Corporates face supply chain challenges and potential civil liabilities as Ferma calls for clearer definitions

Ferma has provided feedback to the European Commission on its corporate sustainability due diligence (CSDD) proposals.

European risk managers welcome the European Commission’s proposal to achieve more sustainable governance for big companies but warn about its possible practical challenges, according to the Federation of European Risk Managers (Ferma). 

Ferma says it believes a corporate culture that embraces ERM is a fundamental factor for sustainability but warns the Commission about two shortcomings in its proposal:

  • The practical difficulties in implementing the due diligence process in the value chain; and,
  • The uncertain implications related to the civil liability dimension of the proposal.

Ferma is particularly concerned about what the proposed rules could mean when it comes to the value chain, its implementation, and practical consequences, specifically:

  • The likelihood of high business consequences in implementing the due diligence process to the letter (companies might have to end business with suppliers operating in countries that fail to comply with environmental or human rights requirements)
  • An information problem in terms of availability, access and processing for companies
  • An evidence problem for companies to demonstrate their compliance with the CSDD requirements

The risk association suggests that the focus of due diligence obligations should be more risk-based and focused on direct suppliers. 

This could be done through a “cascade process”, where each company would oblige (by contractual agreement, for example) their direct suppliers (tier I) to apply the same due diligence process on the suppliers of their suppliers (tier II), and so on.

Ferma is also concerned about the civil liability implications for companies. 

“The lack of clear definition of damage and the room left for Member States to elaborate the liability framework may cause uncertainties and create an unlevel playing field for companies,” it notes.

“Therefore, Ferma calls on the European Commission to elaborate a minimum harmonised framework as it concerns the CSDD at EU-level in order to minimise gaps across EU Member States and to be clearer regarding the notion of damage.”