The proposed corporate sustainability due diligence directive: Corporate liability design for social harms

Several binding regulatory initiatives in ‘home states’ were recently introduced against corporate wrongdoing in global value chains (GVCs), including the French Vigilance law, the German Supply Chain Due Diligence Act, the Norwegian Transparency Act, and the Dutch Child Labour Due Diligence Act. These initiatives seem to result in a patchwork of national requirements, particularly regarding the consequences of non-compliance and enforcement. The long-awaited proposal for a European directive on Corporate Sustainability Due Diligence (CSDD) of 23 February 2022 seeks to break through this fragmentation and aims at setting harmonized ex ante incentives for corporate decision makers to avoid and limit adverse impacts as regards human rights and environmental matters. In this article it is argued that, in contrast to the existing sub-optimal solutions like veil piercing, the CSDD’s mandatory due diligence obligations can indeed provide appropriate incentives, but selecting the right enforcement mechanisms is key for effective enforcement of these obligations. Based on existing law and economics research, this article provides some important insights for the European legislator on how corporate sustainability due diligence enforcement can best be shaped.