OHCHR’s assessment, blind spots in a company’s due diligence efforts may stem from the exclusion of certain business relationships from review. That could lead to situations in which a company is unaware of where its most severe human rights risks and impacts are occurring.

Furthermore, neglecting to identify and address issues at an early stage can lead to an escalation of harms over time, resulting in more severe and far-reaching consequences. Beyond increasing risks of harm to human beings and the environment, that could ultimately raise reputational, financial and legal risks to the business itself.

Indeed, the OHCHR cites the Commission’s own proposals as an acknowledgment of those issues, quoting the passage: “A strict limitation to Tier 1 would have a detrimental effect on the effectiveness of due diligence since the main risks to human rights and the environment most often occur farther upstream (and downstream) in the value chain (for instance upstream at the stage of raw material sourcing or at initial manufacturing stages, or downstream at the transport stage).”

Such limitation, the proposals note, would significantly curtail a range of benefits – such as positive impacts on business resilience and competitive advantage stemming from improved value-chain engagement. It would also hamper efforts to address real-world impacts, reduce reputational risks and achieve value-chain synergies and efficiencies through pro-human rights and environmentally friendly production processes and investments.

Reactive process

However, despite those caveats, the Commission proposes that beyond the first tier, enterprises should conduct in-depth assessments into business partners’ operations at a rate of just once per company.

“Essentially, this would convert human rights due diligence into a mostly reactive process in relation to impacts beyond Tier 1,” the OHCHR says. That would mean companies “are no longer in the driving seat” when it comes to their due diligence process.

Such an approach, it notes, could even disincentivise companies from understanding the extent of the risks with which they are involved. If they do not have “plausible information”, they would not be required to act.

In the OHCHR’s view, such a shift would “depart from the logic” of the UNGPs, which set out a proactive, risk-based approach to human rights due diligence.

It adds: “If the CSDDD shifts to a reactive approach to due diligence, the likely consequence would be that companies would be addressing impacts beyond Tier 1 only when it is too late – after impacts have already occurred. Not only would this lead to worse human rights outcomes, but it would also expose companies to increased risk of legal liability.”

In a statement, UN High Commissioner for Human Rights Volker Türk said: “The CSDDD, by far the most ambitious business and human rights regulatory initiative anywhere in the world, has rightly been welcomed by companies, policymakers, civil society and national human rights institutions alike, and a large number of businesses have already taken steps to ensure they comply with it.”

He added: “While some streamlining of the EU corporate sustainability regime could be advantageous, it would be counterproductive to water down its alignment with international standards, in particular the UNGPs.”

ICAEW Director, Corporate Governance and Stewardship, Peter van Veen points out that the majority of companies that could fall under CSDDD – and their key suppliers – would already have mapped out their supply-chain risks and instated relevant due diligence plans.

“Due diligence tools are continuously improving and more accessible than ever,” he says. “So, there’s no excuse not to use them to ensure your boards and management teams have the full picture of risks. Knowing who’s supplying you, where they source their raw materials from and how they treat their employees is already covered by a host of domestic laws, which often have extraterritorial reach.”

He notes: “Ensuring your supply chain is free from poor labour practices or negative environmental impacts is not just a question of legal compliance or reputational risk – it’s a winning strategy with corporate customers and end-consumers.”