Feedback on the European Commission’s Omnibus proposal amending the Corporate Sustainability Due Diligence Directive (CSDDD)

Dear Mr Voss,

Thank you for the invitation to provide feedback on the recent Omnibus legislative proposal from the European Commission. Kumi advises the European Commission on the implementation of due diligence compliance requirements across several legislations; the EU Conflict Minerals Regulation, the EU Batteries Regulation, and the Critical Raw Materials Act. We also have a long-standing collaboration with the OECD on its due diligence framework, which underpins all EU mandatory due diligence requirements, including the Corporate Sustainability Due Diligence Directive (CSDDD). Kumi supports businesses of all sizes in the practical implementation of due diligence across various industry sectors and supply chain stages. We therefore provide our comments on the Omnibus proposal from a position of considerable expertise.

We fully support the goal of harmonising and simplifying EU sustainability legislation to reduce administrative burdens on businesses. We acknowledge that new regulations often require an initial investment from companies to adjust to compliance requirements. However, we believe that well-designed (smart) regulation strengthens businesses and economies, creating value that outweighs its costs. Smart regulation establishes a level playing field, enhances risk management, drives innovation, and unlocks new opportunities for market leadership and commercial success.

However, the current Omnibus proposal is not, in our view, an example of smart regulation. Moreover, in its current form, it is unlikely to achieve its intended objectives. We highlight three critical concerns that policymakers should consider as they evaluate the proposal:

1. REGULATORY DUE DILIGENCE REQUIREMENTS MUST ALIGN WITH ESTABLISHED INTERNATIONAL FRAMEWORKS

The UN Guiding Principles on Business and Human Rights (UNGPs) have set the standard for corporate human rights practices since 2011. The OECD’s Due Diligence Guidance on Responsible Business Conduct, in place since 2018, further operationalises the UNGPs for due diligence. These frameworks have long guided corporate and investor decision-making and will continue to do so, regardless of EU policymaking on the CSDDD.

For instance, there are over 5,000 signatories to the UN Principles for Responsible Investment, who have all committed to the UNGPs and collectively manage approximately $128 trillion in assets – more than four times the total assets under management in the EU. If the CSDDD is not aligned with the UNGPs and OECD Guidelines it risks losing international credibility while increasing bureaucracy and compliance costs for businesses. International companies will still adhere to the UNGPs and OECD Guidelines as their primary reference point, as expected by investors and other stakeholders, but will also have to implement parallel systems to comply with diverging EU legal requirements.

2. LIMITING DUE DILIGENCE THROUGH FOCUSING ON DIRECT (TIER ONE) SUPPLIERS OR EXCLUDING SME SUPPLIERS IS MISGUIDED

A requirement to prioritise due diligence activities on direct suppliers, or to not conduct due diligence on SME suppliers, contradicts the UNGPs and OECD guidelines which require due diligence prioritisation to be based on the severity and likelihood of the risk. It also means the CSDDD becomes a “paper tiger” – a bureaucratic exercise that provides no benefits to companies’ risk management efforts, and therefore no benefits to investors or other stakeholders, but nonetheless incurs substantial compliance costs for EU companies.

For most large EU companies, the most significant social and environmental risks lie further down the supply chain, not with direct suppliers. According to the UNGPs and OECD Guidelines, due diligence should be risk-based, prioritising areas where the greatest harm to people or the environment is likely to occur. Due diligence does not require companies to send extensive questionnaires to all suppliers or audit vast proportions of their supply chain – any company that is doing this has not read the international guidelines properly. Rather, due diligence involves thoughtful, targeted actions to identify and address real risks.

3. REMOVING CIVIL LIABILITY MAY WEAKEN EUROPEAN COMPANIES’ LEVERAGE OVER SUPPLIERS

Most large EU companies operate and compete in a global marketplace and have complex and highly globalised supply chains. The primary mechanism companies have to ensure supplier compliance with due diligence requirements is contractual leverage. When an EU company faces financial liability for a supplier’s non-compliance, it can establish contractual terms that impose financial penalties on that supplier, creating a clear incentive for compliance.

However, if the CSDDD removes civil liability for non-compliance, EU companies will lose this leverage. Suppliers may view compliance with EU buyers’ requests as optional, weakening EU companies’ negotiating position. This scenario is not hypothetical – some of our clients in strategic industries for the EU are already experiencing such challenges as a result of the current Omnibus discussions.

CONCLUSION

We reiterate our support for the harmonisation and simplification of EU sustainability legislation. However, it is essential that this process is approached thoughtfully and carefully. In its current form, the Omnibus proposal is poorly conceived and is likely to create more costs than benefits for European businesses.

We urge policymakers to reconsider key aspects of the proposal to ensure that it aligns with international frameworks, promotes effective risk-based due diligence, and does not inadvertently disadvantage European companies in global markets.

Yours sincerley,

Andrew Britton