In April 2024, we published our inaugural DWF True Diligence thought leadership report where we shed light on how prepared business leaders were for addressing the human, social and environmental factors in the new EU Directive on Corporate Sustainability Due Diligence (CS3D) (EU/2014/1760). We reached out to 1200 C-Suite Leaders across six jurisdictions (notably, the UK, France, Germany, Italy, Poland and Spain) and six sectors (i.e. consumer and retail; energy; insurance; private equity; real estate; and transport and logistics).
We found a pronounced integrity gap between commitments made and actions taken on both human rights and environmental impacts. For example, 68% of Leaders stated that human rights is embedded in their core strategy yet only 14% have sought to identify modern slavery. We also discovered that only 27% of C-Suite Leaders understand the application of CS3D to their business, and 57% of C-Suite Leaders predict that their business will not comply with CS3D by 2030.
World Benchmarking Alliance Social Benchmark 2024
Earlier this month, the World Benchmarking Alliance (WBA) released its Social Benchmark 2024 Insights Report. The WBA assessed 2000 companies employing 95 million people worldwide and generating 45 trillion USD in revenue annually. They noted in the report that this is the equivalent of "45% of global GDP". They assessed these companies based on 18 indicators which aimed to measure their "contribution to a systemic transformation that leaves no one behind".
WBA adopted a seven systems transformation model which considered nature, decarbonisation and energy, food and agriculture, urban, digital, people and the financial system. More specifically, using 18 indicators, they measured the responsibility of companies to respect human rights, to provide and promote decent work and their ethical conduct (e.g. related to lobbying and tax).
The shared integrity gap
Not surprisingly the integrity gap we identified in our True Diligence report also emerged in the Social Benchmark 2024:
- 90% were not even halfway to meeting the fundamental expectations on these three key areas measured; overall, 24% respect human rights, 20% provide and promote decent work; and 23% act ethically.
- And only 1/5 of the 2000 companies conduct some steps in human rights due diligence, with only 6% fully meeting Human Rights Due Diligence Indicators.
To put frame this second statistic another way, 80% scored zero on the initial steps towards human rights due diligence – which will now be mandatory for many EU based companies through the CS3D and also indirectly to those business partners in their global chain of activities. Moreover, only 9% engaged with affected stakeholders, again an area of action mandated by CS3D and where there are significant penalties for non-compliance and opportunities for enhancing performance.
What is clear from both assessments is that a rapid step change is urgently needed by corporates to not only meet the requirements of the CS3D but stakeholder expectations in this new era of corporate responsibility.
What businesses need to do now
What can you do to get ready and be ahead of the curve on human rights and environmental due diligence (HREDD) and ensure you are meeting these fundamental social expectations? There are seven essential steps to effective CS3D implementation:
- Try our complimentary DWF CS3D tool to self-assess your readiness by contacting us directly below;
- Create a task force of your key internal stakeholders;
- Map your value chain with your subsidiaries and business partners;
- Highlight the human and social value impact of the CS3D requirements across your value chain;
- Identify what you are already doing;
- Undertake materiality assessments to ensure you are focused on the material and salient issues; and
- Design and implement a climate transition plan to address the just transition.
Even though the final application of CS3D will come into force in 2027, do not wait until then to start preparing. Companies must start now to engage proactively in due diligence processes and begin to establish measures - if not in place already - to comply with the law. Early preparation and adoption will not only position companies favourably with regulators and address societal expectations, it will also mitigate risks to financial performance, drive competitive advantage and enhance reputation.
Contact us to find out how we can help you get a head start.
