More of the same or true evolution?
Meaningful stakeholder consultation and the EU Corporate Sustainability Due Diligence Directive
As various authors already mentioned in their contributions in this blog symposium, article 13 the EU Corporate Sustainability Due Diligence Directive (CSDDD) contains an explicit, stand-alone due diligence obligation for companies to consult with stakeholders. This provision builds on the United Nations Guiding Principles on Business and Human Rights (UNGPs) and lays out the precautions companies must take to engage their stakeholders during their business operations.
In the following, we examine the provision on stakeholder engagement in the light of the UNGPs as its precursor, reflect on the legal meaning of “effectiveness” and “meaningfulness” of the agreement reached in the final text of the CSDDD and underline the importance of a rightsholder centred approach.
Consultations: What do the UNGPs say?
The CSDDD in Article 13 contains a stand-alone provision on engagement with stakeholders. Article 3 (n) CSDDD provides a substantive list of stakeholders, such as “individuals, groupings, communities or entities whose rights or interests could be affected (…)”. In 2011 the adoption of the UNGPs launched the concept of human rights due diligence (HRDD) as an essential, albeit non-binding, framework for companies to respect human rights. Accordingly, companies were asked to identify and assess any actual or potential adverse human rights impacts they may be linked to. Meaningful stakeholder consultation is part of the corporate responsibility to protect human rights within the UNGPs. Specifically, within the context of human rights risk identification and adverse human rights impact assessment, Principle 18(b) stipulates that companies should “involve meaningful consultation with potentially affected groups and other relevant stakeholders”. Per the Commentary of Principle 18(b), meaningful consultation relates to effective engagement; language, for instance, could be one potential barrier. However, the UNGPs do not offer further guidance, neither on other potential hurdles nor on a definition for effective engagement and how it differs from meaningful consultations.
What does the CSDDD say?
The CSDDD clearly goes beyond the UNGPs, while also building on them. Firstly, a stand-alone provision is dedicated to carrying out meaningful stakeholder engagement. Secondly, the CSDDD also regulates environmental due diligence, which expands the scope of engagement beyond human rights. While this expansion ensures that companies must consider and address environmental impacts in their operations and supply chains in general, it dismisses claims that stakeholder consultation is unnecessary when the environment is adversely impacted, emphasising the importance of engaging with stakeholders in such scenarios. Crucially, as binding law, the CSDDD innovates stakeholder engagement from a soft, compliance-oriented tool towards a hard legal obligation, which further outlines how engagement could be enforced, while also creating the potential for other legal implications such as proposing sanctions.
Article 13 of the CSDDD could be understood as a provision that sets out the precautions that should be taken when engaging with stakeholders. Therefore, one of the main requirements of the provision relate to information and the need for stakeholders to be familiar with the subject on which they will be consulted on. Indeed, information contained in technical reports and expressed in a language only known to specialists is inadequate to understand the full magnitude of all relevant impacts. Thus, per Article 13 (2) CSDDD, companies shall provide stakeholders with relevant and comprehensive information. Moreover, stakeholders can make a request for “relevant additional information”, which should be made available in an appropriate and comprehensible format. This element is paramount to effective engagement since stakeholders need to know the full magnitude about any impacts related to a company’s activities, whether positive or negative. To comply with article 13 CSDDD, access to information is crucial so that stakeholders can make informed decisions based on facts instead of having to navigate an asymmetry of information. Thus, regarding the quality of information made available to stakeholders, the CSDDD goes beyond the UNGPs by citing not only language, but adding requirements related to the amount, the quality and the transparency of the information. Other precautions that should be taken relate to guaranteeing anonymity and confidentiality to prevent participants from becoming subject to retaliation and retribution, as stated in Article 13 (5) CSDDD.
