On August 6, ISDA responded to the European Commission’s (EC) consultation on due diligence guidelines under the Corporate Sustainability Due Diligence Directive (CSDDD). While ISDA acknowledges that model contractual clauses can be a helpful resource for in-scope companies, there are limits on what a model clause can achieve in the context of ensuring effective due diligence. Any model clause should provide a framework to support in-scope companies in collaborating with business partners on effective due diligence, rather than seeking to impose a contractual version of the due diligence obligations under CSDDD on firms that are not otherwise within scope. A model clause should offer drafting options for firms but should not be presented as a blueprint that must be followed to achieve compliance, as the range of in-scope relationships, relative negotiating power and criticality of the relationship to either party will vary significantly so that a one-size-fits-all model clause is unlikely to be suitable for any relationship.

The response sets out detailed comments on the EC’s proposed approach and flags the risks that may arise if model clauses seek to duplicate the CSDDD due diligence obligations, including potentially closing off access to certain suppliers for in-scope companies.