2.4 Partnership approach to communication & problem solving

Article 8, Identifying and assessing actual and potential adverse impacts

8.1. Member States shall ensure that companies take appropriate measures to identify and assess actual and potential adverse impacts arising from their own operations or those of their subsidiaries and, where related to their chains of activities, those of their business partners, in accordance with this Article.

8.2. As part of the obligation set out in paragraph 1, taking into account relevant risk factors, companies shall take appropriate measures to:

(a) map their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners, in order to identify general areas where adverse impacts are most likely to occur and to be most severe; (b) based on the results of the mapping as referred to in point (a), carry out an in-depth assessment of their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners, in the areas where adverse impacts were identified to be most likely to occur and most severe.

8.3. Member States shall ensure that, for the purposes of identifying and assessing the adverse impacts referred to in paragraph 1 based on, where appropriate, quantitative and qualitative information, companies are entitled to make use of appropriate resources, including independent reports and information gathered through the notification mechanism and the complaints procedure provided for in Article 14.

8.4. Where information necessary for the in-depth assessment provided for in paragraph 2, point (b), can be obtained from business partners at different levels of the chain of activities, the company shall prioritise requesting such information, where reasonable, directly from business partners where the adverse impacts are most likely to occur

Article 10, Preventing potential adverse impacts

10.1. Member States shall ensure that companies take appropriate measures to prevent, or where prevention is not possible or not immediately possible, adequately mitigate, potential adverse impacts that have been, or should have been, identified pursuant to Article 8, in accordance with Article 9 and with this Article. To determine the appropriate measures referred to in the first subparagraph, due account shall be taken of:

(a) whether the potential adverse impact may be caused only by the company; whether it may be caused jointly by the company and a subsidiary or business partner, through acts or omissions; or whether it may be caused only by a company’s business partner in the chain of activities; (b) whether the potential adverse impact may occur in the operations of a subsidiary, direct business partner or indirect business partner; and (c) the ability of the company to influence the business partner that may cause or jointly cause the potential adverse impact.

10.2. (e) provide targeted and proportionate support to an SME which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME, by providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing.

10.3. Companies may take, where relevant, appropriate measures in addition to the measures listed in paragraph 2, such as engaging with a business partner about the company’s expectations with regard to preventing and mitigating potential adverse impacts, or providing or enabling access to capacity-building, guidance, administrative and financial support such as loans or financing, while taking into consideration the resources, knowledge and constraints of the business partner.

4. As regards potential adverse impacts that could not be prevented or adequately mitigated by the appropriate measures listed in paragraph 2, the company may seek contractual assurances from an indirect business partner, with a view to achieving compliance with the company’s code of conduct or a prevention action plan. When such contractual assurances are obtained, paragraph 5 shall apply.

5. The contractual assurances referred to in paragraph 2, point (b), and in paragraph 4, shall be accompanied by appropriate measures to verify compliance. For the purposes of verifying compliance, the company may refer to independent third-party verification, including through industry or multi-stakeholder initiatives.

When contractual assurances are obtained from, or a contract is entered into with, an SME, the terms used shall be fair, reasonable and non-discriminatory. The company shall also assess whether the contractual assurances of an SME should be accompanied by any of the appropriate measures for SMEs referred to in paragraph 2, point (e). Where measures to verify compliance are carried out in relation to SMEs, the company shall bear the cost of the independent third-party verification. 

Where the SME requests to pay at least a part of the cost of the independent third-party verification, or in agreement with the company, that SME may share the results of such verification with other companies

Article 11, Bringing actual adverse impacts to an end

11. 1. Member States shall ensure that companies take appropriate measures to bring actual adverse impacts that have been, or should have been, identified pursuant to Article 8 to an end, in accordance with Article 9 and with this Article.

To determine the appropriate measures referred to in the first subparagraph, due account shall be taken of:

(a) whether the actual adverse impact is caused only by the company; whether it is caused jointly by the company and a subsidiary or business partner, through acts or omissions; or whether it is caused only by a company’s business partner in the chain of activities; (b) whether the actual adverse impact occurred in the operations of a subsidiary, direct business partner or indirect business partner; and (c) the ability of the company to influence the business partner that caused or jointly caused the actual adverse impact.

