Daniel Schönfelder is a lawyer and lecturer in BHR. He works as a European Legal Advisor for the Responsible Contracting Project and in-house on the implementation of the German Supply Chain Due Diligence Act.
Martijn Scheltema is a member of the Dutch Supreme Court Bar and partner of Pels Rijcken & Droogleever Fortuijn, where he chairs the business and human rights practice group. He is also a professor at Erasmus University Rotterdam.
- The tendency of risk- and responsibility-shifting via contracts
There is still a tendency of companies to use HREDD (Human Rights and Environmental Due Diligence) and contracting approaches that shift risks and responsibilities, rather than creating frameworks of effective collaboration on HREDD. This approach entails making a supplier entirely responsible for HREDD and terminating an agreement if adverse impacts are found. Companies may feel that this reduces the administrative burdens of implementing HREDD for them. The idea is that the supplier does all the work and, thus, less administrative burdens for the in-scope company. However, this approach is not in line with the CSDDD (2.), it raises the administrative burden for suppliers in a way that makes HREDD more difficult (3.) and therefore actually increases the administrative burden for companies implementing HREDD (4.). The approach envisioned by the European Model Contract Clauses (EMC), built on collaboration regarding HREDD, offers a better alternative, in line with the CSDDD (5.).
- The CSDDD requires shared responsibility and prohibits risk-shifting
The CSDDD confirms that companies shall use contractual provisions (assurances) to help prevent potential adverse impacts (Article 10(2)(b)), as well as to address actual adverse impacts (Article 11(3)(c)). The CSDDD does not, however, allow risk shifting via contracts. After all, these assurances should be designed in such a manner that the responsibilities are shared appropriately between the company and its business partners, with a clear allocation of tasks to facilitate ongoing cooperation between contracting parties that avoids the transfer of obligations.[1] The CSDDD also clarifies that companies should use contractual provisions with business partners to give weight to a company’s code of conduct and help ensure compliance, and that such provisions shall be “fair, reasonable and non-discriminatory” vis-à-vis SMEs (Articles 10(5) and 11(6)). Additionally, the CSDDD points out that irresponsible and harmful purchasing practices, especially regarding smaller companies must be tackled (Art. 10 (2d), 11 (3e)), by the necessary modifications to avoid that they facilitate a potential or actual adverse impact. In essence, this means that companies need to enable their suppliers to meet the human rights and environmental obligations by using their commercial power responsibly – they cannot simply shift the complete burden to them.[2] For example, prices paid must be fair and contribute to a living wage and income of (especially smaller) suppliers.[3] The CSDDD, therefore, clearly envisions a concept of collaborative HREDD, with buyers and suppliers both living up to their responsibility and improving human rights and environmental performance together.
- Risk shifting increases administrative burdens for suppliers
But risk and responsibility shifting is not only a violation of the CSDDD’s obligations. The assumption that risk shifting would reduce administrative burdens is also erroneous. It raises administrative burdens for suppliers, who may also be European based companies. The practice of many companies under the German Supply chain law has revealed that this is not a theoretical issue.[4] From the outset many German companies in scope of the German law have tried to shift risk to their suppliers. They used codes of conducts and contractual approaches that established obligations only for suppliers, often with termination rights that allow for immediate termination upon discovery of any adverse impact. This was accompanied by lengthy and untargeted questionnaires, which are quite time consuming for suppliers. It resulted in many suppliers perceiving the law as a “bureaucracy monster” that is all paperwork and no impact. Consequently, there was considerable political pushback that led to clarifications by BAFA that explained that shared responsibility and a risk-based approach, not risk-shifting are required.[5] Positively, this experience led to a very convincing regulatory response by the CSDDD – on the one hand, establishing the abovementioned requirements against risk-shifting via contracts, on the other, setting clear rules on the need for targeted questionnaires in the omnibus procedure.[6] In Norway, similar experiences as in Germany led to the official evaluation of the Transparency Act calling for consideration of Responsible Contracting approaches in the future to avoid overwhelming suppliers.[7] The problem of risk-shifting has also been identified in the French implementation of the Vigilance Law.[8] Smart implementation of CSDDD would build on these experiences and therefore embrace the principles on shared responsibility established by the CSDDD to avoid repeating mistakes.
- Risk shifting increases administrative burdens for in-scope companies
Maybe counterintuitively, risk shifting also creates higher (administrative) burdens for companies in scope of the CSDDD.
