Directors’ duties during the Green Transition under EU law - Reform and ramifications from corporate sustainability due diligence

In response to the climate emergency, the European Union seeks to establish a new model of inclusive growth and depicts this shift as a ‘green, fair and competitive transition’. The article examines the EU sustainable corporate governance initiative commenced in 2018 that has crystalized after 4 years in a Commission’s proposal for a Directive on corporate due diligence, which is expected to be adopted by early 2024. The focus herein is on why and how directors’ duties under company law are being discussed and potentially reformed in the EU through this new Directive. At stake are current corporate governance arrangements that have enshrined powerful norms regarding profit-maximization and shareholder primacy that can hinder the green transition. This inquiry aims to map, simplify and explain the vast and rapidly evolving EU regulatory landscape. Drawing on EU materials from 2018 to 2023, the article documents the “misunderstanding problem” and the “incentives problem” that create a dissonance between the legal norm advanced by company law and the business norm practiced by the corporate governance system. Currently mired by profound disagreements between the Commission and the Council, the EU has a rare opportunity to deliver an innovative and noteworthy reform of directors’ duties in company law by creating new legal and market incentives while remaining faithful to the core tenets of this body of law.