Navigating the EU’s Corporate Sustainability Due Diligence Directive: Strategic Implications for US Companies
Ciacchi, Silvia, Faure, Michael & Oded, Sharon
Abstract
Michigan Business & Entrepreneurial Law Review Michigan Business & Entrepreneurial Law Review
Navigating the EU’s Corporate Sustainability Due Diligence Navigating the EU’s Corporate Sustainability Due Diligence
Directive: Strategic Implications for US Companies Directive: Strategic Implications for US Companies
Silvia Ciacchi Erasmus University Rotterdam
Michael Faure Erasmus University Rotterdam, Maastricht University, Universitas Indonesia
Sharon Oded Erasmus University Rotterdam
Part of the Business Law, Public Responsibility, and Ethics Commons, European Law Commons,
International Law Commons, and the Law and Economics Commons
https://doi.org/10.36639/mbelr.15.1.navigating
NAVIGATING THE EU’S CORPORATE SUSTAINABILITY DUE DILIGENCE DIRECTIVE: STRATEGIC IMPLICATIONS FOR US COMPANIES
Silvia Ciacchi*, Michael Faure**, Sharon Oded***
The European Union’s (“EU”) Corporate Sustainability Due Diligence Directive (“CSDDD” or the “Directive”) introduces new human rights and environmental obligations that reshape global corporate governance. This paper explores its impact on US companies, with a particular focus on compliance strategies under both direct and indirect applicability. It contrasts tactical compliance, which emphasizes risk mitigation while meeting minimum legal requirements, against strategic compliance, where companies use sustainability to gain a competitive edge in the market.
This paper highlights how varying enforcement levels across EU Member States may incentivize companies to “forum shop” or choose jurisdictions with more relaxed enforcement. It also explores the concept of “loyalty” in compliance, with companies adopting either minimal or substantive strategies based on enforcement dynamics.
This paper concludes with the argument that US companies adopting a strategic compliance approach are better positioned to lead in global sustainability, build stakeholder trust, and drive innovation.
Key words: CSDDD, compliance, corporate governance, ESG, sustainability due diligence, US companies, US-EU trade relations, CSDDD enforcement, liability risks, tactical compliance, strategic compliance.
INTRODUCTION ................................................................................................... 35 I. OVERVIEW OF THE CSDDD ................................................................. 41 A. The emergence of the CSDDD ..................................................... 41 B. Key obligations of the CSDDD .................................................... 43
RELEVANCE TO US COMPANIES ........................................................... 50 A. European Model Clauses ............................................................. 51 B. Reporting Duties .......................................................................... 52 C. Liability ........................................................................................ 53 D. Enforcement ................................................................................. 54 III. COMPLIANCE STRATEGIES UNDER THE CSDDD .................................. 55 A. Incentives for American companies ............................................. 55 B. Tactical vs. Strategic Compliance: Understanding
US Company Approaches to CSDDD Compliance .................................................................................. 59
C. Contrasting Approaches: Conditions, Implications,
and Outcomes ............................................................................... 61 CONCLUSION ...................................................................................................... 63
On July 25, 2024, the European Union’s (EU) Corporate Sustainability Due Diligence Directive (CSDDD or the “Directive”) entered into force,1 marking a pivotal step in Europe’s efforts to embed environmental, social, and governance (“ESG”) principles into corporate practices.2 A central pillar of the European Green Deal, the CSDDD reflects the EU’s ambition to lead the global transition toward sustainable business conduct.3 By imposing binding obligations on companies to identify, prevent, mitigate, and remediate adverse human rights and environmental impacts, the Directive aims to establish uniform standards for corporate accountability across industries.4
The Directive originated from a 2020 European Commission (EC) legislative initiative originally aimed at developing a harmonized EU framework for sustainable corporate governance.5 Following rounds of public consultations and feedback, the focus of the legislative project re-centered around sustainability due diligence.6 Originally a complementary aspect of the initiative, the due diligence obligation became the core aspect of the proposal delivered by the European Commission on February, 15 2022.7 The proposed Directive’s ambitions were significantly reduced by the interinstitutional negotiation process between the European Commission, the European Parliament, and the Council of the European Union.8 These negotiations, also known as trilogues,9 saw a push and pull quite typical of EU lawmaking, with the Parliament championing the relatively more progressive and normatively ambitious position and the Council countering with a more conservative mandate.10 The process was contentious—it was characterized by heated debates, political pressure, and intensive lobbying.11 Ultimately, compromises had to be made. For the proposal to survive, its drafters had to substantially reduce its scope and eliminate certain corporate governance provisions relating to the duties and personal liability of directors.12
The current version of the CSDDD became law on July 25, 2024,13 but further changes are not out of the question. In November 2024, the newly appointed
European Commission announced plans to reopen both legislative processes for the CSDDD: the Corporate Sustainability Reporting Directive (CSRD),14 and the EU Taxonomy Regulation for Sustainable Activities.15 The European Commission felt additional changes would be necessary to further streamline the EU’s corporate sustainability framework.16 This latest development, now called the Omnibus package, could potentially have significant implications for all three pieces of legislation because the text, scope, and content of each are again being called into question.17
Twists and turns of EU lawmaking notwithstanding, there is no doubt that the EU’s sustainability due diligence policy is set to generate profound impacts both inside and outside of the Union. The significance of the CSDDD within the EU cannot be overstated. It directly applies to approximately 6,000 EU-based companies and 900 non-EU companies that meet specific turnover thresholds in the EU.18 With its extraterritorial scope and contractual cascading mechanisms, the CSDDD is set to extend its reach to companies far beyond EU borders and reshape global business practices through a manifestation of what is known as the “Brussels Effect”.19
One market where the CSDDD’s impact will be particularly pronounced is the United States. The interconnected nature of the US-EU trade relationship
makes American businesses especially susceptible to the Directive’s influence.20 Bilateral trade between the US and the EU is vast—it totaled $1.3 trillion in 202221 and continued to grow through 2023.22 The EU currently accounts for 17% of the US goods trade, a quarter of its services trade, and nearly half of foreign direct investment (FDI) into the United States.23 Key sectors including oil and gas,24 automotive, machinery, and pharmaceuticals dominate this trade, often involving supply chains or operations that fall within the CSDDD’s regulatory purview.25 It is estimated that about 300 of the non-EU companies that will fall under the scope of the Directive will be US-based.26 Although not all American companies exporting to Europe will be directly within the purview of the CSDDD, many US companies can expect to find themselves at the receiving end of sustainability due diligence compliance obligations for in-scope companies. This could result in requirements by EU buyers of US products to adopt new contractual commitments, share material sustainability information, undergo audits, or adapt sourcing and production processes.27 Therefore, even without falling within its scope, US companies could still be indirectly affected by the CSDDD.28
The importance of the EU market to US businesses extends beyond trade volumes. EU Member States collectively form the largest foreign market for US companies, with the US exporting goods worth $368.8 billion to the EU in 2023.29 The US and EU are deeply integrated through investment ties. US exports of goods and services to the EU support 2.3 million jobs in the US, and EU firms’
investments in the US employ 3.4 million people.30 Overall, EU and US firms have €4.7 trillion worth of investment in each other’s markets.31 This relationship has continued to strengthen as US imports from the EU increased by 12.8% in 2022, 4.3% in 2023,32 and nearly doubled over the past decade.33 These figures highlight the EU’s critical role in the strategic planning of US companies.
The relevance of the CSDDD for US businesses arises through two primary channels. First, companies with substantial operations or turnover in the EU may be directly subject to the Directive’s obligations. Second, many US companies will be indirectly affected through contractual cascading. Under this mechanism, companies subject to the CSDDD extend their compliance obligations to their suppliers and business partners through contractual clauses. In practice, this means that even US companies which are not directly covered by the Directive will need to adapt their practices to meet the requirements imposed by their EU counterparts to maintain business relationships.
The implications of the CSDDD for US companies, therefore, are profound. As per the framework developed by political economist Arthur Hirschmann, when confronted with a new piece of legislation or decision, an actor has three choices: exit, voice, or loyalty.34 Exit means withdrawing from the context in which the legislation has arisen, voice refers to attempting to change outcomes by protesting or voicing concerns, and loyalty means remaining involved and accepting the new circumstances.35 These options may also be available to American companies. In the case of the CSDDD, voice is best expressed through the medium of lobbying. Indeed, US business groups and organizations have not shied away from vocalizing their concerns about the effects of the Directive,36 and as a result the CSDDD has entered the US’s political discourse.37 Exit would be manifested by US companies exiting the EU markets entirely and correspondingly disentangling themselves from the activities of in-scope companies. The loyalty option, whereby directly and indirectly affected US
companies choose to keep their EU ties by complying with the Directive’s obligations, ends up having the most interesting implications for US companies compliance strategies.
This paper argues that a paradox emerges when examining the Directive’s impact through the lenses of direct and indirect applicability. US companies directly subject to the CSDDD are prone to view compliance as a tactical, riskbased strategy. Their primary motivation is extrinsic, driven by the need to minimize liability and avoid penalties. Consequently, such companies are more likely to adopt narrow, compliance-focused measures aimed at satisfying the minimum requirements. Conversely, US companies indirectly affected by the CSDDD are likely to adopt a more strategic approach to compliance. For these companies, compliance represents an opportunity to enhance their market position, secure access to the lucrative EU market, and strengthen relationships with European partners. Their motivation is intrinsically driven because they view alignment with CSDDD requirements as a strategy to gain a competitive advantage. This strategic perspective encourages companies to go beyond the minimum and invest in comprehensive, sustainable business practices.
