Does the CS3D add to companies’ administrative burden?

The CS3D paves the way for a duty of care that is set to be imposed on eligible companies after a complicated parliamentary journey. The surplus of administrative hassles and the burden of responsibility that would be imposed are arguments put forward by opponents of the CS3D. Is this true? During a panel offered by Ecovadis at its annual international event Sustain, which brought together hundreds of procurement professionals from companies, Ksapa was able to contribute to these discussions and share a perspective drawn from many years of experience and projects on these issues in discussion with Greta Koch, Policy Adviser and Press Officer, Office of Axel Voss MEP, European Parliament.

1. Why the CS3D?

Countries sign International Agreements to protect the human rights of citizens and employees in companies. Various Conventions of the International Labor Organization, for example. Strictly speaking, this means that economic actors operating from signatory countries of these Agreements must respect their application.

In this context, the collapse on April 24, 2013, of the Rana Plaza building near Dhaka in Bangladesh, which resulted in over 1,100 deaths, ranks among the deadliest workplace disasters in history. This tragedy stands out radically due to its causes and reveals, beyond very low wages or poor working conditions, the extreme forms of production hidden behind globalization. Here, there were no coal mine accidents, explosions as in munitions factories, or toxic gas releases as in Bhopal. The horror was the simple collapse of a building, akin to hastily constructed shanties, without permits, to facilitate the subcontracting of orders from various international textile sector brands operating with companies whose headquarters were in different countries signatory to numerous international conventions that were effectively not respected.

In response, various regulatory initiatives have been put in place: the British Modern Slavery Act (2015), French duty of care (2017), German Lieferkettensorgfaltspflichtengesetz (2019)… These various regulatory initiatives – and Ksapa’s website is full of similar initiatives to learn more (California, Canada, Mongolia…) – have responded to various national debates aimed at strengthening the vigilance of economic actors in terms of respecting human rights for their employees and subcontracting. Starting from a good intention, these various initiatives have created, only within the European space, a rather directionally convergent regulatory mosaic, but different in detail in its scope of application, making implementation complex for companies.

In response, Ksapa works daily with various economic actors worldwide – large companies, management companies, institutional investors – to provide expertise and methodologies to return to the standards that structure these regulatory initiatives (UN Guiding Principles on Business & Human Rights, OECD RBC Standards, Paris Climate Accords now).

• Ksapa provides its clients with a risk mapping for human rights, health-safety, and the environment that the company or asset imposes on populations such as employees, subcontractors, or other potential victims of such potential violations (consumers, residents…).
• Ksapa develops action plans clarifying responsibilities within organizations, but also between organizations likely to share the burden of responsibility.
• Ksapa also designs and deploys programs in territories aimed at reducing identified risks among populations. These programs are deployed according to replicable patterns, designed for scalability and supported by digital tools ensuring impact measurement demonstrating the effective reduction of identified risks.

However, the regulatory framework for implementation is fragmented, and the number of companies engaging in such processes remains marginal. When it comes, for example, to clarifying a sharing of responsibility between economic actors, the absence of a consensual supranational regulatory framework does not facilitate awareness that ensures the fair contribution of all economic actors.

In this context, the CS3D was conceived as a European regulatory tool creating common rules clarifying the obligations of each as much as the expected burden of each. Far from being an administrative headache, the CS3D thus came as a lever to clarify roles and actions expected progressively by an entire ecosystem of European economic actors among themselves and in relation to their subcontracting.

2. What’s the point of applying CS3D?

The business world likes to talk about agility and proactivity. You need to innovate, anticipate consumer needs, detect new margin opportunities on products before competitors. You need to know before everyone else and make the most of it in improving your business model and managerial policies.

When the Rana Plaza incident occurred, it became evident at the same time how buyers were not doing their job and not applying these principles of agility and proactivity. The basis of the buyer’s work is to know in which industrial fabric they entrust their work to understand on what principles the supplier will ensure production in the quality, costs, and deadlines expected. By entrusting productions carried out in complex systems of cascading subcontracting chains, one can imagine that the buyer has an idea of the price at which they purchase their order. But they have no idea of the suppliers’ ability to guarantee deadlines and quality. Unsanitary conditions make meeting deadlines uncertain. Cascading subcontracting makes diluting technical specifications problematic for quality.

Thus, with the CS3D, the ethical question of a globalization that must respect human lives arises, but with the CS3D also arises the basic managerial question: why should the buyer be proactive in managing and finding interesting suppliers, but not equally proactive in avoiding having to manage Rana Plazas that are catastrophic for their supply chain at all levels: human, financial, etc.

So the CS3D now offers a regulatory framework that only encourages companies in general, and buyers in particular, to do their job proactively:

• Mapping risks carried on ecosystems revolving within and around the value chain.
• Questioning how procurement processes can better manage these risks in supplier selection, order management, supplier commitment to progress and make their subcontracting progress themselves.
• Reporting and encouraging other stakeholders (States and authorities, other companies in particular) to understand the risks and contribute to reducing them at their level as well.

3. Is it true that the CS3D would increase the legal responsibilities of eligible companies regarding their value chains?

This is the main criticism leveled at the CS3D and similar national regulations. In fact, this criticism can be approached in 2 ways:

• Either we say that indeed there is a complicated problem, so we might as well do nothing proactively and manage crises when they occur. The penal response that can come, for example, in the event of serious failures associated with the inadequacy of means implemented to ensure safety and respect for human rights can certainly be deterrent. So, this response makes no sense.
• Or we say that a law allows offering a regulatory framework gradually engaging all actors in value chains to exercise their own responsibility. Then the responsibility is not borne solely by the CAC40 company eligible for the CS3D, but by a whole fabric of SMEs operating in the sectors. The more ambitious the CS3D is, the better it is for the companies concerned.

Ksapa works on value chains and international sectors beyond the European Union. The question naturally arises as to why SMEs based in India or Brazil should feel concerned about the CS3D? It’s all a matter of argumentation and approach to the subjects – showing how human rights risks affect the quality / cost / deadline triptych. The CS3D, as a European regulatory initiative, also brings significant compliance weight as companies outside the EU wishing to continue transacting with companies based in the EU must gradually demonstrate their understanding and application of the standards advocated by the CS3D (UN Guiding Principles on Business & Human Rights, Paris Agreement on Climate). The CS3D thus becomes a competitiveness lever for SMEs in the Global South…

4. How does the CS3D create an additional administrative burden for the companies concerned?

Talking about administrative overload brought by the CS3D in a context where it only echoes other regulatory initiatives is a bit of a stretch.

• Over 50,000 companies in the European Union are gradually subject to the CSRD. The CSRD imposes a double materiality as the basis for ESG information disclosure. Double materiality includes an impact materiality component that relies on the same OECD and United Nations standards already mentioned to be successful. This exercise carried out within the framework of the CSRD largely addresses the expectations subsequently brought by the CS3D.
• Germany and France alone represent more than 42% of the GDP of the European Union and have national laws to which companies eligible for the CS3D must already comply. Again, it is not the CS3D that creates a surplus, but it comes as an extension of other initiatives already relatively well established.

Conclusion

The discussion held during the CS3D panel at Ecovadis’ 2024 Sustain event was rich in insights. The exchanges allowed exploring the various arguments against the CS3D to show, on the contrary, the relevance of this regulatory tool to clarify and facilitate the work of companies in general, and of procurement populations in particular in exercising their responsibility and influence on their peers and their sectors. Ksapa works on these issues and provides methodologies, expertise, and tools to support.

Find out more about Ksapa’s presentation at the Sustain annual conference : CSDDD: What You Need to Know Today | EcoVadis