Civil Liability in the EU Corporate Sustainability Due Diligence Directive Proposal: A Law & Economics Analysis

Abstract

The EU Corporate Sustainability Due Diligence Directive (CSDDD) proposal can be interpreted as an attempt to cope with the under-deterrence of negative externalities on human rights and the environment depending on the strategic use of limited liability by corporate groups. This article reviews the civil liability proposals by the Commission, the European Parliament, and the Council from this law & economics perspective. The article finds that these liability rules fall short of making corporations internalize negative externalities by way of due diligence obligations in the group and the supply chains. It is relatively easy for companies that fail to carry out due diligence effectively to avoid the civil liability being considered by the EU legislature.

Keywords: European Union, negative externalities, corporate groups, due diligence, limited liability, supply chain, outsourcing, causation, burden of proof

JEL Classification: K13, K22, K38, M14