There seems to be an international system of impunity that has been protecting multinational companies from liability for decades and continues today. In 1992, the U.S. oil company Texaco committed in Ecuador one of the worst cases of human rights violations in the country’s history due to environmental and health impacts derived from oil extraction. It seriously contaminated communities, rivers, soil and air. The case, which was brought by affected communities before courts in Ecuador and the United States, has brought little justice to the communities, as Chevron, Texaco’s parent company, has refused to accept responsibility. Instead, the State of Ecuador is facing the payment of multi-million dollar compensation as a result of an arbitration process under the global investment protection system. These cases have triggered demands from civil society for binding regulations for companies in relation to the environment and human rights. Recent outcomes from the Global North, however, feel one-sided, absent of the voices of the Global South, who suffer the consequences of European corporate practices.

The directive: an ambitious bet that falls short

On May 24 of this year, the European Council approved and gave its final signature to the Corporate Sustainability Due Diligence Directive (CSDDD), which then became law. In the context of human rights, corporate due diligence is a process that companies undertake to identify, prevent and mitigate any harm that their operations or supply chain may cause to people, human rights and the environment. Although the directive aspires to integrate human rights and sustainability obligations for companies in member states, its drafting and development have revealed a disconnect with the societies most affected by business activity: it prioritizes a preventative approach and ignores the involvement of civil society.

The previous parliamentary negotiation ended up deflating several ambitious proposals. For example, the threshold requirement of employees and turnover was increased, which, in practice, means excluding a good number of companies and affecting only the largest ones, which represent barely 0.5% of all European companies. It also limited the concept of “value chain”, especially for the financial sector and its clients. This means that such companies are not obliged to conduct due diligence on the impact of their investments on human rights and the environment, limiting the possibility for these investors and financiers to positively influence the guarantee of rights in the activities carried out with these resources.

The Directive raises, among others, three relevant issues. First, that companies with more than 1,000 employees and 459 million euros in turnover must establish due diligence processes: that is, identify, prevent, mitigate and remedy actual or potential impacts on human rights and the environment in their activities and those of part of their “value chain”. Second, national public institutions have the responsibility to supervise, evaluate the annual reports of these companies, and have the ability to impose administrative fines and even disqualify them from contracting with the State. Third, it makes corporate civil liability possible, allowing judges to impose precautionary measures and even demand the disclosure of relevant information to determine their liability.

The missing voice of the Global South

Although this decision was celebrated as historic and innovative by some human rights organizations that demand a binding regime of corporate obligations, the final text, unfortunately, reflects neither the demands for effective mechanisms of reparation, nor greater participation of civil society, especially victims in the Global South. This unilateral and Northern view has at least two major effects on the content and perspective of the regulation: first, a prioritization of the preventive approach and responsible corporate behavior, and, second, an absence of active and binding participation of civil society in an asymmetrical global governance model.

On the one hand, while civil society in the South and communities affected by corporate activity clamor for fair reparations and access to justice, the recently approved European directive takes the precautionary approach of the “due diligence obligation”, focusing more on processes than on outcomes and remediation. According to Article 22, the civil liability of the company arises only if a causal connection between the company’s lack of diligence and the violation of human or environmental rights is demonstrated. This “willfulness or negligence” raises the evidentiary standard on the causal nexus of harm, and opens the possibility for diligence reports to exonerate companies civilly for damages arising from their activities or those of their value chain. Furthermore, this provision is based on a paradigm of “corporate self-regulation”, where companies themselves supervise compliance, making reparations for affected communities difficult, since the directive does not directly address violations, but rather corporate negligence.

The Directive also reflects an absence of civil society participation, where civil society has a central active role in the creation and implementation of this regulation. This is, in any case, neither a new nor an isolated criticism. A similar argument was made about the polycentric and experimental governance model proposed by John Ruggie for the 2011 Guiding Principles on Business and Human Rights, which promotes cumulative change through multiple regulatory nodes at different levels (national, international), but draws a passive role of this civil society limited to seeking redress. It was also seen in the restrictive interpretation of the mandate of the Working Group on Business and Human Rights, which, despite being a UN special procedure, chose not to receive individual complaints for violations of these Principles, although in recent years this has been changing. A shift in corporate due diligence in this direction should directly involve civil society from the initial discussion and regulation process to the monitoring of implementation, with the possibility of parallel reports, spaces for dialogue and follow-up, policy evaluation, or enforcement of sanctions.

In sum, although an important group of victims and organizations see, with good reason, due diligence as an insufficient framework for addressing systematic human rights violations in the Global South, the EU directive is a crucial step on the road to holding companies accountable for their environmental and human rights impacts, even if its composition remains weak and uneven. Despite the fact that most corporate violations are concentrated in the countries of the South, the drafting of regulations continues to come from the North, for the most part unilaterally and focused on the prevention of violations. While this directive positions Europe as a “moral beacon” in the field of business and human rights, it is essential to empower local and affected actors to encourage truly polycentric and plural governance. This is fundamental to inform the international processes taking place, such as the negotiations for a Binding Treaty on Business and Human Rights from the United Nations.