The issue of timing
As per the Commentary to Principle 18 of the UNGPs, identifying and assessing actual and potential human rights impacts should involve meaningful consultation and, regarding timing, companies should undertake this procedure at regular intervals, i.e.: prior to a new activity or relationship; prior to major decisions or changes in the operation; in response to or anticipation of changes in the operating environment; and periodically throughout the life of an activity or relationship. In fact, effective engagement can only be achieved if participation of those who may be impacted takes place at all stages of HREDD. It seems intuitive that the identification of risks should involve those who may be potentially or actually affected, particularly rights holders. Likewise, participation of stakeholders in the choice of means of prevention and reparation can increase the chances that adverse impacts will not occur as well as the satisfaction with remedies used. Article 13 (3) of the CSDDD accounts for the timing of consultations in a slightly different way. Consultation should take place when companies are: (a) gathering information on actual or potential adverse impacts to identify, assess and prioritise adverse impacts; (b) developing prevention and corrective action plans; (c) deciding to terminate or suspend a business relationship; (d) adopting measures to remediate adverse impacts; (e) developing qualitative and quantitative indicators for monitoring its processes. In other words, while the UNGPs place the need for meaningful consultation in specific moments of the business activities, the CSDDD requires its application throughout the whole due diligence process.
Challenges remain
Despite the progress made on stakeholder engagement by the CSDDD, conceptional and operational challenges remain. The text does not provide definitions for engagement and consultations, which can impede their operationalisation. Legal guidance on the operationalisation and implementation falls under the responsibility of the EU Commission and Member states. While engagement appears to be premised on precautions that must be taken regarding information and requires consultation throughout the due diligence process, the operationalisation of engagement with corresponding legal implications remain unclear. Of course, every business operation, potential harm, value chain and also the wishes of potentially or actually affected stakeholders are different. Therefore, it is difficult, if not harmful, to propose a singular engagement and consultation format. Yet, how can we know and measure that Article 13 has been adhered to successfully? Diving deeper on what a concept or a potential good practise for Article 13 could look like, it is useful to consider that effective engagement could be contingent on establishing the most appropriate procedure. Accordingly, a range of aspects may be relevant: who will be consulted, when and where will the consultation take place; how twill vulnerable and marginalized communities be included, who are often the most impacted yet the least consulted. Moreover, context-specific difficulties that require equally specific solutions, such as the presence of minors or representatives of vulnerable populations and the safety of the people consulted need to be addressed thoroughly.
Moreover, like the UNGPs, the CSDDD does not provide definitions on what constitutes “effectiveness” or “meaningfulness”. If these two terms should be understood as legal qualifiers, what are their elements and what should be the approach companies must adopt to apply them? All these considerations beg the question: should potentially and actually affected stakeholders be consulted, not only on the subject matter of the law, but on how companies can develop the best approach to designing and implementing engagement and consultation formats in the first place.
In addition, the failure to consult stakeholders according to Article 13 is not entailed in the civil liability provision as grounds for breach of HREDD that can lead to civil litigation. This could have provided additional legal avenues for affected stakeholders and their access to justice in case of human and environmental rights violations.
Conclusion: Listen to rights holders
The above-described considerations point to another remaining challenge regarding stakeholder engagement as provided for in the CSDDD: rights holders are not directly mentioned in the text. While Article 3 (n) CSDDD accounts for a substantive list of stakeholders, such as “individuals, groupings, communities or entities whose rights or interests could be affected (…)”. Rights holders are not expressly mentioned. Article 3 (n) does expand on the terminology of potentially and actually affected stakeholders as entailed in the UNGPs. However, a direct mention of those whose human rights should be respected and protected could have truly cemented that engagement and consultation should be understood as a rights holder centric obligation.
Yet, there is an opportunity to ensure that engagement and consultations can benefit rights holders by soliciting them on giving legal meaning to “effective” and “meaningful”. Neither the UNGPs nor the CSDDD indicate that stakeholders or rights holders should determine what the content of meaningful consultation or effective engagement is. However, the CSDDD does provide a significant opportunity to fill these important qualifiers with genuine meaning if rights holders themselves will be solicited. Endeavouring to ask questions to rights holders and to listen to them can be a path to determine how to measure effective and meaningful engagement and consultation. In doing so, participatory approaches must be applied, which in turn requires time and shifting the perspective to collaboration and centring the views of rights holders.
The authors have been collaborating on a multi-disciplinary research project on defining effectiveness regarding engagement and meaningful consultation through the eyes of rights holders. Qualitative data collection and analysis is being carried out with experts, NGOs representatives and rights holders in Latin America and in East Africa, aiming to fill these concepts in a way that makes sense to rights holders.