11.3 Companies shall be required to take the following appropriate measures, where relevant:

(a) neutralise the adverse impact or minimise its extent; such measures shall be proportionate to the severity of the adverse impact and to the company’s implication in the adverse impact; (b) where necessary due to the fact that the adverse impact cannot be immediately brought to an end, without undue delay develop and implement a corrective action plan with reasonable and clearly defined timelines for the implementation of appropriate measures and qualitative and quantitative indicators for measuring improvement; companies may develop their action plans in cooperation with industry or multi-stakeholder initiatives; the corrective action plan shall be adapted to companies’ operations and chains of activities; (c) seek contractual assurances from a direct business partner that it will ensure compliance with the company’s code of conduct and, as necessary, a corrective action plan, including by establishing corresponding contractual assurances from its partners, to the extent that their activities are part of the company’s chain of activities; when such contractual assurances are obtained, paragraph 6 shall apply; (d) make necessary financial or non-financial investments in, adjustments or upgrades of, for example, facilities, production or other operational processes and infrastructures; (e) make necessary modifications of, or improvements to, the company’s own business plan, overall strategies and operations, including purchasing practices, design and distribution practices; (f) provide targeted and proportionate support to an SME which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the corrective action plan would jeopardise the viability of the SME, by providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing; (g) in compliance with Union law, including competition law, collaborate with other entities, including, where relevant, in order to increase the company’s ability to bring the adverse impact to an end or minimise the extent of such impact, in particular where no other measure is suitable or effective; (h) provide remediation in accordance with Article 12.

11.4 Companies may take, where relevant, appropriate measures in addition to the measures listed in paragraph 3, such as engaging with a business partner about the company’s expectations with regard to bringing actual adverse impacts to an end or minimising the extent of such impacts, or providing or enabling access to capacity-building, guidance, administrative and financial support such as loans or financing, while taking into consideration the resources, knowledge and constraints of the business partner.

Article 12, Remediation of actual adverse impacts

1. Member States shall ensure that, where a company has caused or jointly caused an actual adverse impact, the company provides remediation.

2. Where the actual adverse impact is caused only by the company’s business partner, voluntary remediation may be provided by the company. The company may also use its ability to influence the business partner that is causing the adverse  impact to provide remediation

Article 13, Meaningful engagement with stakeholders.

13.1. Member States shall ensure that companies take appropriate measures to carry out effective engagement with stakeholders, in accordance with this Article.

13.3. Consultation of stakeholders shall take place at the following stages of the due diligence process:

(a) when gathering the necessary information on actual or potential adverse impacts, in order to identify, assess and prioritise adverse impacts pursuant to Articles 8 and 9;

13.4. Where it is not reasonably possible to carry out effective engagement with stakeholders to the extent necessary to comply with the requirements of this Directive, companies shall consult additionally with experts who can provide credible insights into actual or potential adverse impacts.

13.5. 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.

13.6. Member States shall ensure that companies are allowed to fulfil the obligations laid down in this Article through industry or multi-stakeholder initiatives, as appropriate, provided that the consultation procedures meet the requirements set out in this Article. The use of industry and multi-stakeholder initiatives shall not be sufficient to fulfil the obligation to consult the company’s own employees and their representatives.

Recital 38 

In order to conduct appropriate human rights and environmental due diligence with respect to their operations, the operations of their subsidiaries, and the operations of their business partners in the chains of activities of the companies, companies covered by this Directive should integrate due diligence into their policies and risk management systems, identify and assess, where necessary prioritise, prevent and mitigate as well as bring to an end and minimise the extent of actual and potential adverse human rights and environmental impacts, provide remediation in relation to actual adverse impacts, carry out meaningful engagement with stakeholders, establish and maintain a notification mechanism and complaints procedure, monitor the effectiveness of the measures taken in accordance with the requirements that are provided for in this Directive and communicate publicly on their due diligence. In order to ensure clarity for companies, in particular the steps of preventing and mitigating potential adverse impacts and of bringing to an end, or when this is not possible, minimising the extent of actual adverse impacts, should be clearly distinguished in this Directive.

