CSDDD: Bad for business, or the bane of bad actors?
By Noor Hamadeh, Senior Advocacy Counsel at the International Corporate Accountability (ICAR) and Rebecca DeWinter-Schmitt, Associate Director at the Investor Alliance for Human Rights
In July 2024, after over five years of prolonged advocacy and negotiations, the EU Corporate Sustainability Due Diligence Directive (CSDDD) came into effect, mandating due diligence processes for companies to identify and address their human rights and environmental risks in their own operations and supply chains. The victory felt short-lived as subsequent elections in the U.S. and EU brought parties and coalitions to power that immediately sought to push back on the CSDDD, including through the Omnibus Simplification proposal brought forward by the European Commission under President Ursula van der Leyen’s leadership. However, a closer analysis shows that they are responding to a few loud voices, and in fact, many companies are already very familiar with and conduct due diligence processes as part of their approach to ensure long-term sustainability and value creation, and many investors expect due diligence disclosures of their portfolio companies. Moreover, although some US politicians have claimed that the CSDDD is an attack on US sovereignty, the CSDDD stems from values shared across the Atlantic of combatting abuses throughout supply chains, including labor rights abuses that amount to forced labor. US lawmakers on both sides of the aisle are widely supportive of US laws to stop the trade in goods made with forced labor, laws that in essence require companies to undertake due diligence.
This begs the question: why is the pushback against the CSDDD so strong if many businesses, investors, and lawmakers across the Atlantic are supportive of the basic values behind such a law? Is the CSDDD truly “bad” for business, or are a few bad actors lobbying heavily for fear of strengthened accountability?
Human Rights Due Diligence is Not a New Game
Many companies approach due diligence processes as core to how they manage the environmental and social risks linked to their own operations and business relationships. They undertake due diligence to prevent, minimize, and mitigate harms not only as a good in and of itself, but also as good business practice. Furthermore, due diligence processes are necessary to comply with existing supply chain laws, such as those in France, Germany, and Norway, as well as those aimed at preventing the trade of goods made using forced labor. A recent poll by Amnesty International and Global Witness demonstrates that there is also widespread public support in the EU for such laws: three quarters of those polled believe large companies should be held accountable for human rights and environmental harms that occur in companies' value chains, and a majority expressed support for the CSDDD.
A recent Trends report analyzed five years of the Corporate Human Rights Benchmark, examining the state of play on companies’ efforts in five high risk sectors to meet their human rights responsibilities under the UN Guiding Principles on Business and Human Rights (UNGPs). During this time period, companies have evidenced clear progress on risk and impact identification in their own operations and supply chains, but they still struggle with assessing the saliency of those risks and with taking meaningful action to address them.
However, the importance of due diligence legislation is clear: Companies headquartered in countries with corporate human rights legislation score 60% higher on human rights due diligence related indicators. Those companies are on the pathway of success to accelerate their performance in addressing risks to people and the planet.
As things currently look, the Omnibus Simplification process may result in some alterations to the original scope of the CSDDD. However, large companies will likely still be covered although it remains to be seen how closely due diligence processes will align with international business and human rights frameworks, like the UNGPs and OECD Guidelines, and what accountability mechanisms will be put in place. What seems certain is that there will be an introduction of some sort of due diligence requirement which will trickle down through supply chains. Beyond the laws currently on the books in the EU, a number of other jurisdictions around the world are also considering either encouraging or mandating human rights and environmental due diligence. For example, in Asia, Thailand and South Korea recently introduced mandatory supply chain due diligence laws and Japan’s human rights due diligence guidelines have been adopted by numerous companies, with many requiring suppliers to demonstrate compliance. In South and North America, the Colombian, Mexican, and Canadian legislatures are considering due diligence laws, and in Africa, Kenya and South Africa, the continent’s largest economy, are drafting new laws.
Given these global trends, companies would benefit from forward looking harmonization at a sensible baseline that allows progressive implementation of due diligence over time, rather than supporting a race to the bottom. Indeed companies would be remiss not to start introducing their own policies, processes, and governance measures to undertake robust due diligence. To support these efforts, the Omnibus should establish a floor for human rights and environmental due diligence and not a ceiling.
Investors Care About Human Rights
Investors expect their portfolio companies to sufficiently identify and address their environmental and social risks and to be transparent about their efforts. In a statement last year signed by 267 investors representing over $7 trillion in assets under management, investors asked that companies demonstrate their respect for human rights across their operations and supply chains, including through disclosure of rigorous human rights due diligence processes in line with the UNGPs. In fact, it is the fiduciary duty of investors to understand if portfolio companies are sufficiently managing their risks; only with such information can investors make reasoned decisions on long-term, sustainable value creation for their clients and undertake their own risk management processes. As noted in a recent letter from 54 civil society organizations to members of the European Parliament, companies with high environmental, social, and governance (ESG) performance also perform better financially, with 2.6 times higher shareholder returns and 4.7 times higher operating margins.
