The necessary shift of Due Diligence towards sustainability
In the context of the European Green Deal, EU law has seen rapid and significant developments, especially regarding sustainable corporate governance. The focus is on how companies manage environmental, social and governance issues, with legislation including the Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Regulation already adopted. The recent Corporate Sustainability Due Diligence Directive (CS3D), which has been provisionally agreed, stands out for its potential impact on multinationals active in the EU.
CS3D sets out a distinction between different categories of EU and non-EU company, imposing the adoption and implementation of effective due diligence policies. These policies must identify, prevent, mitigate and bring an end to real and potential human rights and environmental risks within their own operations, as well as their subsidiaries and, in certain cases, their business partners. In addition, companies must adopt a transition plan for the mitigation of climate change, in line with the Paris Agreement objective to limit global warming to 1.5 °C.
This regulatory approach introduces a new dimension to the concept of corporate responsibility, extending its reach beyond a company´s direct operations to the entire value chain. For the EU, the aim is to guarantee that companies make an active contribution to global sustainability, forcing a significant change in how due diligence is practiced in the corporate world.
Non-compliance with these new obligations not only carries the risk of significant administrative and financial penalties, but also civil liability claims for related damages. In this context, companies must prepare for a complete overhaul of their due diligence policies, making sustainability issues a key part of their risk management and business operation strategies.
This change brings challenges and opportunities for companies. Sustainable due diligence practices offer the possibility to raise resilience against ESG risks, improve companies´ reputation, and discover new market opportunities. Companies which are a step ahead in the implementation of solid due diligence policies will enjoy a strong position in an environment where consumers and investors demand greater transparency and commitment with sustainability.
However, the transition towards more sustainable and responsible due diligence practices is not easy. It requires a profound re-evaluation of business operations and the value chain, as well as significant investment in resources and inhouse capabilities. Companies must navigate a regulatory landscape which is constantly evolving, and adapt to new rules and stakeholder expectations.
In 2024, due diligence and sustainable corporate governance will remain areas of critical interest for EU companies. The adoption of the CS3D and related regulations will not only set new legal standards, but also drive companies towards greater sustainability and corporate responsibility.
In this context, the role of a highly-qualified team of legal and financial advisors such as Confiaz is vital. Our experience and expertise can guide companies through this complex regulatory landscape, ensuring not only compliance but the strategic integration of sustainability in the core of the company. Sustainable due diligence thus becomes an investment for the future, preparing companies to thrive in a global market which is more and more focused on sustainability.
Manuel Urrutia.
Managing Partner Confianz