This article explores the significance of the CSDDD for US companies, emphasizing its direct and indirect implications. It provides an overview of the Directive and its key obligations, detailing how it applies to both EU-based companies and non-EU companies meeting specific criteria within the EU (I). The article then examines the two primary channels through which the Directive impacts US businesses: direct applicability, where companies with substantial operations in the EU face immediate compliance obligations, and indirect applicability, where contractual cascading imposes compliance requirements on US companies that may not be directly covered by the CSDDD. The article argues that the CSDDD, while creating challenges for American companies, has the potential to offer them new opportunities as well. The analysis highlights the paradoxical nature of the Directive’s impact: direct applicability drives tactical compliance, while indirect applicability fosters strategic and potentially deeper alignment with the CSDDD’s principles (II). The article concludes by underscoring the critical need for US companies to recognize and prepare for these differing compliance pathways (III). Even when not directly subject to the Directive, taking preparatory steps to comply with the CSDDD can provide substantial advantages for companies and position them to both meet global expectations for sustainable business practices and secure long-term growth. The article equally stresses that the incentives of American companies to comply (either directly or indirectly) will crucially depend upon the level of enforcement in specific Member States.
A. The emergence of the CSDDD
The CSDDD marks a significant development in European Union law due to its focus on fostering sustainable business practices and enhancing corporate accountability.38 Enacted in July 2024, the Directive sets out to address sustainability challenges across global supply chains and business operations, reflecting the EU’s commitment to promoting human rights and environmental protection within the corporate world.39 This initiative is the culmination of over a decade of legislative debates, consultations, and studies.40 Its conceptual roots trace back to policy documents such as the 2011 communication on “A Renewed EU Strategy 2011-14 for Corporate Social Responsibility.” It was there that the European Commission first announced the EU’s commitment to implement the UN Guiding Principles on Business and Human Rights and “human rights due diligence.”41 The first draft of the CSDDD was proposed in 2022 following a series of consultations involving businesses, civil society organizations, and EU Member States.42 These consultations highlighted the need for a robust regulatory framework to tackle growing concerns about supply chain sustainability, human rights violations, and environmental degradation.43 The Directive was designed to be phased in gradually: applying first to non-EU companies generating EUR 1.5 billion in turnover in the EU, then to those with EUR 900 million, and lastly, to all qualifying entities.44
The CSDDD represents a shift from a traditional corporate responsibility model to one that emphasizes due diligence, focusing on process rather than specific outcomes. The Directive introduces obligations of means rather than results, compelling companies to integrate sustainability considerations into their operations proactively.45 This includes mapping supply chains, carrying out risk assessments to identify and address actual or potential adverse impacts, and implementing mitigation measures to prevent harm to human rights and the environment.46 The Directive also emphasizes climate transition plans, requiring
companies to align their operations with the EU’s climate neutrality goals.47 The Directive’s phased introduction gives companies time to adapt and build the necessary capacity to comply with its requirements, ensuring that its goals for sustainability and the protection of human rights are met without imposing undue financial burdens.
The CSDDD’s adoption was shaped by extensive negotiations involving businesses, NGOs, and EU Member States.48 These discussions were crucial in balancing regulatory burdens on businesses with the imperative to ensure meaningful due diligence addressing systemic sustainability risks.49 Proponents called for a more rigorous Directive with stricter enforcement mechanisms,50 while critics stressed the importance of a clear, enforceable framework protecting human rights and the environment without placing undue financial strain on companies.51 The final version reflects a compromise, incorporating provisions for phased implementation and a risk-based approach to due diligence obligations.
Recently, this compromise has further been called into question following the announcement of a new proposal aimed at streamlining the EU corporate sustainability framework.52 Should the Omnibus package come to fruition, the EU could see the creation of an integrated framework for sustainability due diligence, non-financial reporting, and sustainable investments. Whilst some support this project and hope that it will lead to a less burdensome and more competitive regulatory framework, others fear that this streamlining effort will both water down the substantive content of all three laws and create confusion and uncertainties in the market.53 Merits and drawbacks of the Omnibus package notwithstanding, concerns about the spillover effects of the Directive are understandable when considering its far-reaching effects.
B. Key obligations of the CSDDD
The CSDDD acts as a minimum harmonization directive,54 meaning that EU Member States will have the ability to issue more stringent or specific provisions.55 However, given the controversial nature of the Directive and the difficult road to its adoption,56 it is uncertain whether national laws will go significantly beyond its standards. Although the Omnibus package proposal may lead to further changes in the EU sustainability due diligence framework, the text currently in force remains as a baseline for potential amendments.
The table below highlights key aspects of the Directive as it was adopted in July 2024. Specific provisions are explored in greater detail in the coming subsections.
Human rights and environmental adverse impacts
• Rights and prohibitions included in international human rights
instruments57
• Obligations and prohibitions included in environmental
instruments58
• Due diligence policy and code of conduct60
Due diligence59
• Mapping out operations to identify (actual or potential) adverse
impacts, and carrying in-depth assessments of operations where impacts have been found61
Preventing and ending adverse impacts
• Prevention action plan for potential adverse impacts62 • Correction action plan for actual adverse impacts63 • Investments in operational processes and infrastructure64 • Modifications to company business plans, strategies, and operations65
• Support to small and medium-sized enterprises (SME)66 business partners, where compliance with obligations is too onerous67 • Contractual assurances from business partners and suppliers68 • Verifying compliance along supply chains69
Refrain from entering relations with non-compliant business partners70
• Enhanced action plan, either preventive or corrective
• Termination of business relationships
Other obligations
• Meaningful engagement with stakeholders71 • Notification mechanisms and complaints procedures72 • Monitoring effectiveness of due diligence policies and measures73 • Public communication regarding due diligence74
• Document retention for actions taken in fulfilment of due diligence
obligations75
• Transition plan for climate change mitigation76 • Delegation of contact point representative77
Liability
• Administrative liability78 • Civil liability79
Table 1: Key aspects of the CSDDD
The measures, requirements, and behavioral expectations described in this section relate to the operation of companies, subsidiaries, and business partners
in the “chains of activities.” Under the CSDDD, a company’s chain of activities includes direct and indirect “business partners,”80 including those involved in the “upstream” production of the company’s goods and services, and the “downstream” distribution, transport, and storage of products.81
1. Human Rights and Environmental Adverse Impacts
The Directive has the aim of limiting and eliminating adverse impacts on human rights and the environment.82 These impacts are defined through rights and prohibitions detailed in the Directive’s Annex. Specifically, the CSDDD defines “adverse environmental impacts” as breaches of the relevant prohibitions and obligations,83 and “adverse human rights impacts” as abuses of selected human rights.84
Prohibitions relating to human rights are defined using international human rights treaties and include, inter alia, the right to life, the prohibition of torture, the prohibition of child labor, and the rights of workers.85 The Directive relies on the international law of human rights, including specific references to the International Covenant on Civil and Political Rights, the Convention on the Rights of the Child, and the International Labor Organization’s core conventions.86 The Directive’s environmental provisions are structured to prevent degradation of the environment, like deforestation or the release of harmful emissions.87 A negative impact must fulfil certain criteria to amount to a prohibition under the Directive.88 For example, if a negative impact resulted in denying persons access to safe and clean drinking water, or substantially affected ecosystems, it would be considered a prohibition under the Directive.89 Further environmental rights and prohibitions are defined according to international environmental law, including the Minamata Convention and the Basel Convention.90
It is essential that companies understand the rights, obligations, and prohibitions most relevant to their business operations and “chain of activities” because the substance of the sustainability due diligence obligation is derived
from the definition of “adverse impacts.”91 In this respect, the CSDDD contextualizes its understanding of human rights and environmental impacts by referring to internationally recognized instruments and conventions and stresses that its Annex should be interpreted in line with these sources.92 Critics, however, have pointed out that the CSDDD’s approach to the selection and formulation of certain rights does not entirely conform to international human rights law and established human rights due diligence.93 Incompatibilities with authoritative instruments such as the UN Guiding Principles on Business and Human Rights,94 which have already contributed to the establishment of best practices in the market,95 may lead to needless uncertainties interpreting the Directive’s provisions in adjudication and enforcement.96
2. Due Diligence
The core of the CSDDD is the due diligence obligation, which has the aim of encouraging companies to prevent, mitigate, and end the adverse human rights and environmental adverse impacts along a company’s chain of activities.97
• Due diligence policy and code of conduct. As a first step, companies
are required to integrate sustainability due diligence into policymaking and risk management systems.98 This means that businesses must develop company-wide policies addressing approaches, integration, and implementation of due diligence. Companies must also adopt codes of conduct which will apply to suppliers and business partners along the “chain of activities.”99 Such due diligence policies must be updated if a significant change occurs in the business’ practices and must be reviewed every two years.100 • Mapping out and assessing operations. As part of due diligence,
companies must map out the operations of themselves, their
subsidiaries, and their business partners within the chain of activities to identify where adverse impacts are most likely to happen and to be most severe.101 If a company does find severe potential or actual adverse impacts, it must carry out an in-depth assessment of the operations in question, including those of the subsidiaries and business partners along the chain of activities.102
• Prevention action plan for potential adverse impacts. If a company finds potential adverse impacts, as covered by the CSDDD, along its chain of activities, the company must develop and implement a prevention action plan to prevent or mitigate those impacts.103 The action plan must contain appropriate preventive measures and a clear and reasonable timeline for implementation. Improvement must be measured using both qualitative and quantitative indicators.104 • Corrective action plan for actual adverse impacts. If a company
discovers actual adverse impacts, it must develop and implement a corrective action plan to neutralize or minimize the extent of the negative impacts of its business activities.105 Similar to the prevention action plan, it must contain clearly defined timelines and must employ qualitative and quantitative measurements.
