How the EU Sustainability Due Diligence Directive Could Reshape Corporate America

57 Pages Posted: 6 Jan 2025 Last revised: 31 Jan 2025

See all articles by Luca Enriques

Luca Enriques

Bocconi University - Bocconi Law Department; University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Matteo Gatti

Rutgers, The State University of New Jersey - Rutgers Law School; European Corporate Governance Institute (ECGI)

Roy Shapira

Stigler Center, University of Chicago Booth School of Business; ECGI; Reichman University

Date Written: December 31, 2024

Abstract

One of the most important developments in corporate governance is the growing divide between the US and the EU on issues of corporate social responsibility. The starkest example of this divide comes from the new EU Directive on Corporate Sustainability Due Diligence (CS3D). The Directive holds large corporations legally accountable for how they protect numerous human rights and environmental issues, such as forced labor, collective bargaining, biodiversity, and pollution. In fact, companies are required to prevent and remediate these social and environmental harms not just in their own operations, but also in the operations of their subsidiaries and even their suppliers and distributors. Importantly, the CS3D directly applies also to American corporations that generate significant revenues in the European market. The stakes of understanding how the Directive will be implemented and enforced outside the EU therefore cannot be higher. This Article examines the question of the CS3D’s applicability to US companies and makes three contributions.

First, the Article delineates the core requirements of the CS3D, and its territorial outreach. The upshot is that most large American corporations are affected by the Directive. But the Directive does not mandate specific corporate conduct or expect companies to guarantee outcomes. Instead, the Directive requires each company to design a due diligence process that fits its specific circumstances. Such a regulatory regime runs the risk of turning into a tick-box exercise, without affecting real change in corporate behavior. This is where the second contribution of the Article comes in, examining whether directors and officers could face personal liability if their company fails to comply in earnest with the Directive’s requirements. Here the Article spotlights the interplay between the revamped oversight duty doctrine in the US and the CS3D. The main point is that the CS3D significantly increases directors’ exposure to failure-of-oversight claims. Finally, the Article explains how the unique combination of the EU’s ambitious regulation and the US’s robust private enforcement landscape could reshape the way that American corporations are conducting business across the globe.

Keywords: Corporate Law, Brussels Effect, Oversight Duties, Caremark, Corporate Governance, Director Liability, ESG, Net Zero Targets, Sustainability Due Diligence, International Law

JEL Classification: G34, K22, K33, K38, K41, K42, M14, P48, Q56

Suggested Citation

Enriques, Luca and Gatti, Matteo and Shapira, Roy, How the EU Sustainability Due Diligence Directive Could Reshape Corporate America (December 31, 2024). European Corporate Governance Institute - Law Working Paper No. 817/2025, Available at SSRN: https://ssrn.com/abstract=5083571 or http://dx.doi.org/10.2139/ssrn.5083571

Luca Enriques (Contact Author)

Bocconi University - Bocconi Law Department ( email )

Via Roentgen 1
Milan, MI MI 20136
Italy

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

Matteo Gatti

Rutgers, The State University of New Jersey - Rutgers Law School ( email )

Newark, NJ
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Roy Shapira

Stigler Center, University of Chicago Booth School of Business ( email )

Walker Hall
Chicago, IL 60637
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Reichman University ( email )

P.O. Box 167
Herzliya, 4610101
Israel
972-9-9602410 (Phone)
972-9-9527996 (Fax)

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