Corporate sustainability due diligence

The impact assessment (IA) accompanying the proposal on corporate sustainability due diligence received two negative opinions from the Commission's Regulatory Scrutiny Board. Additional evidence was provided in a follow-up document to the Board's second opinion, explaining how the IA's preferred options were revised in the proposal, but no change was made to the IA itself. The IA cannot therefore be read without this follow-up document. It also makes the analysis quite difficult to follow, as evidence is split between several documents that are not consistent. Overall, this IA is well substantiated with economic literature and analysis reports, including two supporting studies from 2020. The IA is transparent on the methods, assumptions and limitations of the analysis. The IA refers to stakeholders' views fairly consistently, but it seems that only a limited number of stakeholders from third and especially developing countries were consulted. The problem identified in the IA covers two dimensions of sustainable corporate governance, and the objectives defined are directly linked to the problem. In the IA, policy options are identified across three areas: corporate due diligence, directors' duties and their remuneration. The IA focuses on the assessment of the economic impact. Costs are estimated for companies and public authorities, while expected benefits are described in a qualitative way. Other types of impacts (social, environmental, and on human rights) that are particularly relevant in this initiative, are analysed less extensively. The Commission made efforts to take account of comments from the RSB, but some weaknesses remain. To respond to proportionality concerns from the Board, the IA's preferred options were revised. However, different alternatives could have been compared for the revision of the IA's preferred options. As revised in the proposal, the options focus on the due diligence duty, leaving out part of the directors' duties and of the rules on directors' remuneration. The objectives were also revised, focusing on one (the external) dimension of the problem. As the number of companies under the scope of application was reduced under the revised options from up to 70 000 estimated in the IA to around 12 000 EU companies (in addition to 4 000 non-EU companies), the costs for companies were significantly reduced and recalculated in the follow-up document. The analysis of impacts on third and developing countries was also 'complemented' in the follow-up to RSB comments, but this assessment would have benefited from more attention, given the strong external dimension of the proposal. For future monitoring and evaluation of the initiative, the indicators envisaged, as well as the related timelines and target would benefit from clarification.