• Other measures of preventing and ending adverse impacts. When a
company discovers potential or actual adverse impacts, it is required to mitigate or end such impacts through means other than the corrective action plans. It may make financial or non-financial investments to adjust or upgrade its operational processes and infrastructure.106 It can modify its own business plan, strategy, and operations, for example, by including pricing and distribution practices.107 If its business partner is an SME, it must provide targeted and proportionate support for the SME to prevent or end impacts pertaining to its operations.108 Furthermore, the company must assure through contractual obligations that its business partners and suppliers comply with its code of conduct and, if applicable, its potential and corrective action plans.109 Additionally, businesses must take appropriate measures to verify that partners comply with the contractual obligations such as independent third-party verification.110
• Refrain from entering relations with non-compliant business
partners. In cases where potential or actual adverse impacts cannot be properly addressed through appropriate measures, companies are required, as a last resort, to refrain from business relations with noncompliant partners.111 Companies must adopt and implement enhanced preventive or corrective action plans for the adverse impacts in question, and suspend any relationships with respect to such activities as a way to leverage compliance. If there is no expectation that this approach will succeed and any adverse impacts are severe, companies must terminate business relationships insofar as they concern the adverse impact.
• Stakeholder engagement. Companies must meaningfully engage with stakeholders by providing relevant and comprehensive information, carrying out effective and transparent consultations, allowing reasoned requests for information, and providing written justifications when such requests are refused.112 Companies must consult stakeholders at multiple steps of the due diligence process and must ensure that participants are not subject to retaliation or retribution.113
• Speak up. Businesses must establish notification mechanisms and complaints procedures allowing external stakeholders to submit complaints regarding adverse impacts in activity chains.114 Such mechanisms must be accessible and anonymous. Complaints procedures must be publicly available and transparent, and the complainants must be allowed to meet with company representatives to discuss the adverse impacts.115
• Effectiveness. Companies must monitor the effectiveness of their policies and measures with respect to due diligence.116 Proper monitoring requires periodic assessments of company activity chains using qualitative and quantitative indicators undertaken at least every twelve months. Companies have the obligation to publicly communicate on due diligence by publishing annual statements on their websites and on the collection body of the European Single Access Point.117 Companies must retain documents detailing actions taken to fulfill due diligence obligations for at least five years.118
3. Other Obligations
• Transition plan for climate change mitigation. The CSDDD
establishes the obligation for companies to adopt and enact climate change transition plans aimed at adapting the company’s business operations to comply with the EU’s climate neutrality commitments.119 Plans must include time-bound climate change and emission reduction targets and must describe the actions undertaken to achieve such targets. Companies must quantify investments and detail the roles of various company bodies in carrying out transition plans.120
• Interaction with the CSRD. The CSDDD also interacts with its “sister directive” the CSRD because companies already CSRDcompliant can be deemed to have complied with the obligation to “adopt” the plan.121 However, they are still required to enact it under the CSDDD.122
• Delegating a contact point representative. In-scope companies that are not EU-based have the obligation to designate a natural or legal person as their authorized representative in relation to the CSDDD.123 The representative must notify its contacts of the relevant supervisory authority and must be empowered to receive all communication from the authority with respect to compliance with its obligations under the Directive.124
4. Liability
• Civil liability. A company may face civil liability in the event that damage was caused to a natural or legal person as a result of the company’s willful or negligent failure to meet the obligations of Articles 10 or 11 of the CSDDD.125 In order for civil liability to apply, the damage must have been caused by the infringement of a natural or legal person’s legal interest protected under national law.126 However, there is no liability when the harm is caused solely by a company’s business partner and the company fulfills its CSDDD duties.127 Thus, a company is only liable if it causes the damage itself or contributes to the harm.
• Administrative liability. Companies may be liable for pecuniary
penalties under the Directive.128 The sanctions may be up to 5% of a company’s net worldwide turnover.129 If a company fails to comply with the penalty decision, a competent authority shall issue a public statement indicating the company and disclosing the infringement for which it is responsible, leading to possible reputational damage.130
The CSDDD’s scope is broad and complex, applying to both EU and non-EU companies that meet specific financial criteria within the EU.131 EU-based companies are directly subject to the Directive when they have more than 1,000 employees on average and their net annual worldwide turnover exceeds EUR 450 million.132 Additionally, the CSDDD can be applicable to US companies either directly, based on their operations within the EU, or indirectly through contractual cascading, extending its influence across global supply chains.133 This dual applicability arises from the Directive’s broad scope and the interconnected nature of global business operations.
• Direct applicability. US companies are directly subject to the
Directive when their net annual turnover in the EU exceeds EUR 450 million, regardless of how many people they employ.134 US companies are also directly subject to the directive when they are the ultimate parent company of a group that, on a consolidated basis, reaches that threshold.135 That is to say, US companies with large EU presence are required to conduct due diligence across their entire value chains to identify, prevent, and mitigate adverse impacts on human rights and the environment within the Union.136 According to unofficial estimations, there are around 300 companies in different sectors that can be expected to fall under the scope of
the CSDDD.137 These companies will be required to adapt their internal operations, and those of their subsidiaries, to comply with the Directive’s due diligence requirements.
• Indirect applicability through contractual cascading. Even when
turnover thresholds are not met, US companies may still find themselves impacted by the CSDDD through contractual cascading. This occurs when companies directly subject to the CSDDD incorporate sustainability requirements into contracts with non-EU suppliers, thereby extending due diligence obligations down the supply chain. For instance, an EU-based company that has its own obligations under the CSDDD may require its US suppliers to comply with specific due diligence steps, such as conducting human rights risk assessments or implementing transition plans. This mechanism ensures that sustainability risks are managed not only within the EU but also along global supply chains, thereby effectively broadening the Directive’s impact.
A. European Model Clauses
To ease the contractual cascading process, the European Commission will adopt a guidance document regarding voluntary model contractual clauses by the beginning of 2027.138 Although the Commission has not yet released an official draft of the model clause, some indication of its contents can be derived from the work on European Model Clauses (EMCs). The EMCs are a set of contractual tools that are being developed by an independent working group with the aim of delivering the commission with a blueprint of model clauses that align with both the CSDDD and the international framework for sustainability due diligence.139 In their current stage of development, the EMCs outline obligations that are not expressly mentioned in CSDDD. Although they are not as relevant as those in the Directive, they have the potential to materialize into duties that business partners must undertake.
The European Model Clauses contain key obligations relating to the due diligence obligations that go beyond the directive: First, contracting parties must notify one another of any severe adverse impacts they become aware of.140 This obligation implies that the in-scope company must notify all of its suppliers across the activities chain, even if the severe impact relates only to its own business activities. Additionally, suppliers must conduct human rights and environmental due diligence assessments on any new subcontractors and must
inform in-scope business partners of any sub-contracting prior to the contract.141 The contracting parties must discuss and consider adverse impacts if there is a material change of order and must mitigate or avoid any such impacts.142 Finally, in the case of contract termination, the parties must take appropriate measures to mitigate the adverse impacts caused by termination.143 The key obligations of the European Model Clauses are comprehensively listed below:
• Notifying business partners of any severe adverse impacts144 • Conducting human rights and environmental due diligence
assessments on any new subcontractors145
• Discussing and considering adverse impacts resulting from any
material change of order146
• Informing in-scope business partners of any subcontracting prior to
the awarding of the contract147
• Instituting measures to mitigate adverse impacts caused by contract
termination148
Considering the text of both the CSDDD and the European Model Clauses at face value, indirectly scoped companies will likely have to comply with most, if not all, obligations of the Directive, and perhaps additional duties such as those outlined in the Model Clauses. There are, however, several key differences between the obligations of in-scope and indirectly scoped companies.
B. Reporting Duties
The first difference concerns reporting duties under the CSDDD. As mentioned above, in-scope companies must publish an annual statement on their website where they detail the steps taken to comply with the Directive.149 This includes describing the due diligence undertaken by the company, the actual and potential adverse impacts it identified, and the measures it took with respect to those impacts.150 The content and criteria of reporting will be further clarified and supplemented by the Commission until the beginning of 2027 through delegated acts.151 Consequently, in-scope companies have to publicly disclose information relevant to compliance with the CSDDD and are thus exposed to liability in the
case of misleading or inaccurate information. As a result, companies may have to take appropriate steps to ensure the veracity of the report through independent third-party verification, such as an audit.
Since a directly scoped company must report its due diligence obligations across its supply chain, it would be expected to cascade the obligation of collecting the relevant information to its suppliers. Therefore, indirectly scoped companies may have a duty to report actions taken to comply with the contractually imposed due diligence requirements to their in-scope business partner. Since this disclosure is not public, indirectly scoped businesses do not face the wide risk of liability associated with public disclosure of information and face fewer risks regarding the accuracy of information meaning they may not need to rely on third-party verification.
