A push for corporate sustainability in the EU

  • Article type News & articles
  • Publication date 10 May 2022

On 23rd February 2022, the European Commission (EC) adopted a proposal for a corporate sustainability due diligence directive. The landmark directive, if approved by the European Parliament and the Council, is meant to address the negative human rights and environmental impacts of the operations of EU companies and their subsidiaries and value chains.

The directive is explicitly inspired by international standards such as the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidance on Responsible Business Conduct and sectoral guidance. Accordingly, it sets out six steps of the due diligence process, which eligible companies that are either active or registered in the European Union (EU) will need to follow. These encompass (1) integrating due diligence into policies and management systems, (2) identifying and assessing adverse human rights and environmental impacts, (3) preventing, ceasing or minimising actual and potential adverse human rights, and environmental impacts, (4) assessing the effectiveness of measures, (5) communicating, (6) providing remediation.

The last of these steps entails the establishment of a “complaints procedure” which should allow persons and organisations to submit complaints directly to the companies in case of legitimate concerns regarding actual or potential human rights and environmental adverse impacts. The procedure for filing complaints should be communicated to workers, trade unions and other worker representatives. The form of such complaint procedures is not specified in the directive, but this requirement is closely related to the notion of grievance mechanisms as set out in the UNGPs.

The directive builds on other attempts to foster sustainable corporate governance including the Non-Financial Reporting Directive (NFRD), which imposed reporting requirements on approximately 12,000 companies in the EU concerning environmental, social and human rights related risks, impacts, measures (including due diligence) and policies. It also follows national laws adopted in France and Germany in 2017 and 2019, which required eligible companies to establish complaints procedures or “alert mechanisms” to address concerns about the environmental and social impacts of their operations.

Some have underlined some weaknesses within the EU proposal including the need to further integrate the perspectives of affected stakeholders in the development and monitoring of prevention and remedial action plans. However, the significance of the EC’s decision should not be underappreciated.

Grievance redress mechanism (GRM) were first instituted in the 1990s with the World Bank establishing its Inspection Panel in 1994. Since then, GRMs have spread to most international and regional financial institutions as well as other international organisations such as United Nations Development Programme. Requirements to create organisational-level grievance mechanisms are also becoming part of investor policies such as those of the Green Climate Fund and the Global Environmental Facility. Additionally, private sector companies are increasingly adopting the practice of establishing grievance mechanisms to manage the environmental and social impacts of their operations. The proposal adopted by the EC and previous national legislations in EU countries shows how this trend is starting to translate into legislative mandates. It also reflects the growing concerns of the public and states regarding the environmental and social impacts of the private sector and a recognition that voluntary actions have not been able to mitigate them.

As grievance mechanisms start burgeoning outside of the realm of development finance and international organisations, the need to build capacity will increase. The GRAM Community of Practice, for which the Independent Redress Mechanism serves as Secretariat, is one avenue for such capacity building. Notably, GRAM partners hold quarterly webinars for staff of GRMs of all sizes and independent experts and academics active in the field. You can view the 2021 webinars on the GRAM Partnership page of the IRM website. Similar events focusing on individual Performance Standards of the International Finance Corporation will be held this year to guide GRMs on how complaints relating to non-compliance with these standards can be handled.

Article prepared by Safaa Loukili Idrissi