A risk-shifting approach when implementing the CSDDD risks turning HREDD into a formalistic bureaucratic process, creating paperwork for all parties involved but failing to create impact. Where supplier-only, strict obligations of no adverse impacts are established by contracts and accompanied by questionnaires and audits to control, suppliers are incentivized to hide, not address problems and refrain from effectively collaborating to meaningfully implement HREDD, because they would have to fear contracts being terminated upon identification of adverse impacts. This means that it will be harder for companies to fulfill the obligation of effective risk analysis and HREDD established by the CSDDD. This would in turn also make it harder to realize the potential commercial benefits of effective HREDD – recent studies have revealed that effective HREDD is likely to increase business financial performance.[9]
Companies would also risk damaging trust and resilience in their supply chains. Risk shifting does not incentivize a supplier to maintain and invest in the relationship with the in-scope company because they would have to fear termination at any time. Such a supplier would feel squeezed by overburdening requirements, especially if the in-scope company does not invest in collaboration and supplier commitment at all. In such cases a supplier has no incentive to improve. As a result, adverse impacts are less likely to be addressed by the supplier, because its ability to do so through collaboration is restricted. This may also increase costs of investigation faced by in scope companies, either in a preventative sense or when an actual adverse impact has occurred, because the supplier is less likely to disclose an adverse impact whereas it risks termination if it does so. It may also, where possible, exchange the in-scope company for another buyer, which does not impose such administrative burdens. Conversely, actual collaboration, responsible purchasing and capacity building on HREDD may shift some of the benefits of effective HREDD to the supplier, for example increased productivity, decrease of cost of training of workers or a decrease in financial burdens connected with lengthy payment periods, and incentivize it to maintain the relationship with the in-scope company.
A failure to undertake effective HREDD by the in-scope company may result in reputational risks and loss of consumer confidence, liability, fines, investigations and orders by supervisory authorities, as well as being expelled from public procurement and challenges in connection with export credit. In the most extreme cases, insufficient HREDD may even result in import bans under EUDR and EUFLR if poorly managed issues like child or forced labour in the supply chain remain unaddressed. NGOs or victims may submit substantiated concerns to supervisory authorities, file complaints with an OECD National Contact Points or initiate proceedings in civil courts. Even if regulation does not include import bans, like the CSDDD, cost of remediation of HREDD issues is higher if the issue has escalated,[10] rather than when it is well managed in an early stage in collaboration with a supplier that is willing to collaborate and to reveal issues because it does not face unrealistic expectations and termination but is contractually obliged to react cooperatively and receives benefits from this. What might, for buying companies, seem like an easy- quick fix of outsourcing the responsibilities to suppliers would therefore often come back to haunt them with legal and business risks.
- A shared responsibility approach to HREDD, as proposed by the EMC Working Group
We believe that the right way forward is, instead, a more realistic approach to contracting and HREDD that recognizes both the complexity of addressing human rights issues in supply chains and the need to address them as teamwork. Supply chains are complex and full of human rights and environmental challenges. The CSDDD recognizes this, not requiring perfection but risk analysis, prioritization and continuous improvement. More cannot be expected from suppliers and this is reflected in the EMCs.[11] Managing supply chain risks requires effective collaboration between the actors along the supply chain – where prices paid by buyers are not sufficient to cover living wages, no risk-shifting approach that requires suppliers to fix that alone can improve conditions. HREDD is teamwork, where buyers being fair business partners can enable meaningful improvements. This is why the EMCs establish a collaborative approach. Lastly, terminations upon any adverse impacts do not solve, but worsen human rights conditions, which is why our clauses formulate a right to responsible exit as a last resort.
Suggested citation: D Schönfelder and M Scheltema, ‘Shared responsibility in contracts on HREDD helps meet legal requirements and manage administrative burdens of HREDD effectively’, NOVA BHRE Blog, 10 July 2026
References:
[1] Recital 46 and 54 and 66 to Directive 1760/2024. In more detail, see e.g. Sarah Dadush, Daniel Schönfelder and Michaela Streibelt, What does the EU CSDDD say about contracts?, New York University Journal of Law and Business Vol. 21(2) 2025, p. 263-266; Sarah Dadush, Daniel Schönfelder and Bettina Braun, Contracts for Responsible and Sustainable Supply Chains: Model Contract Clauses, Legal Analysis, and Practical Perspectives, ABA Business Law Section 2023, Rutgers Law School Research Paper, available at SSRN: https://ssrn.com/abstract=4389817 and Martijn Scheltema, European model clauses and the corporate sustainability due diligence directive, In: Sustainability, due diligence and value chain governance (F. Cafaggi e.a. (red.), Londen: Edward Elgar 2025, p. 280-283.
