Mandatory sustainability due diligence: normative foundations, operating principles and economic perspectives on legal design

This thesis examines the emergence, institutionalisation, and optimal legal design of mandatory sustainability due diligence (mSDD) within EU sustainable economic governance. mSDD requires companies to identify, prevent, mitigate, and account for adverse human rights and environmental impacts across their operations and global value chains (GVCs). Originally a soft-law concept rooted in international frameworks, it has since been translated into binding law, most notably the EU's Corporate Sustainability Due Diligence Directive (CSDDD). The thesis addresses a key gap: mSDD has been institutionalised without systematic scrutiny of the assumptions and trade-offs inherent in its legal design. Using a law and economics approach, the research examines both the normative foundations of mSDD and the economic mechanisms through which it is expected to shape corporate behaviour in transnational production networks, building a unified analytical framework for assessing how mSDD should be structured to meet its objectives. The analysis first situates mSDD within the broader challenge of GVC sustainability, showing how GVCs generate negative externalities, whose internalisation is undermined by information asymmetries, coordination problems, and high transaction costs. It then deconstructs mSDD's compliance functions and identifies two core mechanisms, the risk-based approach and leverage, which serve as proportionality parameters in using GVCs as regulatory proxies. After building on a two-dimensional definition of leverage grounded in the economics of power distribution in value chains, the thesis derives six principles for optimal mSDD design, including calibrating duties to risk and leverage, adopting fault-based direct liability, combining public and private enforcement, and embedding information-forcing mechanisms in legal and enforcement design. Finally, the thesis applies this framework to the CSDDD, evaluating how far its design aligns with these principles, and comparing it to the amendments of the Omnibus Simplification Package. The book concludes with recommendations for future implementation and reflections on mSDD's role in EU sustainable economic governance.