C. Liability
The most important difference in application between directly and indirectly scoped companies is the relative extent to which the Directive imposes liability. Regarding civil liability, the Directive distinguishes between different types of causation. If damage is solely caused by a scoped company, only the company in question is liable.152 If harm is caused solely by the conduct of an indirectly-scoped subsidiary or supplier, then the in-scope business does not face any liability, provided that it fully complied with its obligations under the Directive.153 In this situation, the subsidiary or supplier would not face any liability under the CSDDD either. As to joint causation of the in-scope company and its business partner, the Directive provides for joint and several liability, with the possibility of recourse.154 This means that each company at fault may be liable for damages proportionate to the level of harm it caused. The indirectly affected company would face civil liability under the CSDDD only if it jointly caused damage with its in-scope business partner. It should be noted, however, that the civil liability provision is one of the elements under renegotiation within the context of the Omnibus amendments.155 If the Directive is drastically weakened or removed, companies will be faced with the national civil liability systems of the Member States instead. In any respect, due to the rules of civil procedure in the European legal system, non-EU companies are unlikely to be tried in court for damages under the CSDDD.156 Regarding administrative liability, in-scope companies are fully
subject to penalties, including fines up to 5% of their net worldwide turnover from the previous financial year.157 Indirectly-scoped businesses are not explicitly covered by the Directive’s administrative liability. However, these fines are likely to be cascaded down by means of contractual liability, which is not included in the CSDDD. In-scope companies may impose penalties, pecuniary or otherwise, on their non-compliant business partners, a technique which effectuates implied joint and several administrative liabilities through contractual provisions. These penalties can be further cascaded down by direct business partners to their suppliers, thus spreading the effect of any administrative penalty across the supply chain.
D. Enforcement
The types of liability different companies face under the CSDDD result in different enforcement mechanisms. Indirectly scoped businesses primarily face contractual liability, which falls outside the Directive’s scope. This type of liability is mainly enforced through civil dispute resolution and arbitration.158 In that sense, indirectly scoped companies are not as likely to suffer significant reputational damage just for breaking contractually imposed obligations.
Conversely, in-scope companies are open to both commercial and reputational damage through civil159 and administrative liability.160 The Directive allows authorities to issue public statements identifying companies responsible for infringement as well as the nature of the infringement if sanctions are not paid within the required time-frame.161 Even if the company complies with the penalties, authorities may still have discretion to publicly disclose the infringement.
For in-scope companies, enforcement of the CSDDD leads to reputational and commercial damage whereas the Directive is enforced through contractually imposed commercial consequences for indirectly scoped businesses.
A. Incentives for American companies
1. Differences in enforcement between Member States
Assuming profit-maximizing and cost-minimizing companies, in-scope and indirectly scoped American companies can follow a variety of different strategies. Such strategies are significantly influenced by how the CSDDD is enforced in different Member States. A crucial point in this respect is that, while the CSDDD establishes minimum harmonization, it does not harmonize enforcement at the Member State level. This is a general issue for the enforcement of domestic legislation implementing European environmental law.162 Unlike in the US, there is no centralized European authority with enforcement powers to verify CSDDD compliance in Member States or to impose penalties at the European level. Such centralized enforcement mechanisms are rare in the EU and only exists for very specific policy areas, such as fisheries,163 and none exist for environmental policy or CSDDD compliance. As a result, the ways in which Member State administrative authorities responsible for CSDDD enforcement carry out their tasks can vary significantly.
Article 24 of the CSDDD requires Member States to designate one or more supervisory authorities, and Article 25 allocates specific powers to these designated supervisory authorities. Article 27 obliges Member States to establish rules on penalties applicable to infringements of provisions of national law adopted pursuant to the CSDDD. The basic problem, however, is that there is no obligation for Member States to, for example, have a minimum number of full-time workers164 allocated to the supervisory authorities. This problem also persists in general European environmental law and many are aware that it has the potential to lead to a race-to-the-bottom between EU Member States. EU Member States could formally create a Directive (including the CSDDD) but subsequently fail to allocate sufficient staff to supervisory authorities with the task of verifying compliance with national legislation implementing EU environmental law.
The result is that there are substantial differences between EU Member States in terms of the enforcement of environmental law. On April 11, 2024 the Environmental Crime Directive (“ECD”) was passed with the intention of partially remedying this issue by protecting the environment through criminal law.165 The ECD now forces Member States to ensure that they will have national authorities with sufficient financial, technical, and technological resources for the effective detection, investigation, and prosecution of environmental criminal offenses.166 Member States are also forced to organize effective training for judges, prosecutors, police, and judicial staff167 and to ensure that systems are in place for the recording, production, and provision of anonymized statistical data for the reporting, investigation and judicial process of environmental offences to which the Directive applies.168 The issue, however, is that the CSDDD only provides for administrative liability, and the obligations of the ECD do not apply to the CSDDD.169
In short, the implication is that there can be substantial differences in the de facto stringency of European environmental law for the simple reason that enforcement between Member States can show large divergence. As a result, even if the substantive rules are fully harmonized, there can still be substantial differences between the practical impact of CSDDD within different Member States.170
2. Options for in-scope American companies
The question arises as to what the consequences of these potential differences in enforcement are for in-scope American companies. We recall that, according to Hirschmann’s framework, companies have the choice between exit, voice, or loyalty.171 While, exiting is a possibility in situations where there are substantial differences in enforcement levels between Member States, to the extent that this problem arises with the CSDDD, it could provide opportunities for rational American businesses to engage in forum shopping, particularly for in-scope companies directly within the purview of the Directive. If such companies find that enforcement in Member State A is significantly more relaxed than in
neighboring Member State B, they might, ceteris paribus,172 choose to relocate to the Member State with the more relaxed enforcement regime. De facto, this would mean they exit Member State B. As long as a company has a registered branch in the EU, the determination of the Member State applying the CSDDD obligations does not depend on where it generates its largest turnover.173 It is only required that a company operating in a particular Member State designates an authorized representative established or domiciled in one of the Member States where it operates.174 In other words, American in-scope companies could strategically engage in forum shopping, selecting the Member State where they expect CSDDD enforcement to be most relaxed.
The location choice of a corporation, unsurprisingly, depends on various factors like the applicable tax regime and corporate governance structure and so the decision may not solely rely on potential CSDDD enforcement. However, enforcement could be one of the factors influencing a rational American company’s strategy of liability avoidance.
The in-scope company could also voice its concerns, for example, by lobbying for amendments to the CSDDD (as is currently taking place), or opt for loyalty. There will be a discussion of the different ways such loyal application of the CSDDD could take place later in this piece, but before that it will be prudent to address the options for indirectly scoped American companies.
3. Options for indirectly scoped American companies
The question of whether the CSDDD regime will provide incentives for compliance arises both for in-scope companies and indirectly scoped companies, though the incentive structures may ultimately be different. In-scope and indirectly scoped companies are equally confronted with the options of exit, voice, or loyalty. Exit is certainly an option when a European in-scope buyer could easily be substituted by a buyer from a jurisdiction where the CSDDD or similar legislation does not apply. A rational American supplier may opt for exit if the marginal costs of selling to alternative buyers are lower than the costs of CSDDD compliance. American sellers might equally exercise the voice option, and, if there are many that lobby against a stringent application of the CSDDD, they might even be successful. Given the trade volume of American companies with Europe, success is certainly possible.
The most interesting option, however, is loyalty. CSDDD compliance can take a variety of different forms, many of which give indirectly scoped companies the opportunity to behave strategically and opt for minimum compliance. The first possibility is that indirectly scoped American companies who deliver merchandise to in-scope companies could discover that the in-scope company is in a Member State with a lax enforcement regime. As a result, they may count on lax
administrative enforcement in the Member State and equally expect the in-scope company to not impose stringent compliance conditions upon them. The result is sub-optimal compliance by the indirectly scoped companies.
A second scenario is one where an indirectly scoped company would formally implement all model clauses referred to above,175 but would only do “tick the box” compliance. Tick the box compliance exists when formal requirements, such as implementing a code of conduct, introducing the required model clauses in the contract, etc., are complied with without real substantive compliance. Whether an American indirectly scoped supplier would opt for “paper compliance” would depend upon several circumstances. One circumstance would be the attitude of the in-scope buyer and whether it would be satisfied with paper compliance or would demand genuine compliance with substantive obligations. Another important element is whether the in-scope chain leader or enforcement authorities in the Member State can factually verify the extent to which the American supplier would genuinely comply with the text of the Directive and its model clauses.
4. Different ways of loyalty: tactical versus strategic compliance
Regardless of the possibility of strategic behavior leading to formal compliance, there is the opportunity for indirectly scoped companies to move to genuine, substantive compliance as a business strategy. This would be especially likely in situations where Member State supervisory authorities are willing to seriously enforce the CSDDD. Alternatively, if it appeared that there were no substantial substantive differences between the EU Member States regarding CSDDD enforcement, genuine compliance would also become more likely. Given the difference in treatment between in-scope companies and indirectly scoped companies, we argue that there may be a fundamental difference in their compliance strategies. This can be explained through the lens of Bruno Frey’s motivational crowding theory, according to which the introduction of controlling incentives like regulation can reduce actor’s intrinsic motivation—crowding out—while other types of incentives, like reputational and economic benefits, can reinforce intrinsic motivation—crowding in. In the case of the CSDDD, in-scope companies would rationally adopt a formal enforcement strategy resulting in crowding out,176 while indirectly scoped companies, facing reputational and relational market forces, would develop an intrinsic motivation for compliance resulting in crowding in.
In addition to differences in liability and enforcement exposure, different channels of CSDDD impact on US companies may also significantly affect companies’ compliance motivations and strategies. US companies directly
subject to the Directive are likely to adopt a more tactical compliance strategy, focusing on mitigating risks and complying with minimum requirements to avoid penalties. Conversely, US companies indirectly affected may adopt a more strategic compliance approach, seeing compliance as a strategy to enhance market position and gain a competitive edge in the EU.
