Introduction

Branda Katan has been a professor by special appointment of corporate litigation in the Institute of Private Law at Leiden University since 1 March 2023. She is also a lawyer specialising in collective actions and complex contractual disputes with broad experience in ESG-related and consumer rights cases. After she delivered her inaugural lecture entitled "Sustainability through liability? Don't get your hopes up" on 22 March 2024, Boran Akyildiz – research assistant of the Consumer ID project – interviewed her about the CS3D. Please read his previous blog post for a general overview of the CS3D’s impact on consumers.

Interview

Given Milton Friedman's traditional stance on businesses' social responsibility dating back to 1970, how significant do you think the growing consumer demand for companies to be sustainable and socially responsible has been in reshaping corporate behavior, particularly in the European context?

Branda Katan: It is not so much consumer demand. If you look at consumer surveys, you will see that 80% of consumers say, "Yes, sustainability plays a role in my purchase decisions." However, in practice, if you look at consumer behavior, I do not see that sustainability plays a big role in their decisions. Many people say, "Companies should be more sustainable," but they are unwilling to pay for it. What I do see is a lot of pressure in the media on companies. So, I think pressure comes more from media and public affairs than consumer demand. It is, unfortunately, so, because I think that consumer demand would be the strongest driver for sustainability, but I do not see it happening.

In what ways do you anticipate the CS3D influencing corporate decision-making processes to prioritize sustainability and responsible business practices over purely profit-driven motives?

Branda Katan: I think it will play a very significant role because companies, especially the large ones that the CS3D will apply to, have a lot of focus on compliance. Compliance has grown a lot over the past 20 years. There are also going to be public authorities supervising this. So I think companies will be doing a lot about it. However, what I do not know is whether they are really going to get much further than complying on paper. They may be getting written assurances from their suppliers, from their suppliers' suppliers. However, it is still difficult to have an idea of what is going on with the parties that are further up the chain.

Even so, I think that it will change a lot about their behavior. If you talk about prioritization of various objectives, then it is choosing between one and another. But, if you have a legal obligation that is clear enough and the Commission is very dedicated to providing clear guidance over the coming few years to companies about how they can comply with the CS3D, then that goes first. Then, it is the baseline. The company has to comply with the law and try to make profits, acting within the boundaries of the law. In my inaugural lecture last week, I said that the law trumps the other factors. So if the legislator manages to give enough guidance so that it is clear enough for companies what they should do and when they are not complying, then it will make a huge difference. 

Considering on the one hand that society and especially consumers expect companies to be sustainable, and on the other hand that the CS3D imposes some burdensome obligations on companies (especially in terms of bureaucracy), do you think that the CS3D would be more favorable or unfavorable for companies in the long run? How do you see the CS3D influencing the relationship between companies and consumers in the long term?

Branda Katan: I suppose that it is more unfavorable for companies because they will need to spend more money on reducing negative externalities than they do now. It means that their prices may go up, which consumers may also not like because consumer behavior is also causing negative externalities as they, or a lot of them, want the cheapest stuff. So, I suppose it will be unfavorable for companies compared to what it is now. But at the same time, if that is just the new baseline and it holds the same for all big companies, then it is just what they need to deal with, and they do not make a comparison with long ago.

How might the complaint procedure outlined in the CS3D benefit consumers and civil society organizations? How could this mechanism facilitate consumer engagement and ensure corporate accountability?

Branda Katan: I have not thought much about that; my specialization is litigation, and this would be like a preliminary phase before litigation. I know that when the law imposes on the parties that they need to negotiate before going into litigation, it will often be like a ritual dance in the sense that it will delay things but not really change anything because parties start showing very strategic behavior. However, the complaint procedure may help provide companies with information about what may be going wrong further up the value chain. Companies that are subject to the CS3D are not where all their suppliers are, so it may help them get information and have a better due diligence process. But I do not expect that it will enhance the trust of consumers in companies.

Does the CS3D's provision establishing civil liability for companies breaching their due diligence obligations enhance corporate accountability?

Branda Katan: It contributes, but I do not think it is going to be the biggest factor. I think public enforcement will be a bigger factor because public enforcers are much more flexible. They can give companies guidance on what they will accept or will not accept. And they can tell a company at a certain point, "Now you are doing fine; we will not bug you anymore." As for civil liability, you have these very contentious proceedings, and you will get a judgment, after many years, about what companies did not do right. However, companies still do not know what they should do to do it right in the future. And then there can be appeals. So, the fear of liability will help companies behave more responsibly, but public enforcement will help them more because it is more flexible and can give more guidance.

The CS3D also includes provisions for public communication on due diligence. However, given that the Corporate Sustainability Reporting Directive is already in force, does the CS3D promise a significant step forward in raising consumer awareness?

Branda Katan: I do not know the reporting obligations in the CS3D in detail. However, I know the Corporate Sustainability Reporting Directive will apply to many more companies than the CS3D. So that is a big difference between the two. In any case, I am not sure that all these kinds of reporting obligations make a lot of difference in consumer awareness. It is not the kind of thing that consumers will read. But what may happen is that it can trigger media attention, and then there can be a scandal or something like that, which can raise consumer awareness indirectly. 

Companies' due diligence obligations also cover the operations of their business partners where related to their chains of activities. In this context, companies may argue that their ability to monitor the activities of these companies is limited. However, as empirical research suggests, they may strategically outsource the most hazardous activities to minimize liability exposure (Pacces 2023). Do you think it is appropriate to impose such an obligation on companies, even if its scope has been narrowed down with the final text adopted?

Branda Katan: I think there is going to be a lot of discussion on the causal contribution of the company that has due diligence obligations under the CS3D in relation to what the supplier has done. Because the CS3D stipulates that companies are not liable if it has been completely caused by the supplier. But discussions about causation and how negligence and omission can contribute to the occurrence of the event are endless in tort law. So that is going to be tough. 

I also think it is good that you do not completely put all the responsibility on those companies, also because I do not think it is desirable for those big companies to start eating up all their suppliers so that they have control over them. If the big companies would be fully liable for suppliers, they may think it is better to seize control over those suppliers. However, these are often suppliers in developing countries, and I think it is good for those countries to have their own economies and independent companies, not all being part of big Western companies.

During the adoption process, significant amendments were made to the proposal for the CS3D published by the European Commission on 23 February 2022. In particular, the proposal adopted by the Council of the European Union on 15 March 2024 includes significant amendments regarding the scope of the companies covered, among other things. Is any agreement better than no agreement, or do you think the CS3D, in its final form, may not achieve its sustainability objectives?

Branda Katan: Any agreement is definitely better than no agreement because the changes that it brings are major. This kind of responsibility, both for the operations of subsidiaries and for what is happening in the value chain, is so novel that it will no longer be possible for companies to say, "We will put it in a separate entity" or "We will offshore this to a supplier instead of our own company, and then it is not our responsibility anymore".

It only applies to the biggest companies at the moment, but I would not be surprised if ten years from now, what these big companies have to comply with under the CS3D will start becoming part of what society expects from companies-not from the smallest companies, but certainly from those companies that were covered under the CS3D's original proposal because I think it could become part of morals. We have this general tort norm under Dutch law, which says that if you act contrary to the norms that are unwritten in society, then you act unlawfully. And that is an open norm that you need to fill in. Society's expectations from companies may fill up that norm. So, I think, in the end, the impact could very well be broader than it is officially.