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ClientEarth Communications

9th September 2021

European Green Deal
Rule of law

Companies in the EU are causing environmental damage – here’s how to fix it

Unsustainable business activities of companies operating in the EU market are contributing to environmental damage both at home and abroad, across many sectors such as food, fossil fuels, plastics and seafood.

These companies are causing harm through their own operations, and through the entire lifecycle of their products.

As the largest trading bloc in the world, the EU has a responsibility to address the massive environmental impact of companies operating in Europe.

To do this, a holistic approach at the EU level is needed to shape business conduct and ensure companies do not undermine the bloc’s sustainability ambitions. And business will benefit from clarity on this – if companies are compelled to tackle their climate footprint, for example, this will also help them remain resilient in the transition to net zero.

In a few months, the bloc will be unveiling a new legislative proposal on corporate due diligence, dealing with all of the responsibilities and processes for identifying, preventing, and mitigating adverse impacts within a business’s ‘value chain’ (which refers to the full lifecycle of a product or service: from when the materials are sourced, to when they are produced, consumed and eventually reused, recycled, or discarded).

ClientEarth lawyers say the new law must address adverse environmental impacts if it is to contribute effectively to the EU Green Deal and make the EU a global leader on the environment.

In a new briefing, lawyers recommend that the legislation must notably:

  • Cover all companies;
  • Cover entire value chains; and,
  • Ensure transparency and reporting.
All companies should undertake due diligence

It is tempting to apply due diligence legislation only to larger companies, but small and medium enterprises (SMEs) are also causing significant environmental damage.

If the law is going to be fit for its purpose of preventing environmental harm and human rights abuses, it must cover operators in all sectors, of all sizes.

The seafood sector illustrates how even the smallest companies can do harm. The cumulative impact of a dozen SMEs sourcing fish from a poorly managed fishery can have the same impact as a large business sourcing from that same fishery.

The environmental damage inflicted by fishing activities is broad, and big and small companies alike should be ensuring responsible sourcing and buying practices.

Critics have argued that making all companies undertake due diligence will negatively impact smaller businesses, by putting extra strain on them. But this can be overcome.

The EU law regulating illegal logging, for example, includes a due diligence obligation that applies to companies of all sizes. While some SMEs have found this a challenge, some governments are addressing it by providing smaller businesses with technical assistance and capacity-building training to make sure they are well-equipped.

“Ultimately, all businesses have a responsibility to respect human rights and mitigate environmental harm,” said ClientEarth Trade Lead Clotilde Henriot.

“The amount of due diligence each company has to carry out should depend on the risks and impacts in their specific value chain – but all businesses should have to do something, because no business is immune from these risks.”

Due diligence should apply accross the entire value chain

ClientEarth lawyers say that limiting due diligence requirements to a company’s operations, or even its direct suppliers, will leave out some of the most severe impacts.

Instead, due diligence should cover the entire life-cycle of a product: from material sourcing production all the way to reuse, recovery, recycling, or disposal.

The fossil fuel industry is infamous for refusing to properly address the largest segment of their environmental impact. The majority of greenhouse gas emissions from fossil fuels are produced when they are burned – referred to as Scope 3 emissions.

While Scope 3 emissions form 60-90% of their climate impact, companies often reject full responsibility for addressing these.

“The new legislative proposal must require due diligence to take place across a company’s entire value chain. This would underline that oil and gas companies must take proper account of their Scope 3 emissions, as well as other climate-damaging activities like methane leaks in their supply chains,” said Clotilde.

“Otherwise, businesses can claim to be sustainable, when in reality the lion’s share of the harm they are responsible for remains out of sight.”

This is also a key issue that affects plastic packaging.

Packaging represents the largest market for plastic production in Europe. Companies and outlets that sell food in disposable receptacles, like fast food restaurants, have an influence not just on the amount of single-use plastic placed on the market each year, but also on the behaviour of other actors in the value chain.

Allowing the due diligence process to begin after plastic has been produced, and end at the point of sale, will do nothing to disrupt the processing of fossil oil and gas to feed climate change.

Transparency and reporting are key for accountability

To be effective, the new legislation must require all companies to conduct, and report on, due diligence. The processes undertaken should be available on a company’s website, so consumers and the general public can understand what a business’s real impact is, and what the business is doing about it.

In the automotive industry, transparency and better reporting could incentivise companies to better address their environmental, climate and human rights impacts.

The ‘dieselgate’ scandal in 2015 revealed that almost all car manufacturers have been using emissions control strategies in their vehicles which cause engines to behave differently during laboratory emission tests compared to real world driving conditions.

This discrepancy is a major problem for EU air quality, and has a profound impact on human health.

Automotive companies should have to disclose how much pollution their cars emit, and what is being done to address the issue of polluting vehicles on our streets. They should also have to disclose the issues around battery production and reveal their supply chain.

Clotilde said: “The new legislation should specify, in detail, the elements that should be included in due diligence processes.

“Transparency and regular reporting can help consumers make informed choices, which in turn would drive up standards for reporting and due diligence.

“This would help bring an end to a system cloaked in secrecy. If the EU is committed to its Green Deal ambitions, a robust due diligence system is sorely needed to make business practices more sustainable.”

Photo credit: Unsplash / Andy Li