Vitória Menezes Sanhudo (master’s student in European Union Law at the School of Law of the University of Minho)

Over the last decade, the regulatory environment for corporate sustainability in the European Union (EU) has been increasingly reflecting a mindset shift regarding the concept of corporation. The analysis presented here is based on that premise. Despite recent legislative changes resulting from the Omnibus Package, it still seems reasonable to assume that the paradigm of corporate environmental (and social) responsibility in the EU has changed from a shareholder centred approach to a stakeholder-centred and sustainability-oriented approach.

We aim to analyse the ongoing transformation of corporate governance in the EU and the path that appears to be taking shape for the future, while remaining fully aware – against the backdrop of this central issue –, of the changes resulting from the Omnibus Package, which have simplified certain reporting and due diligence obligations regarding sustainability in response to criticism of growing regulatory complexity, mainly deriving from corporations’ limited administrative capacity. The objective is to determine whether the growing integration of sustainability into EU law merely represents increased regulatory density regarding the sustainability of the traditional corporate model or if it signals a structural transformation of the very concept of the commercial corporation towards a model in which sustainability, and perhaps purpose-driven models, assume primacy.

The traditional corporate model

The for-profit business corporation has evolved over time in both its legal and social conception. Nevertheless, during a period that may be broadly defined as extending from the late 1990s and early 2000s until 2014 (with reference to the European legislation to be analysed below), a broad consensus emerged regarding the primacy of the shareholder-oriented model. However, although this deference to shareholders’ interests is not presented as a unilateralist point of view –  detached from the reality in which it operates and solely focused on the goal of generating profit –, it ultimately has that effect. In other words, even if, under any legal system, a business corporation is never viewed as a self-contained entity that exists in complete abstraction from its impacts on society, consideration of its effects on the outside world and on the community is ultimately neglected in the practical conduct of its business activities, causing evident harm.[1]

Henry Hansmann and Reinier Kraakman argue that shareholder primacy represents the culmination of the internal logic of corporate law. In their essay, titled “The End of History for Corporate Law”, the authors offer a reflection on the reasons behind the nearly global triumph of this shareholder-centred view, explaining that, although it is necessary to harmonise the diffuse interests of stakeholders and shareholders, the former should not interfere with corporate law. Rather, these interests should be safeguarded through other areas of law, which, in their view, constitute the most effective means to protect them.[2] Therefore, in the spirit of intellectual honesty, we do not intend to disparage this conception by equating it with a disregard for any interest beyond pure profit, but rather to present it as a viewpoint that argues that shareholders’ interests must be at the centre of management decisions and that directors must be accountable to them. From a more passionate, though measured perspective, Milton Friedman wrote along the same lines, firmly advocating for the separation between the obligations of the state and those of a commercial corporation (a private entity).[3]

Corporate sustainability as an EU regulatory objective

As early as 2001, the Green Paper titled “Promoting a European Framework for Corporate Sustainability Reporting” set the tone, encouraging companies to adopt voluntary practices aimed at reporting their social and environmental performance. The underlying rationale was that companies engaging in such reporting would contribute to broader European environmental and social objectives while demonstrating a responsible commitment to their stakeholders.[4] In 2011, the Commission redefined the concept of corporate social responsibility, stating explicitly that enterprises are responsible for their impacts on society and must meet that responsibility diligently.[5] This approach reinforced the view that such commitments should not merely serve strategic purposes but should form part of the core identity of the business enterprise itself.

