Chambre de Commerce
Further to the position papers and declaration statements of their respective European associations [1], this document constitutes the Luxembourg Chamber of Commerce’s and FEDIL’s additional contribution to the proposal for a Directive of the European parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 (hereafter referred to as the “Proposal” or the “Directive”).
I. Introduction
On 23 February 2022, the European Commission (hereafter the “Commission”) published its Proposal of a Corporate Sustainability Due Diligence. The Proposal imposes upon in-scope EU and non-EU companies farreaching obligations to set up and implement due diligence policies to identify, prevent or mitigate, and ultimately end, adverse impacts of their activities on human rights and the environment. The Proposal also introduces a specific obligation relating to climate change as well as a revised duty of care for directors regarding sustainability matters, along with a personal liability regime for directors of in-scope EU companies, actionable by stakeholders (as defined under the Directive).
The Chamber of Commerce of Luxembourg and FEDIL - The voice of Luxembourg's Industry, together with their members, understand the important role of due diligence in ensuring sustainability and respect of human rights and environment in business. We therefore welcome the initiative of the Commission to legislate at EU level for the purpose of establishing a harmonised legal framework.
However, the Proposal raises significant concerns, especially under the current conjuncture. Luxembourg industry and businesses managed to remain active during the years of the Covid pandemic, though not without struggles and slowdowns, where demand was low and so were profits. On top of that, the increasingly rising price of energy further aggravated the situation across various sectors of the economy. As if that was not challenging enough, the vile aggression of Russia against Ukraine and its consequences on the supply of energy, food and other materials weakened the economy more and more. In such a tense and unpredictable context, it the commendable legislative initiatives the EU has tabled under its Fit-for-55 package, and which businesses support, should also be considered as they are certainly posing harsh and expensive challenges to them. All these factors should be considered together. In light of this, it is clear that production as well as supply and logistics, have become fragile and costly and we therefore envisage that the implementation of the Directive, should it be adopted as proposed, would cause (or contribute to cause) the following consequences:
- difficulties to find raw materials, especially those mostly or exclusively located in 3rd countries, and to have access to energy sources, hence disruption of production and interruptions of supply chain which could ultimately result in shortages of related products and continuing price inflation;
- inconsistent application between and within EU Member States (hereafter “MS”) and absence of sufficient level playing field between EU companies and with regard to non-EU companies, due to unclarity and inconsistency of many key provisions and unjustified discrepancies between rules applicable to EU and non-EU companies;
- additional administrative, compliance and staff related costs for companies, due to the very broad span of obligations and the complexity of the rules proposed as well as due to the absence of uniform standards and support schemes;
- real negative impact on companies’ competitiveness, considering that out-of-scope non-EU companies, including competitors, will be significantly less affected - if not at all - by the Directive and may very likely benefit from the probable disengagement of EU companies from certain “problematic” non-EU jurisdictions, where violations of human rights and environment protection standards are continuing;
- high compliance costs and negative impact on companies’ competitiveness are expected to have important social costs, such as unemployment in the EU; and
- finally, it cannot be completely excluded that in-scope companies decide to relocate their business outside of the EU and stop providing goods and services in the EU. That would be merely the result of nonavailability or lack of raw materials and energy sources within the EU, and of an effort to avoid the significant costs that implementation of the Directive’s unfeasible due diligence obligations may entail, especially regarding certain “problematic” non-EU jurisdictions.
We therefore consider essential that the ongoing legislative procedure should aim at:
- avoiding additional fragmentation of internal market rules;
- ensuring uniform rules in all MS and adequate standardisation tailored to the specific sectors as well as consistency with existing frameworks;
- imposing proportionate, workable and enforceable rules on companies to effectively contribute to sustainable business conduct;
- mitigating any elevated risks associated with the implementation of the Proposal, such as price inflation, serious disruptions in certain supply chains and resulting critical shortages.
In addition to the current legislative action at EU level, we invite the EU Institutions and the MS to continue and increase their efforts at global level as well, in order to successfully associate all relevant actors, both European and non-European, in that same endeavour.
The Chamber of Commerce of Luxembourg and FEDIL - The voice of Luxembourg's Industry have drafted this joint position paper which contains an executive summary of our key messages on the Proposal (section II.) and a legal assessment of the main provisions of the text which have, or are likely to have, a significant impact for our members and their organisations, together with our key messages elaborated in detail (section III.).
[1] FEDIL is member of BusinessEurope; the Luxembourg Chamber of Commerce is member of Eurochambres.
Consult the full version of the proposition in the attachment below.