The EU’s Directives on corporate sustainability reporting (CSRD) and corporate sustainability due diligence (CSDDD) are landmark pieces of legislation. They have the potential to change the internal decision-making dynamics in large companies and reduce their negative impacts on society.
Earlier this year, the European Commission announced its Omnibus which proposes to ‘simplify’ this corporate sustainability framework based on concerns regarding the competitiveness of European business.
Despite its stated aim, the Omnibus does very little to simplify the Directives. Instead, it proposes to reduce the companies subject to sustainability reporting by approximately 80 per cent and limit due diligence obligations to direct contractual partners and subsidiaries. Rather than simplifying, the Omnibus deregulates.
The Omnibus is not only a product of a changed political landscape but is also a consequence of a lack of conceptual clarity in the EU’s approach to corporate sustainability. The EU’s reforms drew on concepts from across company law, tort law, business and human rights, climate change and risk management. This caused the framework to become confused and overly complex. The reforms lacked a unifying theory that could create a more coherent framework, more robust to political opposition and business lobbying. In this blog post I put forward reflexive law as a model that can simplify and integrate the EU’s corporate sustainability framework without undermining its key policy objectives.
Reflexive Law as a Theory for Corporate Sustainability
Reflexive law is based on systems theory, which sees society as comprised of different systems that function according to their own distinct logic, values, norms, and language. As society increases in complexity, systems become more separated, and it becomes increasingly difficult for any single system to influence other systems. Hence, reform strategies where law introduces substantive rules to address social issues often fail due to society’s complexity and differentiation. Reflexive law can resolve this problem through mandatory processes and procedures which can make systems more responsive to their external effects.
In a corporate sustainability context, reflexive law has the potential to prevent companies from operating as closed systems. Legislators, like the EU, can use reflexive law to impose mandatory processes which focus companies’ internal decision makers on the external effects of their actions. The significance of reflexive law is its capacity to displace the shareholder value norm with a sense of responsibility that emerges from within the company as a result of carrying out processes focused on their external impacts. Sustainability reporting and due diligence are excellent examples of such processes, but the potential reflexive effect of the CSRD and CSDDD was and continues to be diminished by their complexity and lack of integration.
A Reimagined Omnibus
So, what, then, would the Omnibus look like if it was informed by reflexive theory? My first suggestion would be to maintain, or even expand, the thresholds of application. No reflexive effect can occur if companies are not required to carry out reporting and due diligence processes.
The second would be to ensure that reporting and due diligence obligations extend across entire corporate groups and transnational supply chains. Companies tend to avoid national frameworks of responsibility by fragmenting their business into transnational corporate groups and contractual networks. If processes are limited to subsidiaries and direct contractual partners, companies can continue to ignore harms occurring at the end of their supply chains, despite creating the conditions for those harms to occur.
My third suggestion would be a true simplification of the CSRD and CSDDD, whereby they are integrated into a single Directive and where the processes of due diligence and reporting are streamlined and become mutually reinforcing.
I also suggest a reflexive Omnibus should remove aspects of the CSRD and CSDDD that do not seek to create a sense of responsibility within the company. One such example is the CSDDD’s references to risk management, language which bolsters the idea that environmental and human rights are corporate/commercial ‘risks’ rather than harms which companies have a responsibility to prevent.
I would also either entirely redraw or remove the CSDDD’s civil liability model, which is illustrative of the conceptual confusion referenced above. Developing a model of liability based on the UN’s Guiding Principles on Business and Human Rights (UNGPs) was fraught with conceptual difficulties. For example, the UNGPs is directed toward ‘business enterprises’ while the CSDDD applies to individual companies. The EU failed to engage with the legal complexities that exist in extending liability from one company to another. What was required was a distinct justification for liability in global supply chains, where lead companies do not fully control the chain but nevertheless supervise and monitor it. One option, explored here, would be to develop a form of network liability justified by the lead companies assumption of responsibility over their supply chains.
The other alternative would be to remove civil liability entirely from the CSDDD and rely on the public enforcement provisions. This may have resulted in less political opposition to the CSDDD, given civil liability was a lightning rod for criticism both in the Commission’s original draft CSDDD and now again under the Omnibus.
Drawing Lessons From the Omnibus
The aim here is not to criticise the EU’s corporate sustainability reforms. Rather, it is an initial attempt to draw lessons from them. When the focus of politics returns to promoting sustainability, the EU experience must inform the creation of more coherent and more effective corporate sustainability laws. Perhaps a better understanding of reflexive law can contribute to improved corporate sustainability frameworks in the future.
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This blog post is based on the paper to be presented at the SMART Network Symposium, Sustainability is (Still) Possible! Governing Market Actors for a Safe and Just Space, 18-19 September 2025, at the University of Turin.
