Section Law: Economic and Legal Problems of Sustainable Development


Over the last decade, the mandatory legislation that requires large companies to conduct due diligence for the social, environmental, and ethical risks within their economic activities and to manage those risks efficiently has been rapidly expanding across Europe. On 23 February 2022 the European Commission unveiled a proposal for a Directive on corporate sustainability due diligence. Following numerous amendments adopted by the European Parliament on 1 June 2023, the proposal now enters negotiations with the EU Council and member states for further refinement. The proposal introduces mandatory human rights and environmental due diligence (mHREDD) which establishes provisions for corporate liability when companies meeting the employee number and turnover criteria specified in the proposal fail to adhere to due diligence obligations, causing otherwise avoidable harm. The adoption of mHREDD transforms the prevention of harmful impacts on human rights and the environment from a voluntary practice of companies into a normative standard of their conduct. Therefore, compliance with the Directive's requirements will become part of a company's compliance as an internal process aimed at ensuring adherence to existing norms and rules. A large proportion of companies targeted by the proposal, while appearing cooperative, seek to weaken the future rules through the corporate lobbying. Among the tactics used to undermine the law is lobbying the so-called “safe harbour” exemption. With a “safe harbour” exemption, the legislature sets out criteria that, if met, could exclude liability and the corresponding ability of claimants to bring action. In the context of the proposal of the Directive “safe harbour” means that a company shall be released from all legal actions upon proof that it had carried out a legally valid due diligence assessment. Safe harbour exemption is contrasted with the use of due diligence as a procedural defence, which the defendant company can plead and seek to prove in court. The proposal’s implications are important for Ukraine considering its status as a candidate country for EU membership. Ukrainian companies, unlike those in the EU countries, lack experience of operating within the framework of corporate social responsibility and non-financial reporting to build upon, and the culture of corporate sustainability is in its nascence. A “safe harbour” approach, under which when the company has seemingly complied with the due diligence process (which might be a mere “tick-box exercise”), it will not be held liable for the harmful effects of its activities, will have devastating impact for the development of corporate sustainability tradition in Ukraine.


economic activity, sustainable development, responsible business conduct, business and human rights, due diligence, compliance, corporate legal relations, internal economic relations


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