The growing urgency of the ecological transition has made it necessary to make deeper commitments. To this end, the EU presented the “Action Plan: Financing Sustainable Growth” (2018, updated in 2021)[6] and the Green Deal (2019), with the latter setting the goal of achieving climate neutrality by 2050 and, in line with the Action Plan, promoting the production of useful information for investors.[7] The objectives set forth in these documents have placed the corporate ecosystem at the centre of the discussion, assigning it a fundamental role on this path towards a truly “green” EU. We recognise the need to create a sustainable social fabric, since people and capital organised in this way emerge as the greatest agents of transformation in society, whether negatively, by using their power to mobilise interests and capital for purely private gain while disregarding everything else, or positively, by harnessing their potential to promote a sustainable economic landscape, with the awareness that the planet and people deserve to be treated as long-term “projects”. Corporations are increasingly and more explicitly taking on an instrumental role in relation to human beings and the environment in which they exist. It is also important to address the study commissioned by the Commission, “Study on Directors’ Duties and Sustainable Corporate Governance” (2020), which laid bare the weaknesses of corporate governance, particularly with regard to practices focused solely on profit and short-term objectives (practices that were still the cornerstone of corporate strategy and that undermined the goals of continuity and sustainability beyond profit).[8] This marked a turning point in raising awareness of the need to increasingly integrate environmental and social considerations.

It was in this context and based on the objectives listed above that several legislative instruments emerged in the EU. Following a chronological order, we will first address the Taxonomy Regulation, in effect since 2020, followed by the Corporate Sustainability Reporting Directive (CSRD), in effect since 2022, and the Corporate Sustainability Due Diligence Directive (CSDDD), in effect since 2024. The Taxonomy Regulation aims to create a sort of dictionary or universal language for understanding the sustainability performance of companies subject to this legislation. This specific regulation defines what constitutes sustainable economic activities; taking this “dictionary” into account, companies must determine, after analysing their own activities,  whether a specific activity is considered sustainable according to those parameters. The CSRD represents a major step forward in the development of sustainability reporting obligations. It requires companies to include detailed, standardised, and comparable sustainability information within their management reports. The Directive substantially expands the scope of the former Non-Financial Reporting Directive, introducing more rigorous reporting standards and subjecting sustainability disclosures to external assurance. 

Ultimately, the central idea behind the Taxonomy Regulation and the CSRD is to redirect capital in the EU toward long-term sustainable activities. Their main objective is to create a reliable information infrastructure. At the same time, these instruments impose significant governance obligations upon corporations and their directors, who must establish the structures and processes necessary to generate the required analyses and disclosures. They function almost like either a “hall of fame” or “hall of shame”, more detailed in the case of the CSRD, which is made available to investors (and the public) so they can allocate their investments in a way that aligns with their values and economic interests. These values and interests have come to be associated with sustainability, not only because consumers themselves have become more demanding in this regard, but also because investors know that by investing in businesses that are in line with the EU’s current and future objectives, they will naturally be increasing their chances of long-term returns and avoiding the risk of economic, financial, and reputational losses due to future non-compliance.

The CSDDD may be regarded as one of the most interventionist legislative instruments adopted in this field, particularly in terms of its impact on internal corporate governance and directors’ responsibilities. It requires companies to identify actual and potential adverse impacts arising from their own operations and throughout their value chains on both human rights and the environment. The Directive’s defining feature lies in the degree of active engagement that it requires. Beyond merely identifying and disclosing adverse impacts, companies must take appropriate measures to prevent, mitigate, and, where necessary, remedy them.[9]

Shareholder primacy has not disappeared, but it has increasingly been tempered by a governance model that accords greater importance to a broader range of stakeholders, including employees, local communities, investors, and the environment, placing sustainability at the centre of corporate decision-making.

Sustainability-oriented corporate models

In this vein, we consider it pertinent to address innovative perspectives in the corporate sphere. In several Member States, new corporate models have been developed that place sustainability at the centre of corporate activity or, at the very least, integrate it into the company’s structure in a comprehensive and essential manner. This section focuses on two prominent examples from Italy and Germany. These models are not the result of EU harmonisation efforts but rather stem from autonomous legislative and market initiatives aimed at proposing alternatives to the traditional shareholder-primacy paradigm.

