EU Due Diligence Proposal Requires Companies to Create Complaints Procedures: What It Means and Why It Matters

On February 23, in response to a set of recommendations on “Corporate Due Diligence and Corporate Accountability” adopted by the European Union Parliament a year prior, the European Commission released a proposal for an EU-wide directive on “Corporate Sustainability Due Diligence.” The primary objective of the proposal is to impose due diligence requirements on EU companies to prevent and respond to environmental and social harm. One of the due diligence requirements in the European Commission’s proposal is for companies that meet size and financial turnover prerequisites to establish complaints procedures; investors and accountability advocates alike should embrace this directive.

Why Hearing Complaints from Communities Matters

Hearing from and addressing issues raised by communities can help combat the trends of greenwashing and impact-washing, as well as promote more sustainable investments. Effective complaints procedures, often referred to as grievance redress mechanisms (GRMs), serve as tools to hear environmental, social, and human rights concerns from local communities impacted by corporate activity. Because they can facilitate direct community feedback related to on-the-ground impacts of business activities, effective GRMs help institutions identify, avoid, and mitigate potential and actual adverse human rights and environmental impacts. For this reason, throughout this regulatory process, Accountability Counsel and several other organizations have stressed the importance of including effective GRMs as a due diligence requirement for sustainable corporate governance. Accordingly, Article 9 of the European Commission’s proposal requires that regulated actors receive and respond to complaints from persons who are affected or have reasonable grounds to believe that they might be affected by adverse impacts caused by corporate actions.

Models for Effective GRMs Exist

EU corporations without effective GRMs can begin to create them now by looking at existing models. Development finance institutions, accredited entities of the Green Climate Fund, a sustainability-focused business association, and even a large commercial bank already have mechanisms in place. Baseline considerations for making a complaints procedure “effective” are already well-defined and codified under Principle 31 of the UN Guiding Principles on Business and Human Rights, and guidance on how to operationalize a new mechanism is readily available (see for example the Good Policy Paper: Guiding Practice from the Policies of Independent Accountability Mechanisms).

Investors and companies that care about their environmental and social impacts in earnest should embrace complaints procedures as an effective and efficient way to measure and manage their net impact. The proposed directive’s focus on complaints handling stands to reduce instances of impact-washing by requiring certain companies to make space to confront harm they may cause; however, this would only be possible by also addressing risks of “GRM-washing” – that is, creating an inadequate complaints mechanism ill equipped to ascertain and remedy environmental and social harm. To truly fulfill the purpose of the EU directive, companies should establish effective GRMs that are consistent with existing best practice.