Reforming EU Company Law to Secure the Future of European Business

Abstract

The world faces a complex convergence of social and ecological crises: climate change, biodiversity loss, resource scarcity, human rights violations, rising inequality and societal instability. The United Nations adopted Sustainable Development Goals (SDGs) for ‘the future of humanity and of our planet’, calling on business to contribute to solving these pressing challenges. Yet business in aggregate is a driver of the current convergence of crises and the discussion of how to promote sustainable business is therefore high up also on the agenda of the European Union (EU). The EU increasingly shows recognition of the need for regulatory initiatives to promote the integration of sustainability into European business, resonating with the EU’s high-level commitment to sustainability. This article is a contribution to the discourse on how to regulate European business so that it contributes to a sustainable future for all, including for European business itself. The article briefly outlines the basis in the EU treaties for reform of EU company law and the risks of continued unsustainability, moving on to the argument for including company law in the legislative toolbox, and outlining ideas for how such a reform could be shaped.

Financing Sustainable Value Creation

“…The lack of an effective enforcement mechanism, coupled with difficulties in litigating against large, complex multinational enterprises, mean that many financial institutions and other corporations do not incorporate sustainability risks into their strategic decision-making. 57 As noted earlier, despite the commitments made by nations in the 2015 Paris Climate Accord, recent research reveals that since that deal the world's biggest 60 banks have provided $3.8tn of financing for fossil fuel companies. 58 Research suggests that financial institution behaviour is largely unchanged by compliance with relevant sustainability guidelines.…”

“…All these initiatives are not only more or less voluntary but also limited to climate change, ignoring a comprehensive approach to financial risks rising from environmental and social unsustainable activities. Instead, regulation should be more comprehensive and science-based 55 .…”

Why policy coherence in the European Union matters for global sustainability

“…The workshop in Brussels brought together academics and EU policy officials to discuss interactions between the different policies of finance (sustainable finance and foreign direct investments), business (corporate governance related to GVCs) and products (the circular economy initiatives), and to the extent to which these either enable or constrain policy coherence in the transition to sus- (3) reform suggestions that had been previously identified in our research (Cullen et al, 2020;Maitre-Ekern et al, 2020;Sjåfjell, Mähönen, et al, 2020), so that we could receive feedback. For the last session, which was a key component in our data collection, we used the following conceptual background as basis for the discussion (see also Appendix S2):…”

“…As an example, we can consider our key reform proposals for business; integrating sustainability properly into the duties of the board, and requiring a stringent sustainability assessment and sustainability due diligence. This will give businesses a comprehensive overview of their sustainability risks, a better basis for implementing this throughout their business structures, including in their risk management systems, and a relevant and reliable basis for their sustainability reporting (Sjåfjell, Mähönen, et al, 2020). This diverges from what businesses have been subject to so far-increasing and haphazard requirements and expectations for sustainability reporting, without any clear link to the core duties of the board, and without a level playing field among businesses or legal certainty for corporate decision-makers.…”

“…Sustainable finance is one of six priorities of the European Commission for 2019-2024 and part of the European Green Deal (European Commission, 2022a). Already in 2019 and 2020, two significant legislative instruments were adopted: the Disclosure Regulation and the Taxonomy Regulation (European Commission, 2020b, 2020c. In 2021, the EU launched its renewed Strategy for Financing the Transition to a Sustainable Economy (European Commission, 2021a), which included additional action points to complement and build on the first Action Plan on sustainable finance.…”