Due diligence laws, such as the Corporate Sustainability Due Diligence Directive (2024/1760) which require companies to map, prevent, mitigate, and end adverse human rights and environmental impacts across their supply chains are controversial, as they are seen as a source of enforcement risk. Is that true? Current evidence suggests different. The expansion of liability for companies and groups, linked to developments in tort and company laws, seems unrelated to due diligence laws, which, for their part, seem to increase the information produced by companies and groups about their operations more than their liability risk. This article argues that this is a natural consequence of the use of terms such as “appropriate”, “reasonable”, “necessary” or “proportionate” to define due diligence duties. Such vague terms, and the way they are used, deter from strict enforcement, and promote information sharing. More broadly, vague terms influence (i) companies’ incentives, with potential deterrence, but also chilling effects, (ii) the evidentiary process, promoting discovery and accuracy over punishment, and (iii) corporate governance, creating a “comply or explain-plus” mechanism that promotes dialogue between companies, stakeholders and authorities. This enables the transmission of social norms and best practices… maybe. Under the right conditions. For that purpose, it needs to be used, and valued, by investors and consumers. In any event, acknowledging the role of vague terms and information production is essential to make a balanced assessment of due diligence laws.

Read the entire article here: https://ssrn.com/abstract=6759379.