The EU's CS3D Compromise of March 2024—Transnational Sedimentation of Sustainability Norms with Regard to Global Value Chains and Modern Slavery

The adoption of the much-anticipated Corporate Sustainability Due Diligence Directive (CS3D) by the European Parliament’s JURI Committee on March 19th, 2024 invites a reflection on the scope of the CS3D and its place in a wider context of national, international and private sustainability governance. This blog post summarizes the findings of one of the authors’ recent paper.

Anyone following national and international regulatory efforts directed at the identification, disclosure or eradication of modern slavery, forced and child labor, had to hold their breath in the early months of 2024. After years of careful work and negotiation, the draft for the European Union’s CS3D threatened to be watered down dramatically. After a key agreement was reached between the Council and Parliament in December 2023, the German Free Democratic Party (FDP) led the charge, eventually followed by several EU member states such as France and Italy, of withdrawing their support for the Directive. As a result, a significantly restricted version was eventually passed by the EU Parliament on 24 April 2024.

The accepted version of the Directive now only applies to a fraction of the companies originally targeted. While the original version would have applied to companies in the EU with more than 500 employees and an annual turnover of more than EUR 150M, the compromise version of March 2024 limits its application to companies with more than 1,000 employees and a turnover of EUR 450M. Meanwhile, the CS3D follows through on its proponents’ promise to design a law that addresses human rights, labour and environmental violations in a company’s upstream and downstream activities. In that respect, the Directive requires companies to report on their due diligence efforts with regard to identifying unsustainable practices on the levels of sourcing and production as well as with regard to transport, holding and waste removal. Furthermore, the CS3D’s original proposal to require large companies to adopt and put into effect a transition plan for climate change mitigation is still included but now limited to about a third of the originally envisioned companies.

The immediate predecessor to the EU Directive was Germany’s Supply Chain Act of 2021 (Lieferkettensorgfaltspflichtengesetz (LkSG), in force since 2023). One of its guiding motivations was the realization that only about 13 to 17 of German companies overall were undertaking any efforts to scrutinize their supply chains for human and labour rights violations and for environmentally unsustainable practices. About a year after coming into force, its efficacy will need to be assessed in relation to its enforcement and the outcome of judicial disputes.

Eventually succeeding in lobbying for the LkSG’s limitation for companies to develop due diligence practices with regard only to their direct suppliers, business lobby groups had repeatedly invoked ‘bureaucratic monstrosities’, burgeoning financial burdens for SMEs and other purportedly competition-harming effects of the advertised law. Similar business push-back certainly also accompanied the creation of comparable modern slavery and supply chain laws, including the, ultimately quite ineffective, 2010 California Transparency in Global Supply Chains Act, the UK’s Modern Slavery Act (MSA) of 2015, the French loi de vigilance (2017), the Dutch law against child labour (2019), Norway’s anti-slavery law (2021) and most recently the much-anticipated and arguably underwhelming Modern Slavery Law (Bill S-211) in Canada, 2023.

These laws predominantly focus on disclosure and information duties for companies but fall short on installing concrete liability rules—with the arguable exception of the French loi de vigilance and the EU’s CS3D. With a view to the wider context, in which laws on modern slavery, global value chains and sustainability are emerging, it is important to acknowledge the steady densifying and sedimentation of a body of rules, which mostly took the form of ‘soft law’, as with the so-called ‘Ruggie Principles’ and the Global Compact of the UN or the OECD’s Guidelines for Multinational Corporations. What emerges today is both a fragmented and, yet, sharper transnational regulatory landscape, as a result of the interplay of guidelines, principles and recommendations on the national, international as well as private organizational plane. And while these rules mainly still require greater degrees (only) of transparency and reporting, they contribute to creating a more critical public awareness and have been informing organizational change in financial and non-financial companies, law firms and other organizations. Add to that the information campaigns and transnational litigation cases initiated and led by non-governmental organizations such as Berlin’s ECCHR or the Global Legal Action Network (GLAN) in Ireland—their activities have long begun to reach an increasingly attentive global audience. In other words, issues of global value chain sustainability and environmental justice are no longer the preoccupations of specialists but influence a much broader political debate worldwide.

The EU’s CS3D is likely to have an important legal harmonization and ‘ratcheting up’ effect across the EU and arguably beyond. Like previous and contemporary national laws on modern slavery, the EU’s Directive is a milestone and reference for our children’s assessment of how hard we tried. In a context of a globally growing discontent with a capitalist system oriented around growth and greed, the Directive is of historical significance. It represents an important step in scandalizing and addressing the resurgence of nationalism, xenophobia, self-centredness and planetary destruction—even if backroom deals and their success in limiting the ambitious and inspiring initiative cast a certain shadow on the Directive’s approval.

The author’s full article can be found here.

Peer Zumbansen is a Professor of Business Law at McGill University Faculty of Law.

Phillip Paiement is a Professor of Law and Governance in the Anthropocene at Tilburg University School of Law.