One of the most important developments in corporate governance is the growing divide between the United States and the European Union (EU) on issues of corporate social responsibility. The starkest example of this divide comes from the new EU Directive on Corporate Sustainability Due Diligence (CS3D). The Directive holds large corporations legally accountable for how they address numerous human rights and environmental issues. In fact, the CS3D requires companies to prevent and remediate these social and environmental harms not just in their own operations, but also in the operations of their subsidiaries and even their suppliers and distributors. Importantly, the CS3D also directly applies to American corporations that generate significant revenues in the European market. The stakes of understanding how the Directive will be implemented and enforced outside the EU therefore cannot be higher.

This Article examines the implications of the CS3D’s applicability to U.S. companies and makes three contributions. First, the Article delineates the core requirements of the CS3D and its territorial reach. The upshot is that most large American corporations are affected by the Directive. But the Directive does not mandate specific corporate conduct or expect companies to guarantee outcomes. Instead, the Directive requires each company to design a due diligence process that fits its specific circumstances. Such a regulatory regime runs the risk of turning into a box-ticking exercise, without effecting real change in corporate behavior. This is where the second contribution of the Article comes in, examining whether directors and officers could face personal liability if their company fails to comply in earnest with the Directive’s requirements. Here, the Article spotlights the interplay between the CS3D and the revamped oversight duty doctrine in the United States. The main point is that the CS3D significantly increases directors’ exposure to failure-of-oversight claims. Finally, the Article explains how the unique combination of the ambitious EU regulation and the robust U.S. private enforcement landscape could reshape the way American corporations conduct business across the globe.

An Appendix to the Article is available here.

* Enriques is Professor of Business Law, Bocconi University; Fellow, ECGI. Gatti is Professor of Law, Rutgers Law School; Research Member, ECGI. Shapira is Professor of Law, Reichman University; Research Member, ECGI. We thank Federica Albano, Phil Bartram, Anu Bradford, Cary Coglianese, Sarah Dadush, Paul Davies, Alessandro De Nicola, Guido Ferrarini, Jill Fisch, Martin Gelter, Jeff Gordon, Sarah Haan, Jennifer Hill, Klaus Hopt, Anne Lafarre, Alessio Pacces, Georg Ringe, Holger Spamann, Verity Winship, and participants in conferences and seminars in Columbia Law School, UC San Francisco Law School, Georgetown Law School, Bucerius Law School, University of Miami, and in the Global Corporate Law Seminar and the ECGI Global Corporate Governance Colloquium for helpful comments. Shapira acknowledges generous financial support from the Arison ESG center. Alma Katzri and Nicholas Simoes Da Silva provided excellent research assistance.