Internalizing Externalities in EU Law: Why Neither Corporate Governance nor Corporate Social Responsibility Provides the Answers

Abstract

EU law purports to take sustainable development and notably its environmental dimension seriously. At Treaty level, we have seen a progression from a situation where environmental protection was not mentioned, to the inclusion of the objective of environmental protection amongst the general objectives of EU law in Article 2 of the EC Treaty, and the codification of the sustainable development principle in the environmental integration rule in Article 6 EC. If we take seriously EU law's claim of taking sustainable development and especially the environmental dimension thereof seriously, this opens up for interesting issues, for what is the significance of the overarching objective of sustainable development for the various sectors of EU law? Specifically, does EU law require the integration of the environmental dimension of sustainable development in European company law?

The position of this article is yes, it does. The first section goes on to show why, and on what level, it is necessary to integrate sustainable development into company law. The following section indicates the direction to go into to find the answer of how to integrate. Thereafter, Section 3 summarises and develops further an analysis of EU law concerning the legal consequences of the general objectives, which establish the tasks of the Community. We will focus particularly on the general objective of sustainable development, and its enhancement through the environmental integration rule contained in Article 6 EC. Section 3 demonstrates the chain of legal reasoning that establishes the legal basis in EU law for environmental integration as well as the argument for a legal obligation to carry out such integration. Section 4 concludes.

This article was presented as a draft paper at the conference 'Transnational corporate governance for the 21st century' at the George Washington University Law School on 7-8 April 2008 and has since been revised. The conference was organised by the George Washington International Law Review and the Faculty of Law at the University of Oslo and cosponsored by the American Society of International Law. Updated in September 2009.

Keywords: EU law, Community law, Treaty law, company law, environmental law, sustainable development, externalities, internalisation, boards, general objectives, corporate governance, corporate social responsibility, shareholder primacy, purpose of the company, company interest, peak oil, IPCC