The EU’s plan to impose new sustainability standards on the finance sector has sparked protests from some of its trade partners, who accuse Brussels of using its market power to impose its environmental and social agenda on the rest of the world.
EU proposes new due diligence directive for corporate sustainability
The EU is working on a new legislation, called the Corporate Sustainability Due Diligence Directive (CSDDD), that would require all companies operating in the bloc to assess and address the environmental and human rights impacts of their activities and supply chains. The directive would also introduce new civil liability and fines for companies that fail to comply with the rules.
The CSDDD is part of the EU’s Green Deal, a comprehensive strategy to achieve climate neutrality and sustainable development by 2050. The EU argues that the directive is necessary to ensure that its economic recovery from the COVID-19 pandemic is aligned with its green and social objectives, and to prevent unfair competition from countries with lower standards.
Trade partners fear new barriers and coercion from the EU
However, some of the EU’s trade partners, especially developing countries, have expressed concerns that the CSDDD would create new barriers and costs for their exports to the EU, and that the EU is trying to impose its values and norms on them without taking into account their different circumstances and priorities.
For example, Indonesia and Malaysia, the world’s largest producers of palm oil, have strongly opposed the CSDDD, arguing that it would discriminate against their products and harm their economies. Palm oil is widely used in food, cosmetics and biofuels, but its production has been linked to deforestation, biodiversity loss and human rights violations. The EU has already restricted the use of palm oil in biofuels, and the CSDDD could further limit its market access.
Indonesian President Joko Widodo told European leaders at the EU-ASEAN summit last month that there must be no coercion or dictation from the EU, and that the standards and criteria for sustainability should be agreed upon by all parties. Malaysia’s Prime Minister Ismail Sabri Yaakob threatened to stop exporting palm oil to the EU if the CSDDD is implemented.
Other countries, such as China, India, Brazil and South Africa, have also raised doubts about the CSDDD, questioning its compatibility with the World Trade Organization (WTO) rules and its impact on their sovereignty and development. They have urged the EU to consult and cooperate with them before adopting the directive, and to provide technical and financial assistance to help them comply with the new requirements.
EU defends its approach and seeks dialogue and cooperation
The EU has defended its approach, saying that the CSDDD is not meant to be a trade barrier or a tool for coercion, but a way to promote responsible business conduct and global sustainability. The EU has also stressed that the CSDDD is based on international standards and principles, such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, and that it respects the diversity and specificities of different countries and sectors.
The EU has also expressed its willingness to engage in dialogue and cooperation with its trade partners, and to support them in their transition to a greener and more inclusive economy. The EU has said that it will take into account the feedback and concerns of its trade partners in the finalization of the CSDDD, and that it will provide guidance and best practices for its implementation. The EU has also said that it will explore the possibility of creating incentives and preferential treatment for companies and countries that comply with the CSDDD.
The EU hopes to reach an agreement on the CSDDD by the end of this year, and to apply it from 2026. The CSDDD is expected to affect millions of companies and thousands of products, and to have significant implications for the global trade and investment landscape.
