Understanding EU Company Law Politics: The Case of the Proposal for a Directive on Corporate Sustainability Due Diligence

The nature of the firm and the role that it plays in society has become a topic of intense academic and political debate around the world. The European Green Deal, published in 2019, sets out an ambitious collection of policy initiatives linked to the EU Commission’s overarching objective of a climate neutral Europe by 2050. Several societal actors are targeted by these initiatives, with companies often taking centre-stage. While company law in the EU is primarily a national affair, the adoption of the Proposal for a Directive on Corporate Sustainability Due Diligence will have far-reaching consequences for member state national company law and corporate governance codes. Indeed, the Proposal envisages not only a responsibility for the business entity to identify, measure, and in some cases interrupt or anticipate and put a stop to human rights and environmental harms, but aims also to impose new duties on directors in overseeing these activities – an aspect of corporate law that goes to the heart of doctrine. This paper constructs a rational choice institutionalist account of the interchange of tensions and compromises that make up the increasing integration of European company law and corporate governance issues. The causal mechanisms of this phenomenon is further highlighted through the use of process tracing of the Proposal for a Directive in Corporate Sustainability Due Diligence, offering insight not only into the possible outcomes of the final piece of legislation, but for the future of company law in Europe.