This distinction is not just theoretical; it has real-world implications for effectiveness and operational efficiency. Companies embracing strategic compliance are more likely to see enhanced credibility and attractiveness in both EU and global markets, whereas those with a purely tactical focus may struggle.177 The implication being that companies with less genuine engagement with and integration of sustainability in core operations are worse-off in the markets. Understanding and positioning compliance strategies as either tactical or strategic can therefore significantly influence how US companies prepare for and react to the CSDDD, ultimately impacting their performance and sustainability outcomes.
B. Tactical vs. Strategic Compliance: Understanding US Company Approaches to CSDDD Compliance
Depending on the channel of applicability of the CSDDD, US companies are likely to adopt fundamentally different compliance strategies.178 US companies directly subject to the CSDDD are likely to approach compliance through a tactical lens.179 This approach emphasizes risk mitigation and minimal compliance to avoid penalties, reflecting the default behavior of companies exposed to administrative liability.
1. Risk-Based Compliance Programs: Some companies design compliance programs around a risk-based approach.180 The riskbased approach is a technical strategy whereby compliance is centered around risk-reduction.181 The primary objective is to minimize liability by addressing the most significant regulatory
risks.182 Measures implemented ensure compliance with minimum requirements, often aligning narrowly with legal obligations. 2. Extrinsic Motivation: For directly affected companies, the motivation to invest in compliance is extrinsic.183 It arises from rational calculations aimed at reducing overall costs associated with mitigation measures, liability, and potential penalties. Compliance becomes a cost-management exercise rather than a value-driven initiative.184
3. Minimization of Liability Risk: These companies’ efforts are likely to focus on satisfying the baseline requirements needed to sufficiently reduce liability risks. As a result, their compliance programs may lack the depth or ambition associated with more strategic approaches, opting instead for a reactive stance.
Paradoxically, US companies indirectly affected by the CSDDD are more likely to adopt a genuine, strategic approach to compliance.185 These companies, while not directly obliged by the Directive, face pressure from global supply chains and market expectations tied to CSDDD compliance.186
1. Compliance as a Business Strategy: For indirectly affected companies, compliance with the CSDDD represents an opportunity to enhance their market position.187 By aligning their operations with CSDDD standards, they can position themselves as reliable partners for larger global companies within the directive’s scope.188
2.
Compliance becomes a strategic tool to increase their attractiveness and competitiveness in the EU and beyond.189 Intrinsic Motivation: Unlike directly affected companies, indirectly affected entities are intrinsically motivated to invest in compliance.190 Their investments stem from a proactive desire to gain a competitive edge rather than simply mitigating risks.191 Compliance is seen as a pathway to market expansion and differentiation.192
3. Long-Term Value Creation: Strategic compliance emphasizes longterm value creation through enhanced sustainability, improved brand reputation, and strengthened relationships with key stakeholders. These companies are likely to adopt more comprehensive compliance programs, integrating sustainability and human rights considerations as core elements of their business strategy.193
C. Contrasting Approaches: Conditions, Implications, and Outcomes
The contrasting approaches of directly and indirectly effected US companies illustrate the complex dynamics of regulatory compliance. Directly affected companies prioritize tactical compliance, driven by extrinsic motivations and focused on minimizing liability.194 Conversely, indirectly affected companies embrace strategic compliance because they are motivated both by intrinsic factors and the goal of leveraging compliance as a competitive advantage.195 This dichotomy underscores the importance of understanding the regulatory context and motivations shaping corporate behavior. While tactical compliance fulfils legal requirements, strategic compliance aligns with broader business objectives, fostering innovation, resilience, and long-term growth.196
immediate
But how likely are American companies and other non-EU businesses to widely embrace this strategic compliance response? The first point has to do with the degree to which in-scope companies will require substantive compliance from out-of-scope suppliers. In this respect, the motivation for EU companies to both fully carry out the Directive’s meaningful due diligence obligation and adequately compensate foreign suppliers for heightened sustainability performance depends on
two things. The first is the strength of the EU’s enforcement regime.197 In the absence of credible or sufficient enforcement, the second driver for in-scope companies’ compliance is found in potential reputational gains.198 Here, the issues are the same as in the case of voluntary sustainability value chain management strategies.199 For one, the reputational effect is mainly relevant for consumer-facing companies.200 Moreover, companies may just as well obtain the benefits of a sustainable reputation by requesting certifications and assurances from their suppliers, without investing in resources to ensure that their sustainability claims are reliable.201 In other words, companies could engage in greenwashing, a practice that is already widespread in the EU.202 In this case, out-of-scope companies may choose to remain tied to EU companies and the EU market but could fail to see the benefit of making substantial changes to their business operations.203
Even assuming credible enforcement from European public authorities, uncertainties remain. For one, the introduction of a binding sustainability due diligence obligation will affect bargaining power and contract negotiation strategies between in-scope and out-of-scope companies.204 In-scope buyers will therefore require heightened compliance from their suppliers and increase their investments in monitoring.205 Assuming that sustainable performance is costly, suppliers will only be able to meet the buyer’s demands if the buyer itself internalizes the cost and adequately compensates for it.206 That may only work in cases where the in-scope buyer has a willingness to pay the increased price for substantive compliance and is equally able to reward an American supplier with a higher price.207 If the requirement of higher compliance quality is not
communicated by the American supplier, information asymmetry can emerge, resulting in Akerlof’s well-known “Market for Lemons,” and thus market failure.208 The attractiveness of the EU market is ultimately the cornerstone of the its extraterritorial sustainability policy.209 Should indirectly affected suppliers find it too burdensome to engage with in-scope companies because of heightened costs and insufficient compensation, they may turn to non-European alternatives and thus choose the exit option.
The Corporate Sustainability Due Diligence Directive represents a significant evolution in global regulatory standards, placing heightened expectations on corporate actors to prioritize sustainability and ethical business practices. For US companies, the implications of the Directive are profound, particularly in the light of the deepening and increasingly complex nature of US-EU trade relations. This interconnection underscores the urgent need for proactive adaptation and strategic foresight.
More than just a regulatory requirement, the CSDDD signals the broader evolution of corporate accountability in the 21st century. Its emphasis on stakeholder engagement and long-term sustainability highlights a growing acknowledgment of the pivotal role businesses play in addressing the world’s most pressing challenges. US companies that view compliance not simply as a legal obligation but as a catalyst for growth, innovation, and leadership in sustainability will be better positioned to thrive in this new era of corporate governance.
Faced with the CSDDD, American businesses face a range of choices. They can continue lobbying to influence the regulatory framework, sever business ties with EU entities and their global value chains, or align with the Directive’s requirements. The EU’s extraterritorial sustainability policy leverages the attractiveness of its internal market as a mechanism to encourage global compliance. While the full impact of this “Brussels effect” remains to be seen— particularly regarding whether non-EU companies will move to alternative markets—the CSDDD will undeniably reshape global trade dynamics in profound ways.
The Directive’s dual applicability—imposing direct obligations on companies with significant EU operations and indirect duties through cascading contractual obligations—underscores the need for a comprehensive, integrated compliance strategy. For directly impacted companies, the risk of civil and administrative liability necessitates robust systems to embed due diligence across their operations and supply chains. For those affected indirectly, compliance presents an opportunity to differentiate commercially by aligning with EU sustainability standards, facilitating access to European markets, and enhancing business relationships.
US companies must decide between two distinct compliance strategies: tactical, risk-averse approaches that merely meet the minimum legal requirements to retain EU market access, and strategic, proactive approaches that drive longterm business growth. The former, often motivated by extrinsic factors such as avoiding penalties or reputational damage, may ensure short-term compliance but risks creating a fragmented, superficial engagement with sustainability. This leaves companies vulnerable to future regulatory developments and evolving market expectations.
In contrast, a strategic approach—driven by intrinsic motivations such as corporate values, long-term objectives, and a commitment to sustainability— offers more sustainable outcomes. By embedding sustainability into core operations and strategic frameworks, US companies not only meet the Directive’s demands but also gain a competitive edge. This includes enhanced market positioning, improved stakeholder trust, and the opportunity for innovation and operational efficiencies. Companies that adopt this approach will be better equipped to anticipate and respond to future regulatory changes, positioning themselves as leaders in responsible business practices.
The CSDDD is not merely a regulatory mandate; it serves as a blueprint for the future of global trade and corporate governance. Its far-reaching influence signals the move toward harmonized global standards, transcending borders and setting the stage for similar regulations in other jurisdictions. By aligning with the CSDDD’s principles, US companies can stay ahead of the curve, building resilience against future regulatory frameworks and differentiating themselves as responsible, forward-thinking businesses.
In essence, the CSDDD offers US companies the opportunity to redefine their role in the global economy. By embracing its principles and integrating sustainability into their operations, companies can secure long-term growth, mitigate risks, and shape their narrative as leaders in ethical business practices. The decision to adopt a tactical or strategic approach to compliance will ultimately determine not just how companies navigate the challenges of the CSDDD but also how they position themselves in an increasingly interconnected and sustainability-conscious global marketplace.
**
--- FOOTNOTES ---
ABSTRACT
* Silvia Ciacchi, PhD Candidate, Erasmus University Rotterdam, European Doctorate in
Law and Economics.
