CSDD Directive: Is the EU Opening the Door for Corruption?

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Originally published on the Euractiv website.

In her September State of the Union address, European Commission President Ursula von der Leyen was unequivocal about the harm corruption inflicts on democracies.

“Corruption erodes trust in our institutions. So we must fight back with the full force of the law,” she said. 

Combating corruption would be at the forefront of the Commission’s legislative agenda in the coming year, she added. Central to this agenda is transforming the impact that EU companies have on the planet.

The European Commission has recently initiated a raft of new laws spanning different areas – but all with the same broad aim of ensuring that EU companies are not complicit in environmental or human rights abuses around the world. 

From a historic regulation requiring companies to prove that their supply chains aren’t fueling global deforestation to a directive forcing companies to disclose their businesses’ social and environmental impacts, the momentum for companies operating out of the world’s largest trading bloc to behave responsibly and sustainably is growing – and has overwhelming public support.

A key weapon in this growing legislative armoury is the Corporate Sustainability Due Diligence Directive (CSDDD).

The proposed CSDDD text published by the European Commission earlier this year will require company directors to take into account the human rights, climate and environmental impacts of their businesses. It will apply not just to a company’s own operations, but its subsidiaries and supply chains, including direct and indirect business relationships.

The CSDDD is a potentially critical tool in tackling the damage caused by the extractive industries – which are responsible for half of the world’s carbon emissions and more than 80% of biodiversity loss. It could also help underpin the reforms needed for a just energy transition.

A breeding ground for corruption

Yet, as it stands, the proposed CSDDD has a glaring omission, which could undermine its effectiveness. Unlike other legislation the EU is pushing through to ensure its businesses behave responsibly around the world, the CSDDD proposal places no due diligence requirements on companies to tackle corruption.

This matters because corruption is often inextricably linked to human rights and environmental abuses. The absence of anti-corruption safeguards in its due diligence requirements can also have grave implications for energy and national security. 

Corruption is more prevalent in the extractives sector than any other: one in five transnational bribery cases involve extractives, and corruption often aggravates environmental, social, and human rights abuses. 

Meanwhile, Russia’s assault on Ukraine – and the energy crisis it has precipitated – has brutally exposed the perils of doing business with corrupt, kleptocratic and autocratic regimes. 

There are reports that European and US energy companies and commodity traders, including BP, Shell, Wintershall Dea, ExxonMobil, TotalEnergies, Equinor, OMV, and Trafigura, have contributed over $95 billion to the Russian government via oil and gas projects since the invasion of Crimea in 2014. 

Until August 2022, TotalEnergies held a 49% stake in a Russian gas field that allegedly provides fuel that ends up in Russian fighter jets. Investigators traced the Kerosene supply chain of two military bases, Morozovskaya and Malshevo, to the gas field in Siberia which TotalEnergies co-owned. 

Global Witness has also identified that BP will net an estimated £580 million this year from its nearly 20% stake in Rosneft, which it still holds despite promises to sell earlier this year.

Beyond Russia’s invasion of Ukraine, corruption has contributed to instability in many other parts of the world – and will continue to do so unless governments – with the help of international and regional institutions, and in collaboration with civil society – commit to more integrity, transparency and accountability along with strong and enforceable anticorruption policies.

Among the legion of examples, is the elite capture of South Sudan’s state-owned oil company, which helped divert oil revenues to security services and militias accused of serious human rights abuses. In Libya, the illicit trade of oil and gas directly funded armed groups, including those responsible for trafficking migrants across the Mediterranean.

Corruption breeds conditions that lead to social and political unrest, as well as environmental destruction. It deters responsible investment, and diverts revenues away from the public purse, preventing communities and populations from benefiting from such investments. 

The world is moving to a low-carbon future, and demand for the minerals used in green technology is skyrocketing. In this context, tackling the corruption that has blighted the extractive sector for so long is more crucial than ever. The CSDDD can and should play a role. 

To do so, however, it is vital that EU legislators strengthen the directive with specific governance and anti-corruption requirements: by adding a definition of ‘adverse governance impacts’ and including key anti-corruption conventions in the Directive’s Annex, they can boost the CSDDD’s ability to foster resilient and sustainable value chains in key high-risk economic sectors such as oil, gas and mining. With some amendments down on these issues, there is still hope.

The case for doing so is clear cut, the benefits potentially immense. On International Anti-Corruption Day, and in the year which marks the 20th anniversary of the UN Convention against Corruption, the time is well overdue for governments, the private sector and EU legislators to live up to their commitments – and translate Ursula von der Leyen’s fine words into action.