[2] See also Recitals 46 and 54 of Directive 1760/2024. Recital 39 also clarifies that the code of conduct which is part of the HREDD policy of a company as required by Article 7(2)(b) should include a strategy to implement HREDD in purchasing decisions. Recitals 46 and 54 require purchasing policies which contribute to living wages and incomes for their suppliers, and that do not encourage potential adverse impacts. This may even involve addressing procurement practices of business partners as these, according to Article 8(1) and Recital 41, should be included in the risk assessments regarding adverse impact. These practices may be more prevalent in some sectors than others. Recital 47 specifically mentions agriculture. In this sector the EU has adopted a directive on unfair trade practices in agricultural supply chains, EU 2019/633, see on this, e.g., Martijn Scheltema, European Model Clauses for Supply Chain Contracts, In: Contracts for Responsible and Sustainable Supply Chains, Model Contract Clauses, Legal Analysis and Practical Perspectives (Susan Maslow and David Snyder (eds.)), American Bar Association 2023, p. 239-254, and especially para. 2. However, this directive does only partially address the adverse impacts the CSDDD aims to address but includes some of the purchasing practices mentioned in the previous paragraph. On Responsible Purchasing and the CSDDD in general, see: Daniel Schönfelder and Michaela Streibelt, Responsible purchasing and responsible procurement as part of HREDD – the example of the CSDDD (October 04, 2025). Available at SSRN: https://ssrn.com/abstract=5052020 or http://dx.doi.org/10.2139/ssrn.5052020.
[3] Recital 47 of Directive 1760/2024.
[4] See, for example https://www.wiwo.de/unternehmen/industrie/lieferkettengesetz-warum-sich-diese-mittelstaendler-mehr-regulierung-wuenschen/30242858.html and https://www.kmu-berater.de/lieferkettengesetz-mittelstand-wird-im-berichtspflichten-dschungel-allein-gelassen-waehrend-bruessel-das-problem-fuer-geloest-erklaert/.
[5] See BAFA, Guidance Collaboration in The Supply Chain (2023), available at: https://www.bafa.de/EN/Supply_Chain_Act/Collaboration_in_the_Supply_Chain/collaboration_in_the_supply_chain_node.html.
[6] In detail, see Sarah Dadush and Daniel Schönfelder, Moving Toward Shared Responsibility: How the EU’s CSDDD and Omnibus I Reimagine Contracting for Human Rights and Environmental Due Diligence, https://blogs.law.ox.ac.uk/oblb/blog-post/2026/05/moving-toward-shared-responsibility-how-eus-csddd-and-omnibus-i-reimagine.
[7] KPMG, Review of the effects of the Norwegian Transparency Act (2024) https://www.regjeringen.no/contentassets/4d85a42174994d23a9580c478dacea06/review-of-the-norwegian-transparency-act-kpmg.pdf, p. 45 about the burden for smaller companies, p. 46 with the recommendation of responsible contracting.
[8] Bpifrance, ORSE & PWC, ‘La RSE dans la relation client-fournisseur : innovation et résilience!’, 3ème édition du Baromètre achats responsables, October 2025 https://www.orse.org/publication/publication-3eme-edition-du-barometre-achats-responsables-la-rse-dans-la-relation-client-fournisseur-innovation-et-resilience.
[9] https://www.undp.org/publications/human-rights-vs-competitiveness-false-dilemma and https://www.coe.int/en/web/portal/-/first-council-of-europe-business-and-human-rights-forum-3.
[10] Cf. e.g. Shift, Community Engagement, Nature and Financial Materiality: An evidence review on the financial effects of engagement with Indigenous Peoples and local communities on nature-related issues, 2026, p. 21, 22, 29 and 30, accessible at Shift Report on Community Engagement, Nature and Financial Materiality – Shift.
[11] For a Zero Draft of the EMCs, see https://www.responsiblecontracting.org/emcs. Currently, the EMCs are being updated by the Working Group to reflect both feedback received in the consultation and the changes the Omnibus I procedure brought to the CSDDD.