** Michael Faure, Emeritus Professor of Comparative Private Law and Economics, Erasmus University Rotterdam; Emeritus Professor of Comparative and International Environmental Law, Maastricht University; Adjunct Professor, Faculty of Law, Universitas Indonesia.
*** Sharon Oded, Professor of Corporate Compliance and Enforcement, Erasmus University
Rotterdam.
TABLE OF CONTENTS
II. APPLICABILITY OF THE CSDDD AND ITS
INTRODUCTION
1. Directive (EU) 2024/1760, of the European Parliament and of the Council of 13 June 2024 on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, 2024 O.J. (L 2024/1760) [hereinafter CSDDD].
2. Erik Lidman, The EU Framework on ESG, RESEARCH HANDBOOK ON ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE 378, 378 (Thilo Kuntz ed., 2024), https://www.elgaronline. com/edcollchap/book/9781802202533/book-part-9781802202533-30.xml.
3. European Commission, The European Green Deal, https://commission.europa.eu/ [https://perma.cc/CKL4-R3AW]
strategy-and-policy/priorities-2019-2024/european-green-deal_en (last visited Dec. 19, 2024).
4. CSDDD, supra note 1, rec. 15, 16.
5.
Sustainability Corporate Governance Initiative, EUROPEAN COMMISSION: HAVE YOUR SAY – PUBLIC CONSULTATIONS AND FEEDBACK (Nov. 26, 2020), https://ec.europa.eu/info/law/betterregulation/have-your-say/initiatives/12548-Sustainable-corporate-governance_en. [https://perma.cc/ 5SWR-7LRQ].
6. Silvia Ciacchi, The newly-adopted Corporate Sustainability Due Diligence Directive: an overview of the lawmaking process and analysis of the final text, 25 ERA FORUM 29, 32–33 (2024).
7. Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937, COM (2022) 71 final (Feb. 23, 2022).
8. Nadi Bernaz et al., Can the Compromised EU Corporate Sustainability Due Diligence Directive Still Be Effective?, RESEMBLANCE (Apr. 24, 2024), https://rebalanceproject.org/can-thecompromised-eu-corporate-sustainability-due-diligence-directive-still-be-effective [https://perma. cc/K6E7-Y4B6].
9. EUROPEAN UNION, Trilogue - EUR - Lex, https://eur-lex.europa.eu/EN/legal-content/
glossary/trilogue.html [https://perma.cc/75CE-3WWN] (last visited Sep. 17, 2025).
10. Ciacchi, supra note 6 at 33–34.
11.
Id. at 34–35.
12. Compare Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937, supra note 7, arts. 25, 26 (requiring Member states to ensure that their laws regarding a breach of directors’ duties apply and that Member states ensure that directors are responsible) with CSDDD, supra note 1, arts. 25, 26 (imposing no direct duties on directors).
13. Corporate Sustainability Due Diligence, EUROPEAN COMMISSION, https://commission.
europa.eu/business-economy-euro/doing-business-eu/sustainability-due-diligence-responsiblebusiness/corporate-sustainability-due-diligence_en [https://perma.cc/B2QK-YAX3] (last visited Sep. 17, 2025).
14. Directive (EU) 2022/2464, of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC, and Directive 2013/34/EU, as Regards Corporate Sustainability Reporting, 2022 O.J. (L 322) 15-80.
15. Regulation (EU) 2020/852, of the European Parliament and of the Council of 18 June 2020 on the Establishment of a Framework to Facilitate Sustainable Investment, and Amending Regulation (EU) 2019/2088, 2020 O.J. (L 198) 13, 43.
16. Ursula von der Leyen, President, European Commission, Speech at the European Parliament Plenary on the New College of Commissioners and Its Programme, https://enlargement.ec.europa.eu/ news/speech-president-von-der-leyen-european-parliament-plenary-new-college-commissioners-andits-2024-11-27_en [https://perma.cc/H36Z-UUYM] (last visited Feb. 25, 2025). The considerations in this paper are informed by developments observed until October 2025.
17. At the time of writing, the Omnibus proposal is undergoing the EU legislative process, including procedural votes, the issuing of new draft versions of the text, and interinstitutional negotiations. The outcome of this process—meaning the final version of the Omnibus text—is unlikely to be finalized before 2026.
18. Commission Staff Working Document, Impact Assessment Report Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937, SWD (2022) 42 final (Feb. 23, 2022).
19. The term “Brussels Effect” was coined by Anu Bradford in an influential book explaining how the EU is able to unilaterally export its regulatory standards abroad through market mechanisms, leveraging factors like the size and attractiveness of its internal market, its regulatory capacity, and the embeddedness of EU firms in global value chains. ANU BRADFORD, THE BRUSSELS EFFECT: HOW THE EUROPEAN UNION RULES THE WORLD (Oxford Univ. Press 2020), https://academic.oup.com/ book/36491.
20. FREDRIK ERIXON, PHILIPP LAMPRECHT & RENATA ZILLI MONTERO, EUROPEAN CENTRE FOR INT’L. POL. ECON., THE NEW WAVE OF DEFENSIVE TRADE POLICY MEASURES IN THE EUROPEAN UNION: DESIGN, STRUCTURE, AND TRADE EFFECTS (2022).
21. EU Trade Relations with the United States: Facts and Figures, TAXSPOC (Jan. 16, 2025), https://www.taxspoc.com/articles/eu-trade-relations-with-the-united-states-facts-and-figures [https:// perma.cc/6TXZ-GMWK].
22. USA-EU - International Trade in Goods Statistics, EUROSTAT, https://ec.europa.eu/ eurostat/statistics-explained/index.php?title=USA-EU_-_international_trade_in_goods_statistics [https://perma.cc/3FRW-EQH5] (last visited Dec. 9, 2024).
23. SHAYERAH I. AKHTAR, CONG. RSCH. SERV., U.S.-EU Trade and Economic Relations,
(2025), https://www.congress.gov/crs-product/IF10931.
24. Oil and gas is the largest US export to the EU, valued at approximately $64.55 billion. EU-US Trade: Facts and Figures, CONSILIUM, https://www.consilium.europa.eu/en/infographics/euus-trade/ [https://perma.cc/M2ZT-G9EB] (last visited Dec. 9, 2024).
25.
26. Estimations can be found at CSDDD Datahub - Search for a Company - SOMO,
https://www.somo.nl/csddd-datahub/#look-for-company (last visited Feb. 25, 2025).
27. The obligations of the CSDDD are explained in Section I.B.
28. This interconnectedness between the US and EU economies remains notwithstanding the US tariff policies announced in early 2025 to end the ensuing “trade war.” While trade balances may shift in the months and years ahead, the EU is sure to remain a key trade partner for the US over the long term.
29. U.S. Exports of Trade Goods to the EU 2024 from 1997 to 2024, STATISTA,
https://www.statista.com/statistics/186576/volume-of-us-exports-of-trade-goods-to-the-eu-since1997/ (last visited Dec. 30, 2024).
30. Trade and Economic Security: United States, EUROPEAN COMMISSION, https://policy. trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/united-states_en [https://perma.cc/9L6D-GN38] (last visited Nov. 6, 2025).
31.
32. Volume of U.S. Imports of Trade Goods from the European Union from 1997 to 2023, STATISTA, https://www.statista.com/statistics/187737/volume-of-us-imports-of-trade-goods-fromthe-eu-since-1997/ (last visited Oct. 11, 2025).
33.
34.
See generally Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in
Firms, Organizations, and States (1970).
35.
36. Elizabeth Meager, US Business Groups Set on Weakening EU Sustainability Rules, SUSTAINABLEVIEWS, https://www.sustainableviews.com/us-business-groups-set-on-weakening-eusustainability-rules-4895cf26/ (last visited Feb. 25, 2025).
37.
Senate Committee on Commerce, Science, and Transportation: Full Committee Nomination Hearing, 119th Cong. 33 (2025) (statement of Howard Lutnick) (“The extensive scope and burdensome regulations in CSDDD is a real concern for American industry and the American economy.”).
I. OVERVIEW OF THE CSDDD
38.
See, e.g., CSDDD recital 16.
39. CSDDD recitals 4, 16, 31.
40. Ciacchi, supra note 6, at 32–34.
41. A renewed EU strategy 2011-14 for Corporate Social Responsibility, at 14, COM (2011)
681 final (Oct. 25, 2011).
42. Ciacchi, supra note 6, at 33–35.
43.
See generally European Commission, Sustainable Corporate Governance Initiative: Summary Report – Public Consultation, Ares (2021) 3297206, https://eur-lex.europa.eu/legal-content/ EN/TXT/HTML/?uri=PI_COM:Ares(2021)3297206.
44. CSDDD art. 37. Although implementation was scheduled to begin in 2027, the dates
mentioned in Article 37 will be pushed back in light of the Omnibus amendments.
45. Companies should pursue these goals through “best efforts.” See CSDDD art. 22(1).
46. CSDDD art. 8, 10, 11.
47. CSDDD art. 22.
48. Sustainable Corporate Governance Initiative: Summary Report – Public Consultation, EUROPEAN COMMISSION, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/ 12548-Sustainable-corporate-governance/public-consultation_en (last visited Oct. 11, 2025).
49. Wide consultations are a required aspect of the EU lawmaking process, as they are necessary to ensure that both the principles of proportionality and subsidiarity of EU law are preserved. See Protocol (No. 2) on the Application of the Principles of Subsidiarity and Proportionality, art. 2, Mar. 30, 2010, 2010 O.J. (C 83) 206 (annexed to the Treaty on European Union and the Treaty on the Functioning of the European Union).
