The new EU Directive: Responsible investment can support peace

Our Head of Peace Economies Veronica Stratford-Tuke unpacks the significance of this new landmark legislation. The full text of this article is available here.

As pressures rise for countries around the world to achieve economic growth and progress the Green Energy Transition, fragile and conflict-affected settings provide critical and untapped environments for companies and governments.  These places are often resource-abundant, including wind, solar and hydropower, and offer new areas for entrepreneurs to meet unmet demands for products and services.

Approached wisely, multinational company operations in these areas can actively contribute to peace, supporting the conditions for lasting growth and prosperity.

At International Alert, we’re excited about the opportunity that the new European Union Corporate Sustainability Due Diligence Directive (EU CSDDD) provides for large companies to invest responsibly in emerging economies while supporting peace and social justice for communities. International Alert was at the forefront advocating inclusions on conflict-affected settings, working with our coalition of partners from nongovernmental organisations and United Nations agencies.

But we know the EU CSDDD’s success in making an impact on the ground and in communities will depend on its thoughtful and meaningful implementation. Here’s how communities, governments, and companies can work together to make this happen.

What is the new Directive about, and what does it mean for economic growth in fragile areas?

The EU CSDDD was passed in May 2024, giving EU Member States two years to put the new requirements into national laws and regulations. As a result, large companies (with a net turnover of 450 million euros and over 1,000 employees) operating or based in the EU, as well as companies in their value chains, will have to tailor their due diligence checks to conflict-affected and high-risk areas. The EU is now working on guidance for how to undertake these checks.

The Directive is a landmark, bringing EU legislation in line with international standards of responsible business, including the UN Guiding Principles and International Alert guidance on conflict-sensitive business. However, if the EU takes these standards seriously, there is room to address loopholes (e.g. the exclusion of the financial and arms sectors) in subsequent reviews.

Why does this matter?

When done well, due diligence tailored to conflict-affected areas will tell companies what is happening in their supply chain and social context.

This is especially important in fragile contexts where companies face more complex risks, including on human rights and social justice. Companies can then design ways to manage these risks and support a more stable operating environment. This approach is the foundation for growing company operations, increasing government revenue, and supporting peace, inclusion and justice for communities. This ‘peace positive’ approach creates a win-win for everyone.

However, how it’s implemented is vital to the EU Directive’s ability to deliver on its potential.

How can businesses, governments and communities cooperate for peace and prosperity?

Local communities are crucial but often overlooked partners for governments and businesses. Through community-level projects in Kenya, Uganda, and Ethiopia, International Alert supports communities, multinational companies, and governments in working together to address grievances, advance people’s rights, and build trust. In exchange, community members have become reliable sources of information for multinational companies when dealing with grievances and providing local intelligence. These mechanisms work when governments ask companies for them, and local communities have a meaningful seat at the table.

Community benefit-sharing mechanisms are another way to directly reduce company risks and create community benefits, provided they respond fairly to people’s aspirations. For example, in Kipeto Energy Limited’s Wind Power Project in Kenya, companies, local communities, and the government came together to negotiate a 5% share of the company. Revenues went to a Community Trust, alongside agreements to protect communities from losing their land.

By empowering the local community in an inclusive way, governments and companies can support an environment whereby businesses and people flourish.

There are more promising stories. Local mediators are advising multinational companies on community engagement, and companies are investing in local livelihoods and fair access to skills training. These ethical practices build companies’ social licences to operate, giving them a competitive edge over exploitative companies that can face community backlash.

Interested to find out more about possible next steps for putting the new EU Directive into action? You can access the full version of the article on our website.