In yet another statement in response to the Omnibus Simplification proposal, the 475 signatories - including 130 investors and financial institutions, 87 companies, 92 supporting organisations, and 166 service providers - note that EU sustainability rules promoting responsible business conduct are conducive to competitiveness and growth and translate to subsequent returns for investors. Companies implementing those rules will be more resilient to sustainability-related challenges and better able to communicate those challenges, as well as opportunities, to investors. Effective communication rests on good disclosures of ESG performance by portfolio companies; they are also essential for investors to meet their own sustainability disclosure requirements under EU and other jurisdictions’ rules.
The CSDDD Furthers Transatlantic Policy Priorities
Although several US lawmakers and Trump Administration officials have tried to create the impression that there is a generalized US pushback against the CSDDD, the law is intended to address concerns within corporate supply chains that are already significant policy priorities in the US. In the US, there is bipartisan agreement that ending forced labor in US trade is a policy priority. In January 2020, the US government published the first US government Trade Strategy to Combat Forced Labor. Section 307 of the Tariff Act of 1930, which has strong bipartisan support, prohibits imports of goods made in whole or in part using forced labor from entering US commerce. The Uyghur Forced Labor Prevention Act (UFLPA), which builds on the Tariff Act and presumes that imported goods made in the Xinjiang Uyghur Autonomous Region of China (XUAR) were made using forced labor, was passed in 2020 with bipartisan support. Under the UFLPA, goods made in the XUAR or by an entity on a list compiled by the Forced Labor Enforcement Task Force cannot be imported into the US unless the importer provides evidence–obtained through supply chain tracing and human rights due diligence–that their product was not made using forced labor. Through these laws, the US led the way in taking on forced labor through import bans, an approach that has resulted in success in prohibiting such goods from entering the US.
Customs and Border Patrol (CBP) currently has 61 active enforcement actions taken under Section 307 of the Tariff Act. Since 2022, CBP has detained 16,755 shipments valued at over $3 billion that it suspects violated the UFLPA. 10,462 of those shipments were denied entry into the US for failing to provide sufficient evidence that they were not in violation of the UFLPA. Despite the similarities in these laws, many of the same US lawmakers that oppose the CSDDD are supportive of the UFLPA and Section 307 of the Tariff Act.
In addition to advancing forced labor import ban legislation, US lawmakers have supported the advancement of such legislation around the world. The US-Mexico-Canada Agreement includes a requirement for state parties to implement and enforce laws to prohibit import of goods made using forced labor. Moreover, the EU enacted the Forced Labor Regulation (EU FLR) in December 2024 which “bans the sale, import and export of goods made using forced labour.” In August 2025, the EU and the US published the Joint Statement on a US-EU Framework on an Agreement on Reciprocal, Fair, and Balanced Trade which included a commitment “to work together to ensure strong protection of internationally recognized labor rights, including with regard to the elimination of forced labor in supply chains.” Oddly, the agreement includes a commitment to limit the impact of due diligence obligations in the CSDDD, although this commitment runs counter to the goal of eliminating forced labor in supply chains.
Similar to the CSDDD, forced labor import bans are intended to prevent supply chain abuses.To ensure full compliance with forced labor import bans such as Section 307 of the Tariff Act, the UFLPA, and the EU FLR, corporations must de facto conduct due diligence to ensure their supply chains are free of labor abuses that amount to forced labor. The CBP Forced Labor Division website includes resources for importers on due diligence and social compliance systems to facilitate compliance with the Tariff Act. The UFLPA advances forced labor import bans a step further, placing the burden of identifying and disclosing supply chain abuses on corporations. The CSDDD simply creates more formal structures for corporations to do this. Similarly, the EU FLR acknowledges that due diligence conducted in compliance with the CSDDD can supplement decisions to pursue an investigation under the EU FLR.
Conclusion
Despite the loudest voices calling for a “simplification” and dismantling of the CSDDD, the due diligence the CSDDD would require is already common practice among many corporations and part of the disclosures investors expect from companies to ensure their operations enable long term sustainable and rights-respecting economic growth. Moreover, despite pushback driven by some US lawmakers—no doubt an outcome of lobbying from companies in the fossil fuel industry, in particular ExxonMobil as a recent investigation revealed—the CSDDD stems from values that are shared by business leaders and civil society across the Atlantic. Like widely supported US laws such as the Tariff Act and UFLPA, the CSDDD is intended to combat abuses throughout corporate supply chains, such as forced labor, and hold corporations accountable when they do engage in and benefit from such abuses. The CSDDD requires large corporations to conduct the due diligence that corporations would already de facto need to do in order to comply with the Tariff Act and the UFLPA. Moreover, the CSDDD represents a step forward from these laws. As long as it remains aligned with international business and human rights frameworks, the CSDDD will provide clarity in a way that laws like the UFLPA do not. With these considerations in mind, one must wonder whether the pushback against the CSDDD is truly a result of its misalignment with policy goals or a capitulation to corporate pressure at the expense of shared policy priorities.