Obligation to end and remediate adverse impacts

In our sixth blog post on Directive (EU) 2024/1760 regarding corporate sustainability due diligence (“CS3D”), we reflect on how the obligations to end and remediate the adverse impacts on human rights and the environment are developed under CS3D. This reflection will lead us to out-of-court remediation mechanisms beyond financial compensation.

In this post, we analyze three elements that must be considered together:

• the tandem of ending and remediating adverse impacts;
• the engagement with stakeholders for determining appropriate measures for ending and remediating adverse impacts; and
• the obligation to have internal complaints and remediation mechanisms that coexist with access to judicial remedy.

Access previous publications in this series here:

• Post | The CS3D in perspective
• Post | Who does the CS3D affect?
• Post | Legal interests protected by the CS3D.
• Post | Risk-based approach
• Post | The Shell case and its potential implications for corporate due diligence
  
  

Tandem of ending and remediating adverse impacts  

When adverse impacts on human rights and the environment occur, the CS3D obliges companies to bring to and end and remediate these impacts.

• Article 11 requires companies to bring  to an end the real adverse impacts through the adoption of “appropriate measures.” These measures will depend on the following different elements:
• who causes the impacts (the company alone or jointly with another player),
• where the impact occurs (in companies’ own operations or in those of their subsidiaries, or in their chain of activities), and
• companies’ ability to influence the business partner solely responsible for causing the adverse impact.

Appropriate measures include (article 11.3) ending the specific adverse impact (immediately and, if this is not possible, through a corrective action plan), but also investment, adjustments and improvements in design, production and purchasing processes, and in facilities, as well as seeking contractual assurances from business partners; termination of the business relationship is a last resort (see Post | Who does the CS3D affect?). Also, article 11.3 includes the remediation as an obligatory measure in line with article 12.

• Article 12 regulates the remediation obligation. If a company has caused or jointly caused an actual adverse impact, it must provide remediation. If a company has not caused an actual adverse impact, it can provide voluntary remediation, but it is not an obligation.
  
  Remediation is defined (article3.t) as follows: “means restoration of the affected person or persons, communities or environment to a situation equivalent or as close as possible to the situation they would have been in had an actual adverse impact not occurred.” Recital 58 CS3D and the mentioned article 3.t indicate that remediation can be financial and non financial.

This means that the tandem of ending and remediating adverse impacts occurs when the company has caused or jointly caused an actual adverse impact. On the contrary, if the adverse impact is caused only by the company’s business partner, the company must implement the appropriate measures to end the impact by using its ability to influence, but it is not itself obliged to provide remediation.

Consultation and out-of-court claim mechanisms

In application of article 13, the measures for ending and remediating adverse impacts must be the result of consultation and meaningful engagement with relevant stakeholders. This means the following:

• When consulting with stakeholders, companies must provide them with relevant and comprehensive information, to ensure effective and transparent consultations.
• Companies can consult with independent experts when considered necessary to obtain appropriate information.
• Companies must identify and address barriers to engagement and ensure confidentiality or anonymity to avoid retaliation.

Also, article 14 regulates the notification mechanism and internal complaints procedures:

• Companies must have a notification channel for natural or legal persons who are affected by an adverse impact, as well as for civil society organizations and trade unions.    
• Companies must establish a fair, publicly available, accessible, predictable, and transparent procedure for dealing with the complaints.
• Companies must take appropriate measures in line with articles 11 and 12 through a reasoned decision.

This means that the ending and remediation of adverse impacts is not simply decided on an individual basis; it requires organized and transparent dialog with relevant stakeholders through a pre-established procedure.

Obligation to provide remediation and co-existence with the public supervisory system, and system for the civil liability of companies for damages

The obligation to provide remediation of actual adverse impacts under article 12—and developed in the internal mechanism regulated in articles 13 and 14—coexists with other state mechanisms for monitoring compliance with companies’ obligations under CS3D:

• Supervision by public specialized bodies that are competent to enforce the fulfillment of the obligation to provide remediation (articles 24 to 28).
• Access to an effective judicial remedy for damage caused in the case of an intentional or negligent breach of obligations to prevent or bring to an end potential or real adverse effects (article 29), which is not subject to the condition of there being a prior complaint using the corporate internal mechanisms established in article 14.

This co-existence is not a new development introduced by CS3D. We see co-existence in the United Nations Guiding Principles on Business and Human Rights (principles 28 to 31) and in chapter IV of the OECD Guidelines for Multinational Enterprises (2023 revised version). Both documents point out that internal corporate complaints and remediation procedures enable (i) the participation of and dialog between the parties to reach consensual and effective solutions, (ii) learning, and (iii) quicker identification and direct remediation by companies. They can complement other solutions and resources offered by states.

Therefore, the coexistence of the corporate obligation to provide remediation with public—administrative and judicial—intervention does not seem to be an innovation by the lawmaker. However, the need to ensure the appropriate coordination of these mechanisms cannot be overlooked.

Concluding thoughts 

• The tandem of ending and remediating adverse impacts under CS3D indicates that financial compensation will not be the only tool when there are adverse impacts on human rights and the environment.
• The measures for ending and remediating damage must result from a process involving the infringer, the victim and the stakeholders. Also, the measures established in article 11 indicate looking beyond the particular and specific facts, aimed at preventing re-occurrence in a context where it is quite probable that the economic activity will continue, and the communities or persons affected will not want it to disappear.
• This regulation reminds us of the restorative systems that go beyond economic damage, which also cover the non-financial remediation and the rebuilding of trust through internal private means, but which run parallel to the administrative supervision (because they do not replace or remove it) established in articles 24 and following, and the access to judicial remedy regulated in article 29.
• The co-existence of these private processes for ending and remediating adverse impacts with administrative and judicial processes calls for a careful design, both by the Member States when they transpose CS3D into their national legal systems and by companies, to ensure legal certainty for all parties.

In our next post, we will reflect on the impact of the obligations to prevent, mitigate, end and provide remediation on the business relationships between companies and their business partners.  

Watch this space for more updates.