EU’s Sustainability Push on India

Context: The European Commission has adopted a proposal for a Directive on corporate sustainability due diligence.

• The European Union relaunched negotiations with India for a Free Trade Agreement, and launched separate negotiations for an Investment Protection Agreement and an Agreement on Geographical Indications (GIs).

About European Union:

• The European Union (EU) is a supranational political and economic union of 27 member states that are located primarily in Europe.
  • Branches of power
  • Executive Branch
  • European Council
  • It sets the broad political direction to the EU.
• It convenes at least four times a year and comprises the president of the European Council, the president of the European Commission and one representative per member state.
• European Commission:
  • It acts both as the EU’s executive arm, responsible for the day-to-day running of the EU, and also the legislative initiator, with the sole power to propose laws for debate.
• Legislative Branch:
  • European Parliament
  • Council of the European Union
  • European Commission
• Judicial Branch
  • The Court of Justice is the judicial branch of the European Union and consists of two courts:
  • Court of Justice and
  • General Court.

Importance of EU:

• The EU is India’s third largest trading partner, accounting for €88 billion worth of trade in goods in 2021 or 10.8% of total Indian trade.
• India is the EU’s 10th largest trading partner, accounting for 2.1% of EU total trade in goods.
• The EU predominantly purchases textiles (17.8%), chemicals (15%), machinery and electrical equipment (13%) and agricultural products (7.9%).
• About 6,000 European companies are present in India, which provide over 1.7 million direct jobs and 5 million indirect jobs across sectors.

About Directive on Corporate Sustainability Due Diligence (CSDC):

• The European Commission published a proposal for a Directive on Corporate Sustainability Due Diligence.
• It aims to foster sustainable and responsible corporate behavior throughout global value chains.

Applicability:

• EU limited liability companies:
• Group 1: with 500+ employees on average and a net worldwide turnover in excess of EUR 150 million in the last financial year.
• Group 2: not in Group 1 but operating in high-risk sectors, with more than 250 employees and a net worldwide turnover in excess of EUR 40 million in the last financial year.

Non-EU limited liability companies active in the EU:

• Group 1: with a net turnover in excess of EUR 150 million in the EU in the financial year preceding the last financial year;
• Group 2: not in Group 1 but with a net turnover in excess of EUR 40 million, but not exceeding EUR 150 million in the EU in the financial year preceding the last financial year.

Key Features

• It will require certain large EU and non-EU companies to set up mandatory due diligence practices to identify, prevent or mitigate, and ultimately terminate adverse impacts of their corporate activities on human rights and the environment.
• The EU Corporate Sustainability Due Diligence (CSDD) proposal is an important component of the European Green Deal towards a sustainable future.

Impacts of EU’s Sustainability:

• EU companies that are covered under the current form of the proposed directive are going above and beyond to protect themselves.
• They are putting in place robust mechanisms to mitigate any possible risks.
• This implies clear contractual clauses, establishment of complaint procedures, increased third-party assessments, and capacity building etc.

Issues associated with India:

• Child labour and trafficking in India.
  • As per the 2011 census, there were over 11 million child laborers in India.
  • Covid and its impact on economic security and education led to an increase in these numbers.
• A large number of these children fall somewhere within the blind spots of corporate supply chains.
• Gaps in prosecution for violations and rehabilitation of victims.

Way Forward:

• This is the right time for the government and corporations to evaluate our sustainability systems and improve on them transparently and objectively.
• Companies must establish clear and transparent contractual clauses with all tiers of suppliers, contractors and sub-contractors for risk assessment and mitigation, disclosure and remediation for human-rights violations.
• Internal audit and training exercises should filter to the lower tiers of the supply chain, where maximum risk lies.
• Companies can introduce greater technology and automation to help reduce tiers, informality and fragmentation in supply chains.
• Partnerships with third party experts and the government can help integrate existing best practices in their operations.

Source: LiveMint