Recital 39

In order to ensure that due diligence forms part of companies’ policies and risk management systems, and in line with the relevant international framework, companies should integrate due diligence into their relevant policies and risk management systems and at all relevant levels of operation, and have in place a due diligence policy. The due diligence policy should be developed in prior consultation with the company’s employees and their representatives and should contain a description of the company’s approach, including in the long term, to due diligence, a code of conduct describing the rules and principles to be followed throughout the company and its subsidiaries, and, where relevant, the company’s direct or indirect business partners and a description of the processes put in place to integrate due diligence into the relevant policies and to carry out due diligence, including the measures taken to verify compliance with the code of conduct and to extend its application to business partners. The due diligence policy should ensure a risk-based due diligence. The code of conduct should apply in all relevant corporate functions and operations, including procurement, employment and purchasing decisions. For the purposes of this Directive, employees should be understood as including temporary agency workers, and other workers in non-standard forms of employment provided that they fulfil the criteria for determining the status of worker established by the CJEU.

Recital 46 
 

Companies should also provide targeted and proportionate support for a small and medium-sized enterprise (SME) which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME, providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing. The notion of ‘jeopardising the viability of an SME’ should be interpreted as possibly causing a bankruptcy of the SME or putting the SME in a situation where bankruptcy is imminent.

Recital 47
 

Tackling harmful purchasing practices and price pressures on producers, particularly smaller operators is especially important in relation to sales of agricultural and food products. In order to address the power imbalances in the agricultural sector and ensure fair prices at all links in the food supply chain and strengthen the position of farmers, large food processors and retailers should adapt their purchasing practices, and develop and use purchasing policies that contribute to living wages and incomes for their suppliers. By applying only to the business conduct of the largest operators, that is, those with a net worldwide turnover of more than EUR 450 000 000, this Directive should benefit agricultural producers with less bargaining power.

 Moreover, given companies formed in accordance with the law of a third country are equally subject to this Directive, this would protect agricultural producers in the Union against unfair competition and against harmful practices by operators established not only inside but also outside the Union.

Recital 54
 

To conduct their due diligence in an effective and efficient manner, companies should also make necessary modifications or improvements to their design and distribution practices, to address adverse impacts arising both in the upstream part and the downstream part of their chains of activities, before and after the product has been made.

Adopting and adapting such practices, as necessary, could be particularly relevant for the company to avoid an adverse impact in the first instance. Such measures could also be relevant to address adverse impacts that are jointly caused by the company and its business partners, for instance due to the deadlines or specifications imposed on them by the company. In addition, by better sharing the value along the chain of activities, responsible purchasing or distribution practices contribute to fighting against child labour, which often arises in countries or territories with high poverty levels.

Recital 65
 

In order to conduct meaningful human rights and environmental due diligence, companies should take appropriate measures to carry out effective engagement with stakeholders, for the process of carrying out the due diligence actions. Without prejudice to Directive (EU) 2016/943, effective engagement should cover providing consulted stakeholders with relevant and comprehensive information, as well as ongoing consultation that allows for genuine interaction and dialogue at the appropriate level, such as project or site level, and with appropriate periodicity.

Meaningful engagement with consulted stakeholders should take due account of barriers to engagement, ensure that stakeholders are free from retaliation and retribution, including by maintaining confidentiality and anonymity, and particular attention should be paid to the needs of vulnerable stakeholders, and to overlapping vulnerabilities and intersecting factors, including by taking into account potentially affected groupings or communities, for example those protected under the UN Declaration on the Rights of Indigenous People and those covered in the UN Declaration on Human Rights Defenders.

There are situations in which it will not be possible to carry out meaningful engagement with consulted stakeholders, or where engagement with additional expert perspectives is useful to allow the company to comply fully with the requirements of this Directive. In such cases, companies should additionally consult with experts, such as civil society organisations or natural or legal persons defending human rights or the environment in order to gain credible insights into actual or potential adverse impacts.

The consultation of employees and their representatives should be conducted in accordance with relevant Union law, and where applicable, national law and collective agreements, and without prejudice to their applicable rights to information, consultation and participation, and in particular those covered by relevant Union legislation in the field of employment and social rights, including Council Directive 2001/86/EC and Directives 2002/14/EC and 2009/38/EC of the European Parliament and of the Council. For the purposes of this Directive, employees should be understood as including temporary agency workers, and other workers in non-standard forms of employment provided that they fulfil the criteria for determining the status of worker established by the CJEU.
 

When carrying out consultations, it should be possible for companies to rely on industry initiatives to the extent that they are appropriate to support effective engagement. The use of industry or multi-stakeholder initiatives is not in itself sufficient to fulfil the obligation to consult workers and their representatives.