EU’s Corporate Sustainability Due Diligence Directive

Due to the upcoming train strikes, this event will be in-person and online. For further information, please email law.events@lse.ac.uk

Demands for European companies to be made subject to an (extended) legal responsibility for “wrongdoings” in their supply chains are very much in vogue. In Europe, the draft proposal for a directive for “corporate sustainability due diligence” is a vivid expression of pertinent developments. This legislative reform, together with many other comparable moves, provides the starting point for this paper, which asks two questions: What does (i) due diligence mean in this respect and where are (ii) the normative principles for such a broad responsibility derived from? As a starting point, the paper examines the question from the perspective of transactional costs. When viewed from this perspective, institutional arrangements (and those regarding supply chains) are not static, but the result of the relative costs and benefits at a given point in time. A transaction cost analysis seems to suggest that efficient arrangements may emerge within the entire spectrum, ranging from (horizontal) spot-market contracts to large (vertical) organizations. In this light, it seems far from evident that a “one-size-fits-all” requirement for supply chain responsibility would be efficient. Even if we assumed such a responsibility, would it also extend to the behaviour of independent third parties? The answer that the pertinent general principles of tort law seem to suggest point in a different direction: there is no tort law responsibility for the behaviour of independent third parties who are not part of the principal´s own organization. It is here where some law and economics contributions intervene and claim a need for an overall responsibility to exclude the possibility of arrangements where (due) liability is or can be limited by relying on independent outside contractors. Closer observation, however, prompts some skepticism regarding this position, which subjects organizational questions to a presumed overriding principle of maximum liability (a position, which, therefore, would also be generally skeptical regarding other limitations of liability and, for instance, limited liability companies as well).

Chair: Professor Eva Micheler 

Speaker: Peter Lewisch