On 23rd February, the European Commission published its CSDD proposal. PRI welcomes many aspects of the proposal but some improvements are needed. PRI is seeking signatory opinion and feedback to inform our engagement with policymakers and ensure an ambitious and achievable proposal aligned with EU sustainability goals.
The CSDD proposal is relevant to signatories in a number of ways:
1. It introduces mandatory corporate environmental and human rights due diligence
This will support investor’s sustainability assessments, enhance risk analysis and processes for impact mitigation, and provide greater understanding of company operations, throughout the value chain. It will also enable responsible investors to conduct better-informed engagement with investees, to respect human rights and give due consideration to environmental issues.
2. It applies to financial as well as non-financial companies
Therefore, there is a significant need to ensure coherency between CSDD/SFDR/Taxonomy and CSRD.
For example, under the CSDD proposal, financial undertakings’ due diligence only requires pre-investment assessments. This is a deviation from the way that due diligence is understood in the SFDR, UNGPs and OECD guidelines, and means that investors while complying with CSDD rules still risk being called out for irresponsible behaviour via other regimes (for example OECD National Contact Points).
3. It introduces requirements on director's duties and executive remuneration
Evidently, such corporate governance factors have a significant effect on the sustainbility performance and impact of investee companies.