50.
See e.g., Promising yet Flawed: EU Law on Corporate Sustainability Faces Key Challenges, THE DANISH INSTITUTE FOR HUMAN RIGHTS (Jan. 10, 2024), https://www. humanrights.dk/news/promising-yet-flawed-eu-law-corporate-sustainability-faces-key-challenges.
51. E.g. Paul Krüger Andersen et al., Response to the Proposal for a Directive on Corporate Sustainability Due Diligence by Nordic and Baltic Company Law Scholars (Nordic & European Co. L. Working Paper, Paper No. 22-01, 2022), https://papers.ssrn.com/abstract=4139249.
52.
See Speech by President von der Leyen at the European Parliament Plenary on the new
College of Commissioners and Its Programme, supra note 16.
53.
See Libby Hargreaves, EU’s Omnibus Package Sparks Debate on Supply Chain Rules, SUPPLY CHAIN DIGITAL (Feb. 4, 2025), https://supplychaindigital.com/sustainability/deregulationhow-will-the-eu-omnibus-impact-sustainability.
54. CSDDD art. 4.
55.
See European Union Directives, EUR-LEX, https://eur-lex.europa.eu/legal-content/EN/
TXT/?uri=legissum:l14527 (last visited Apr. 14, 2025).
56.
See Ciacchi, supra note 6.
57. CSDDD art. 3(c), annex I part I §§ 1–2.
58. CSDDD art. 3(b), annex I part I § 1 (1)(15) and part II.
59. Overview of obligations can be found in CSDDD art. 5.
60.
61.
62.
63.
64.
65.
See CSDDD art. 7.
See CSDDD art. 8.
See CSDDD art. 10(2)(a).
See CSDDD art. 11(3)(b).
See CSDDD art. 10(2)(c); CSDDD art. 11(3)(d).
See CSDDD art. 10(2)(d); CSDDD art. 11(3)(e).
66.
See Eur. Comm’n, SME Definition, https://single-market-economy.ec.europa.eu/smes/ sme-fundamentals/sme-definition_en [https://perma.cc/VJ4H-U28N] (last visited Sep. 16, 2025) (describing the criteria used under EU law to define small and medium-sized enterprises).
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
See CSDDD art. 10(2)(e); CSDDD art. 11(3)(f).
See CSDDD art. 10(2)(b); CSDDD art. 11(3)(c).
See CSDDD art. 10(5); CSDDD art 11(6).
See CSDDD art. 10(6); CSDDD art. 11(7).
See CSDDD art. 13.
See CSDDD art. 14.
See CSDDD art. 15.
See CSDDD art. 16.
See CSDDD art. 5(4).
See CSDDD art. 22.
See CSDDD art. 23.
See CSDDD art. 27.
See CSDDD art. 29.
80.
See CSDDD art. 3(1)(f)(i)–(ii) (“‘[B]usiness partner’ means an entity: (i) with which the company has a commercial agreement related to the operations, products or services …(‘direct business partner’); or (ii) which is not a direct business partner but which performs business operations related to the operations, products or services of the company (‘indirect business partner’)”).
81. CSDDD art. 3(1)(g)(i)–(ii).
82. CSDDD art. 1(a).
83. CSDDD art. 3(1)(b).
84. CSDDD art. 3(1)(c).
85.
86.
87.
See CSDDD annex part I § 1.
See CSDDD annex part I § 2.
See CSDDD annex part I § 1(1), (15).
88. CSDDD art. 3(1)(b)–(c).
89. CSDDD art. 3(1)(c)(i)–(ii).
90.
See CSDDD annex part II.
91. CSDDD art. 3(1)(g).
92.
See generally CSDDD annex parts I–II (listing international human rights and
environmental conventions that define adverse impacts under the Directive).
93.
See Nicolas Bueno et al., The EU Directive on Corporate Sustainability Due Diligence
(CSDDD): The Final Political Compromise, 9 BUS. & HUM. RTS. J. 294, 295–296 (2024).
94. U.N. Human Rights Office of the High Commissioner, Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework, U.N. Doc. HR/PUB/11/04 (2011).
95.
See John Gerard Ruggie, Caroline Rees & Rachel Davis, Ten Years After: From UN
Guiding Principles to Multi-Fiduciary Obligations, 6 BUS. & HUM. RTS. J. 179, 180–81 (2021).
96.
See Signe Andreasen Lysgaard & Gabrielle Holly, Regulating Business and Human Rights in the EU: The Need for a Continued Interplay Between Soft and Hard Law (May 29, 2024) (unpublished manuscript), https://papers.ssrn.com/abstract=4847499.
97.
See CSDDD art. 5; CSDDD art. 3(1)(g).
98. CSDDD art. 7.
99. CSDDD art. 7(2)(b).
100. CSDDD art. 7(3).
101. CSDDD art. 8.
102. CSDDD art. 8(2)(b).
103. CSDDD art. 10.
104. CSDDD art. 10(2)(a).
105. CSDDD art. 11.
106. CSDDD art. 10(2)(c); CSDDD art. 11(3)(d).
107. CSDDD art. 10(2)(d); CSDDD art. 11(3)(e).
108. CSDDD art. 10(2)(e); CSDDD art. 11(3)(f).
109. CSDDD art. 10(2)(b); CSDDD art. 11(3)(c).
110. CSDDD art. 10(5); CSDDD art. 11(6).
111. CSDDD art. 10(6); CSDDD art. 11(7).
112. CSDDD art. 13.
113. CSDDD art. 13(3), (4).
114. CSDDD art. 14.
115. CSDDD art. 4(4).
116. CSDDD art. 15.
117. CSDDD art. 16.
118. CSDDD art. 5(4).
119. CSDDD art. 22.
120. CSDDD art. 22(1).
121. CSDDD art. 22(2).
122.
123. CSDDD art. 23.
124. CSDDD art. 23(4).
125. CSDDD art. 29(1)(a).
126. CSDDD art. 29(1)(b).
127. CSDDD art. 29(1).
II. APPLICABILITY OF THE CSDDD AND ITS RELEVANCE TO US COMPANIES
128. CSDDD art. 27(3)(a).
129. CSDDD art. 27(4).
130. CSDDD art. 27(3)(b); see also CSDDD art. 27(5).
131. CSDDD art. 2.
132. CSDDD art. 2(1)(a).
133. David Lakhdhir, The EU Due Diligence Directive:
Implications
for U.S.
Companies, American Bar Association (July 15, 2024), https://www.americanbar.org/groups/ business_law/resources/business-law-today/2024-july/eu-due-diligence-directive-implicationsus-companies/ [https://perma.cc/P5U8-BXJ8].
134. CSDDD art. 2(2)(a).
135. CSDDD art. 2(2)(b).
136.
137. CSDDD Datahub – Seach for a Company, supra note 26 (Go to search box and filter by
United States of America. Then look at number of companies at the bottom of the table).
138. CSDDD art. 18.
139. Responsible Contracting Project, European Model Clauses (forthcoming quarter 4 2025) [hereinafter EMC], https://www.responsiblecontracting.org/emcs [https://perma.cc/LM5J-6H4M] (last visited May 5, 2025) (download the pdf on the website).
140. EMC art. 1.1(d)(i).
141. EMC art. 1.2(b).
142. EMC art. 1.3(e).
143. EMC art. 2(d); EMC art. 3(5)(b).
144. EMC art. 1(1)(d)(i).
145. EMC art. 1(2)(b).
146. EMC art. 1(3)(e).
147.
148. EMC art. 2(d); EMC art. 3(5)(b).
149. CSDDD art. 16.
150. CSDDD art. 16(1); see also CSDDD art. 5(4).
151. CSDDD art. 16(3).
152. CSDDD art. 29(1).
153.
154. CSDDD art. 29(5).
155. Proposal for a Directive of the European Parliament and of the Council of Amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as Regards Certain Corporate Sustainability Reporting and Due Diligence requirements, COM (2025) 81 final (Feb. 26, 2025).
156. Sebastião Vieira de Freitas Netto et al., Concepts and Forms of Greenwashing: A Systematic Review, 32 ENV’T SCI. EUROPE, no. 1, Dec. 2020; Stefan Koos, Civil Law, Conflict of Laws, and Extraterritoriality in the European Supply Chain Due Diligence Law, 10 HASANUDDIN L. REV. 144, 160 (2024); Nadia Perrone, Perspectives of Extraterritorial Jurisdiction for Environmental
Damage in the Proposal of the European Directive on Corporate Sustainability Due Diligence, 3 THE ITALIAN REV. OF INT’L AND COMPAR. L. 389, 404 (2023).
157. CSDDD art. 27(4).
158. EMC art. 5.
159.
See Michael Hadani, The Reputational Costs of Corporate Litigation: Long-Term Media Reputation Damages to Firms’ Involvement in Litigation, 24 CORPORATE REPUTATION REVIEW 234 (2021).
160.
See, e.g., John Armour et al., Regulatory Sanctions and Reputational Damage in Financial Markets, 52 J. OF FIN. AND QUANTITATIVE ANALYSIS 1429 (2017); Jonathan M. Karpoff et al., The Reputational Penalties for Environmental Violations: Empirical Evidence, 48 THE J. OF L. AND ECON. 653 (2005).
161. CSDDD art. 27(3)(b).
III. COMPLIANCE STRATEGIES UNDER THE CSDDD
162. Michael Faure, The Development of Environmental Criminal Law in the EU and Its Member States, 26 REV. OF EUR., COMPAR. & INT’L ENV’T L. 139 (2017); Michael Faure, Environmental Criminal Liability: The Long and Winding Road towards an Effective Environmental Criminal Law System in the EU, RSCH. HANDBOOK ON EU ENV’T L. 248 (Marjan Peeters & Mariolina Eliantonio eds., 2020).
