EU’s Corporate Sustainability Due Diligence Directive (CSDDD): The EU’s sustainability directive may weaken trade ties

Source: The post EU’s Corporate Sustainability Due Diligence Directive (CSDDD) has been created, based on the article “The EU’s sustainability directive may weaken trade ties” published in “Live mints” on 3rd April 2024.

UPSC Syllabus Topic: GS Paper 2-International relations- Effect of policies and politics of developed and developing countries on India’s interests,

News: This article discusses the EU’s Corporate Sustainability Due Diligence Directive, which requires EU companies to be accountable for environmental and human rights issues in their supply chains.

What is the EU’s Corporate Sustainability Due Diligence Directive (CSDDD)?

The CSDDD is a new European Union directive focusing on corporate responsibility for environmental and human rights issues within supply chains.

The CSDDD demands adherence to international human rights laws and stringent environmental standards, including measures against pollution and deforestation.

While the CSDDD aims to promote sustainability, the current version is considered watered down, offering potential loopholes and lacking support for developing countries like India in meeting these high standards.

What are the issues with EU’s Corporate Sustainability Due Diligence Directive (CSDDD)?

Watered-Down Version: The adopted version of the CSDDD is criticized for being less stringent than the original proposal.

Higher Thresholds for Applicability: It raises the thresholds for industry applicability, potentially excluding smaller businesses from its scope.

“Obligation of Means” Clause: The directive mandates companies to implement “appropriate measures” for due diligence, which might be insufficient for actual impact mitigation.

Lack of Support for Developing Countries: It does not adequately address support for firms in developing countries, like those in India, that are expected to meet high sustainability standards.

Unaddressed External Constraints: The CSDDD overlooks external factual or legal constraints in third countries, which can hinder compliance.

What is India doing in response?

Adjusting to International Standards: India is modifying its supply chains and manufacturing processes to meet the CSDDD and CBAM requirements.

For information on Carbon Border Adjustment Mechanism (CBAM)  read here

Export Importance to the EU: The EU is a major destination for Indian exports, receiving 14.9% of them in 2021, highlighting the need for compliance with EU directives.

Involvement in IPEF: Through the Indo-Pacific Economic Framework, India is focusing on resilient and sustainable supply chain development.

Creation of Labour Rights Advisory Board: Under the IPEF, India is forming a Labour Rights Advisory Board, including workers, employers, and government representatives.

Drafting National Action Plan: India is working on a ‘zero draft’ National Action Plan for Business and Human Rights, incorporating human rights and environmental protection measures.

What are the impacts of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) on India?

Positive Impacts on India:

Attracting EU Investment: Compliance with the CSDDD could draw more foreign investment from the EU to India by adhering to human rights and environmental standards.

Promoting Sustainable Business: The directive can lead to sustainable business growth in India, aligning with global sustainability standards.

Negative Impacts on India:

Financial Burden: Indian exporters may face increased financial strain due to the need to align with the CSDDD’s stringent standards, on top of the EU’s Carbon Border Adjustment Mechanism.

Potential Loss of Business: There is a risk of losing EU business if Indian firms fail to comply with the CSDDD’s environmental and human rights requirements.

Challenges in Meeting Standards: Some Indian practices, like the Green Credits Programme, might not meet the CSDDD standards, indicating a gap between current domestic standards and those required by the directive.

Question for practice:

Evaluate the impact of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) on India.