The EU’s sustainability directive may weaken trade ties

livemint.com:

The European Council recently approved the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), a due-diligence requirement that creates a legal liability for EU-based firms arising from any environmental and human-rights violations (including labour rights) within their supply chains. The CSDDD awaits a nod from the European Parliament, which is going for elections in June. Indian exporters are still grappling with the European Union’s Carbon Border Adjustment Mechanism (CBAM) that will effectively tax our carbon-intensive industries serving EU markets.

The CSDDD might not only add to that financial burden, but also result in a loss of EU business for Indian firms. The EU directive aims to anchor human rights and environmental considerations in the operations and corporate governance of companies. The new mandate is expected to have a ripple effect.

It extends to the operations of companies and their subsidiaries, including all activities along their value chain, thereby covering both upstream and downstream business partners. Upstream business partners include suppliers of goods and providers of services to a compliance-bound company—be it related to design, extraction, sourcing or the manufacture of a product or fulfilment of a service—among others. Many industries in developed countries rely on suppliers in the Global South for reasons like cheap labour, business incentives for the set-up of manufacturing units in other countries and other cost advantages that can allow competitive pricing.