How might the EU Directive on Corporate Sustainability impact Kazakhstan?

November 21, 2023

In the era of globalisation, the role of business in upholding human rights is becoming increasingly significant. Europe has already clarified its stance by introducing laws that require companies to be more accountable in this area. But what will this mean for businesses in Kazakhstan, and what does it imply for our companies? In this article, we will explore how European legislative initiatives could affect the operations of enterprises in Kazakhstan and why our companies and legislators must pay special attention to this.

The Impact of Business on Human Rights

In today’s world, the role of business in society is becoming increasingly significant. Business entities, from large corporations to small enterprises, significantly influence the social, economic, and cultural development of communities. However, such an impact can be dualistic.

On the one hand, business activities contribute to economic growth, create jobs, and promote technological advancement and innovation. Businesses often act as catalysts for educational and social projects, and sponsor cultural and scientific initiatives, making community life richer and more diverse.

On the other hand, not all businesses strive to conduct their operations responsibly. The exploitation of workers, including the use of child labour, has become a serious problem in some countries. Workers, deprived of their rights, often work in conditions that pose risks to their health, for extremely low wages.

Environmental issues are also a pressing concern for businesses. Some companies, disregarding standards of environmental safety, cause irreparable damage to the environment. Chemical spills, thoughtless resource use, water and air pollution – these are the outcomes of enterprises indifferent to nature.

Moreover, business can impact the availability of basic goods. For example, when large corporations control resources such as water or electricity, the prices may become prohibitively high for the local population.

Ultimately, business operations can bring both benefit and harm to communities. The importance of corporate social responsibility in the modern world cannot be underestimated.

UN Guiding Principles on Business and Human Rights

Over time, it has become clear that active business and societal engagement require clear rules and guidelines to preserve human rights. In response to modern challenges, the UN introduced the ‘Guiding Principles on Business and Human Rights’ in 2011, which were unanimously adopted by the Human Rights Council. This document is the culmination of a deep understanding of the need to respect human rights at all levels of business, from local entrepreneurs to global corporations.

These principles serve as a compass for states and enterprises, pointing the way to ensuring and protecting the fundamental rights of citizens. Based on the principle of conducting due diligence, companies are required to identify and mitigate risks associated with human rights violations. This includes not only internal audits but also training staff on human rights respect, as well as monitoring the activities of their suppliers to ensure compliance with international standards.

The ‘Guiding Principles’ do not merely demonstrate the international community's desire to improve the situation in this sphere. They are the foundation for creating a new era of business where human rights occupy a central place, ensuring fair and sustainable development at the global level.

European Experience in the Responsibility of Business

States, in turn, are called upon to take active measures to regulate businesses to protect their citizens from potential harm. Examples of such activity have been legislative initiatives in several countries aimed at combating the exploitation of workers, ensuring safe working conditions, and prohibiting child labour.

In recent years, Germany has actively come to the forefront of initiatives to integrate human rights into business processes. It all started with the ‘Act on Due Diligence in Supply Chains’, announced in December 2019 by the country's ministers of labour and development. This period was marked by intense debates on legislative regulation, especially after a company survey revealed that only 22 percent of them met the requirements of the German National Action Plan on Business and Human Rights.

On 11 June 2021, after numerous discussions and amendments, the law was passed and came into force on 1 January 2023. According to this law, large companies (3,000+ employees from 2023 and 1,000+ employees from 2024) are required to identify risks of human rights violations by their direct and, under certain conditions, indirect suppliers. Non-compliance with these obligations could result in fines from the Federal Office for Economic Affairs and Export Control (BAFA), and parties affected by violations can demand active measures from BAFA. 

France also actively demonstrates its commitment to the principles of corporate social responsibility, reflected in the adoption of the 2017 ‘Duty of Vigilance’ law. This progressive legislation is designed to encourage major French corporations to take an active role in preventing human rights abuses and environmental risks. The law requires companies with more than 5,000 employees in France or more than 10,000 employees globally to develop and publish a ‘Vigilance Plan’ that includes effective measures to identify and prevent risks in these areas.

Such measures include mapping potential risks, mechanisms for responding to alerts, as well as a system for monitoring and evaluating actions. If a company ignores or violates these requirements, it faces formal notice and, subsequently, legal action. Furthermore, the law allows victims to bring claims against companies for damages that could have been prevented if the corporate strategy had complied with the requirements of the ‘Vigilance Plan’.

Norway is also among the countries actively promoting corporate responsibility. In August 2018, based on two parliamentary decisions, Norway established an Ethical Information Committee. Its mission was to explore potential legislation aimed at increasing transparency in companies' actions concerning human rights. By November 2019, a draft law on supply chain transparency had been presented. In April 2021, this draft law transformed into the ‘Act on Business Transparency and Work with Fundamental Human Rights and Decent Work’, which came into force on July 1, 2022. The essence of the law is to require companies operating or marketing their products in Norway to conduct checks based on the principles of due diligence and to report on this publicly.

These legislative innovations serve as a vivid example of the importance of implementing international human rights standards into business operations.

EU Directive on Corporate Sustainability: What is it and how might it affect Kazakhstan?

The European Union has always aimed for its economic actions to be responsible and transparent. According to European legislation, all large and public companies (with some exceptions for micro-enterprises) must disclose information about the social and environmental risks and opportunities of their activities, as well as their impact on people and the environment. Such measures help investors, NGOs, consumers, and other stakeholders to assess the sustainability level of companies.

On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) came into effect. This new regulation intensifies the requirements for information that companies must provide about their social and environmental impacts. Now a broader range of large companies, as well as public small and medium-sized enterprises, are required to report on their sustainability. The first companies will start applying these new rules in 2024, publishing reports in 2025.

Kazakhstani companies that cooperate with European partners or wish to enter the EU market must be prepared for a new level of requirements regarding corporate sustainability and transparency. Considering that the Directive expands the scope of enterprises subject to reporting requirements, even Kazakhstani suppliers dealing with small and medium-sized European companies may face requests for detailed information about their environmental and social practices. Furthermore, investors and partners from the EU will be looking for evidence that companies comply with the sustainability standards adopted under the CSRD. Thus, Kazakhstani businesses may need to revise their internal procedures and strategies in the field of sustainability to meet the expectations and requirements of European stakeholders.

"Business and human rights" are not just trendy words, but a current agenda for the global business community. The European experience shows an active movement towards creating a more responsible and transparent business environment, where corporate interests harmoniously combine with respect for human rights and the environment. For Kazakhstan, which is striving to strengthen its economic ties with Europe and modernize its business landscape, learning from this experience and adapting to new standards could be the key to a successful future where business supports and respects fundamental human rights.