A few weeks ago, it seemed that the CSDDD—the Corporate Sustainability Due Diligence Directive—was a done deal. But this month has seen Germany and Finland deciding to abstain from a vote on the set of ESG rules—all but guaranteeing the legislation would not pass a vote. As a result, the vote was delayed for several days and then shelved indefinitely, and that’s where it sits today.

The CSDDD sought to bring all EU member states under a single set of rules when it comes to ESG (environmental, social, and governance) requirements for companies’ operations and supply chains.

It would specify due diligence obligations and require companies to measure, report and address any negative impacts on the environment or human rights that can be tied to their company.

CSDDD would also expand responsibility for a company down its supply chain, putting the onus on businesses to identify such violations and remove them from the equation.

This aimed to reduce the impacts of emissions, deforestation, and water usage, and when it came to human rights, the CSDDD targeted activities such as the use of forced labour or child labour. For many companies, the supply chain is where the majority of a company’s emissions reside, categorised as ‘Scope 3’ emissions. Similarly, forced labour is more often found closer to the raw materials harvesting and early-stage steps of a supply chain.

It’s important to note that many of these requirements, from the corporate office down the supply chain, are already in place across the EU; there’s just not a uniform set of rules, which is what the CSDDD set out to establish. Rather, a patchwork of ESG regulations exists now across the EU, with overlapping requirements and specifications. The German Supply Chain Act (LkSG), the Norwegian Supply Chain Transparency Act, and the UK’s Modern Slavery Act are all prominent regulations that companies doing business in the region must navigate.

No global act, think local

Given the low likelihood of an overarching directive like CSDDD anytime soon, the current, more localised directives will remain the main focus for the foreseeable future; companies that were hoping for a blanket set of rules they could tailor their operations to are out of luck, at least for the moment.

This fragmentation means increased operational and compliance costs while companies navigate and adhere to various regulations. Companies will place an increased emphasis on streamlining and automating their supplier management systems since manually collecting, analysing, and reporting emissions and other sustainability data throughout the supply chain is a cumbersome task. It’s even more so when that data needs to be parsed and reported in specific ways to differing governing bodies.

Companies doing business across the EU might find themselves leaning more heavily on voluntary ESG frameworks to guide their sustainability practices. The data that comes out of those frameworks might not match the reporting specifications of some countries’ directives, requiring additional data-gathering and relationship-management processes to be enacted.

While we wait and hope for the CSDDD to be revived, or for a similar EU-wide regulation to be enacted, existing directives like the Corporate Sustainability Reporting Directive (CSRD) will become more and more critical as guiding lights for companies operating in the EU.

Natalie Druckmann is the VP of EMEA at third-party management services provider Certa