163.
See Florentin Blanc & Michael Faure, Smart Enforcement in the EU, 23 J. OF RISK
RESEARCH 1405 (2020).
164. Or full-time equivalents (“FTEs”), meaning a standard measure that converts part-time or non-standard hours into the equivalent of a full-time role, typically based on a 40-hour work week. Glossary:Full-Time Equivalent (FTE), EUROSTAT (Sep. 17, 2025) https://ec.europa.eu/eurostat/ statistics-explained/index.php?title=Glossary:Full-time_equivalent_(FTE) [https://perma.cc/MZR8Y65X].
165.
See Directive (EU) 2024/1203 of the European Parliament and of the Council of 11 April 2024 on the Protection of the Environment Through Criminal Law and Replacing Directives 2008/ 99/EC and 2009/123/EC, 2024 O.J. (L 1203) 1.
166.
Id. art. 17, at 24.
167.
Id. art. 18, at 25.
168.
Id. art. 22, at 26.
169. Moreover, even if the new ECD were to apply to the CSDDD, it would still not solve the issue as it does not contain an obligation for Member States to report on the number of FTEs allocated to environmental law enforcement.
170. That is also one of the reasons why, after the enlargement in 2004, notwithstanding formal harmonization, it was still attractive for many companies in Western-Europe to move East, simply because the level of enforcement was substantially more relaxed in many Eastern Member States. See Michael Faure & Jason Scott Johnston, The Law and Economics of Environmental Federalism: Europe and the United States Compared, 27 VA. ENV’T L.J. 205 (2009).
171. HIRSCHMAN, supra note 34.
172. All other things being equal.
173. CSDDD art. 24(3).
174. CSDDD art. 23(1).
175. EMC art. 2(a).
176.
See BRUNO FREY, NOT JUST FOR THE MONEY: AN ECONOMIC THEORY OF PERSONAL MOTIVATION 7–35 (1997); Bruno S. Frey & Felix Oberholzer-Gee, The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out, 87 AM. ECON. REV. 746, 747 (1997).
177.
See Juan Dempere et al., The Entrepreneurial Impact of the European Directive on Corporate Sustainability Due Diligence, 14 ADMIN. SCI. 266, 284 (2024); Clelia L. Rossi, Compliance: An Over‐ looked Business Strategy, 37 INT’L J. SOC. ECON. 816, 818 (2010); Joana Story & Pedro Neves, When Corporate Social Responsibility (CSR) Increases Performance: Exploring the Role of Intrinsic and Extrinsic CSR Attribution, 24 BUS. ETHICS: EUR. REV. 111, 119 (2015).
178.
See Geeyoung Min, Strategic Compliance, 57 U.C. DAVIS L. REV. 415 (2023); Neil Gunningham, Enforcement and Compliance Strategies, THE OXFORD HANDBOOK OF REGUL. 120, 122–124 (Robert Baldwin et al. eds., 2010).
179.
See generally Alessio M. Pacces, Civil Liability in the EU Corporate Sustainability Due Diligence Directive Proposal: A Law & Economics Analysis (Amsterdam Ctr. for L. & Econ. Working Paper, Paper No. 2023-02, 2023), https://papers.ssrn.com/abstract=4391121 (arguing that the design of the CSDDD leaves significant space for companies to strategically avoid liability).
180. Samson Esayas & Tobias Mahler, Modelling Compliance Risk: A Structured Approach,
23 A.I. L. 271, 273 (2015).
181.
See Id.
182. Fabian Teichmann, et al., Compliance as a Form of Defense against Corporate Criminal Liability, 1 J. ECON. CRIM. 100004, 2 (2023); See also Stuart Bazley, Risk-Based Financial Regulation and Compliance Officer Liability, FINANCIAL COMPLIANCE: ISSUES, CONCERNS AND FUTURE DIRECTIONS 137 (Maria Krambia-Kapardis ed., 2019).
183.
See, e.g., John K. Stranlund, Risk Aversion and Compliance in Markets for Pollution
Control, 88 J. ENV’T MGMT. 203, 206-08 (2008).
184.
See Marcel Hofeditz et al., “Want to” Versus “Have to”: Intrinsic and Extrinsic Motivators as Predictors of Compliance Behavior Intention, 56 HUM. RES. MGMT. 25, 26–28 (2017); Nadja Dwenger et al., Extrinsic and Intrinsic Motivations for Tax Compliance: Evidence from a Field Experiment in Germany, 8 AM. ECON. J.: ECON. POL’Y 203 (2016); Diana Onu et al., The Dynamics of Internalised and Extrinsic Motivation in the Ethical Decision-Making of Small Business Owners, 68 APPLIED PSYCH. 177, 195–96 (2019).
185. This is because of the crowding-in effect explained earlier in the paper. See supra Part III.A.4. For a different perspective on a similar prediction, see Luca Enriques et al., How the EU Sustainability Due Diligence Directive Could Reshape Corporate America, 78 STAN. L. REV. (forthcoming 2026), arguing that the prospect of Caremark litigation could push U.S. companies to adopt genuine compliance with the CSDDD.
186.
See Rossi, supra note 177; Mark L. Frigo & Richard J. Anderson, A Strategic Framework
for Governance, Risk, and Compliance, STRATEGIC FIN., Feb. 2009, at 20, 22, 61.
187. Dempere et al., supra note 177, at 15.
188.
See Morgane Thorens et al., Advocating for the EU Corporate Sustainability Due Diligence Directive Against the Odds: Strategies and Legitimation, 63 J. OF COMMON MKT. STUD. 606, 619 (2025).
189.
190.
See Rossi, supra note 177; Dempere et al., supra note 177, at 15.
See Vibeke Lehmann Nielsen & Christine Parker, Mixed Motives: Economic, Social, and
Normative Motivations in Business Compliance, 34 L. & POL’Y 428, 433–34 (2012).
191.
See Story & Neves, supra note 177, at 111–12; Hofeditz et al., supra note 184, at 39.
192.
See Rossi, supra note 177, at 828–29.
193.
See Gunningham, supra note 178 at 122–25.
194.
See Hofeditz et al., supra note 184; Dwenger et al., supra note 183; Onu et al., supra note
183.
195.
See Nielsen and Parker, supra note 189; Story and Neves, supra note 177, at 111–13;
Rossi, supra note 177.
196.
See Story & Neves, supra note 177, at 120.
197. Silvia Ciacchi & Michael Faure, From Corporate Social Responsibility to Supply Chain Regulation in Europe: Economic Perspectives, 19 LAW AND ECONOMICS OF CORPORATE GOVERNANCE: SHAREHOLDERS, STAKEHOLDERS, AND BEYOND 121, 143–144 (Klaus Mathis & Avishalom Tor eds., 2025).
198. Dempere et al., supra note 177, at 15.
199.
See Ciacchi and Faure, supra note 196 at 132–34.
200. Tim Bartley & Curtis Child, Shaming the Corporation: The Social Production of Targets
and the Anti-Sweatshop Movement, 79 AM. SOCIO. REV. 653, 660 (2014).
201.
See Stefano Ponte, Green Capital Accumulation: Business and Sustainability
Management in a World of Global Value Chains, 25 NEW POL. ECON. 72, 78 (2020).
202.
de Freitas Netto et al., supra note 156, at 2.
203. Cf. Enriques et al., supra note 185, at 40 (warning that the Directive risks generating “cosmetic compliance”); Julia Sinnig & Dirk A. Zetzsche, The EU’s Corporate Sustainability Due Diligence Directive: From Disclosure to Mandatory Prevention of Adverse Sustainability Impacts in Supply Chains, 16 EUR. J. RISK REGUL. 628, 636 (2025) (discussing how the EU nexus criteria could lead to regulatory arbitrage by third-country firms and groups).
204.
See Fabrizio Cafaggi, et al., Compliance and Due Diligence in Global Value Chains: The in Global Regulation, DUE DILIGENCE,
Emergence of a EU Sustainability Framework SUSTAINABILITY AND VALUE CHAIN GOVERNANCE 1 (2025).
205. Dempere et al., supra note 177, at 11.
206.
See id. at 10–14.
207.
See generally Di Xiao, et al., Stimulating Sustainability Investment Level of Suppliers with Strategic Commitment to Price and Cost Sharing in Supply Chain, 252 J. CLEANER PROD. 119732
CONCLUSION
(2020) (explaining how combining wholesale price commitment with cost-sharing can incentivize suppliers to invest in sustainability and subsequently improve overall supply chain performance).
208. George A. Akerlof’s “Market for Lemons”: Quality Uncertainty and the Market Mechanism, 84 Q. J. ECON. 488 (1970). Akerlof’s article describes a form of market failure that arises from information asymmetries between buyers and sellers. When buyers cannot reliably distinguish between high- and low-quality products, they are unwilling to pay a premium for higher quality, instead gravitating toward lower-cost (and lower cost) options because price is the only observable signal. Over time, this dynamic allows inferior goods to drive higher-quality goods out of the market.
209.
See generally Joanne Scott, Extraterritoriality and Territorial Extension in EU Law, 62 AM. J. COMPAR. L. 87 (2014) (explaining how the EU extends the reach of its laws beyond its borders by conditioning access to its market upon others’ compliance with the EU’s standards).