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A collaborative approach is an important business strategy, and none other than the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) is espousing it.
The CSDDD, which came into force in July 2024, is the first binding regulation applicable in the entire European Union that mandates all companies doing business in the region conduct human rights and environmental due diligence across their operations and supply chains.
The directive, which includes both reporting and due diligence requirements, will affect about 5,000 EU companies and 1,000 non-EU companies. The CSDDD will be implemented in phases beginning 2027.
Meaningful Stakeholder Engagement
Collaboration in business entails leveraging and nurturing relationships with stakeholders to attain goals and objectives but also to find solutions to challenges. It requires effective communication, cooperation, and commitment to work together.
A “no stakeholder left behind” approach is crucial when complying with a regulation as complex as the CSDDD. Indeed, Article 13 of the CSDDD calls for a “meaningful engagement with stakeholders” throughout the due diligence process, especially in the following areas:
- When gathering the necessary information on actual or potential adverse impacts to identify, assess, and prioritize adverse impacts.
- When developing prevention and corrective action plans.
- When deciding to terminate or suspend a business relationship.
- When adopting appropriate measures to remediate adverse impacts.
- When developing qualitative and quantitative indicators for the required monitoring.
“At the end of the day, for the CSDDD to be useful, we should take a more collaborative, open-discussion approach,” said Nicola Bonucci, former director of legal affairs of the Organisation for Economic Cooperation and Development (OECD).
Bonucci, featured in a webinar presented by Ethixbase360 in June 2024, advised businesses to discuss CSDDD requirements with their value chain partners and board members. He also encouraged them to engage with civil society (non-governmental organizations, trade unions, advocacy groups, consumer groups) and to express their concerns about potential issues to national authorities.
Consistent with meaningful stakeholder engagement, Article 14 of the CSDDD requires companies to establish a notification mechanism and complaints procedure for addressing unethical behavior.
Complaints may be submitted by the people who are affected by an adverse impact, including workers or their representatives, according to the directive. Civil society organizations and human rights advocacy groups may also submit complaints pertaining to environmental adverse impacts.
The CSDDD went the extra mile by providing in Article 14 that complainants should be able to “meet with the company’s representatives at an appropriate level to discuss actual or potential severe adverse impacts.” And where the complaint is well-founded, the company should take appropriate measures to remediate the adverse impacts.
Continuous Improvement
Companies looking to engage stakeholders in their CSDDD compliance programs could learn a lot from the concept of virtuous cycle of continuous improvement in software and product development. Since software is constantly updated, proactive developers engage their users in the beta testing process. The more involved users are in catching bugs and functionality issues, the faster and easier it becomes to roll out software updates, which in turn leads to better buy-in from users in a virtuous cycle.
Likewise, engaging employees, upstream and downstream value chain partners, and other stakeholders in human rights due diligence processes could lead to more effective and efficient results.
Under Article 13 of the CSDDD, companies must provide stakeholders with “relevant and comprehensive information, in order to carry out effective and transparent consultations.” Stakeholders may also ask for additional information.
“In consulting stakeholders, companies shall identify and address barriers to engagement and shall ensure that participants are not the subject of retaliation or retribution, including by maintaining confidentiality or anonymity,” according to the directive.
All of these imply that regulators expect companies to make use of stakeholder engagement as much as possible and help value chain partners elevate their ethical standards instead of cutting and running in the face of possible third-party risk factors.
Facilitate Stakeholder Engagement
If your company is within the scope of the CSDDD, consider your stakeholders as potential collaboration partners instead of people you need to manage. A shift in mindset will help you appreciate the need to invest in your relationships with third parties over the long haul.
Identifying and managing third-party risks is not a one-time event but a continuous process in the vein of a virtuous cycle of improvement. A third party’s risk factors can sometimes change overnight because of external factors, such as geopolitical conflicts, disasters, and political or economic crisis.
Ethixbase360 facilitates stakeholder engagement and collaboration with its purpose-built third-party risk management platform and proportionate risk-based due diligence that can help you comply with the CSDDD and other human rights due diligence regulations.
The highly configurable platform will equip you with the right capabilities to dramatically reduce the time and effort in vetting third parties by engaging them directly in gathering information about them and validating the information through our analysts.
Contact us today and find out how to leverage proportionate risk-based due diligence in your compliance with the CSDDD and similar regulations