The first model is the Italian società benefit (SB), introduced by legislation in 2016. Inspired by the American benefit corporation, Law No. 208/2015 established a pioneering framework within the EU that seeks to create a voluntary legal commitment to sustainability. Rather than creating a new corporate form, the legislation introduced a legal status that corporate entities may choose to adopt. The defining feature of the model is the mandatory inclusion, within the company’s corporate purpose, of a dual objective encompassing both profit generation and the pursuit of a specific common benefit or collective interest. The distinction between this model and the general possibility, available in many Member States, lies in the boldness with which it is proposed and drafted, requiring those wishing to become an SB to embrace, at the very core of the company’s identity, objectives that not only guide it but also structurally define it.[10] Naturally, SBs are subject to more stringent duties of transparency, reporting, and accountability than traditional companies. Directors’ duties are correspondingly broadened, at least from a theoretical perspective, as they become linked not only to shareholders’ interests but also to the interests of a broader range of stakeholders. Although these additional obligations may represent an administrative burden, they may also generate reputational benefits and contribute to perceptions of long-term sustainability.[11]

The German model, known as Verantwortungseigentum (responsible ownership) or steward-ownership, represents one of the most innovative developments in the field of sustainable corporate governance. Although it has not yet been recognised as a distinct legal form, various legal arrangements have been used in practice to implement its underlying principles. Whereas the Italian model focuses primarily on the company’s objectives, steward-ownership is centred on ownership structures and control mechanisms. The key actors in this model are the stewards, who function as guardians of the company’s purpose and are selected on the basis of their commitment to that purpose. The fundamental idea is that individual interests cannot undermine the organisation’s mission. This authority is exercised with the objective of advancing the company’s purpose rather than serving the interests traditionally associated with ownership. A central feature of the model is the asset-lock principle, whereby the economic value generated by the company remains attached to the organisation itself and cannot be appropriated for private gain. Profit is regarded primarily as a means of sustaining and advancing the company’s mission. Consequently, profits are generally reinvested, while compensation is provided in proportion to the work performed. This model promotes ways to ensure the continuity of the mission even as stewards and shareholders change.[12]^/[13]

Future outlook: a European corporate ecosystem centred on sustainability and “purpose-driven” corporations?

The legislative transformation that has taken place within the EU over the past decade reflects a clear movement towards the protection of collective interests such as environmental sustainability and human rights. Corporations have been placed at the centre of this process because of the significant impact they can have on these issues.

Although the legislative measures discussed above may initially appear to consist primarily of reporting obligations, classification requirements, and due diligence duties, they have arguably contributed to a deeper transformation in the understanding of the business corporation itself. The obligations imposed on companies require not only the development of sophisticated compliance systems, human resources, and technological capabilities, but also the adoption of concrete measures to address and mitigate identified sustainability risks and adverse impacts.

As a result, the corporation can no longer be viewed merely as a vehicle for pursuing private interests while satisfying minimum legal requirements. Instead, it increasingly appears as an organisation expected to contribute actively to environmental sustainability and the protection of human rights. In this sense, the concept of corporate interest has evolved and acquired a broader social dimension.

To fulfil one of the objectives outlined at the beginning of this study, it is necessary to consider whether a connection may be drawn between the EU sustainability framework and the alternative corporate models currently being developed in certain Member States. The question therefore arises whether the EU is moving, or should move, towards the creation of a European corporate form or legal status comparable to the Italian società benefit or the German steward-ownership model.

From a critical perspective, one of the principal strengths of these models lies in the fact that they create a corporate identity intrinsically linked to sustainability. Such an identity may possess considerable reputational value and may influence the decisions of consumers and investors. In other words, these models provide a formal legal framework through which companies can credibly signal their commitment to sustainability. Nevertheless, it may also be argued that the practical benefits of introducing such models at EU level would be limited, given the extensive body of sustainability legislation that already applies to corporate governance.[14]

There is also a practical consideration that calls into question the desirability of introducing such models at present. The amendments proposed through the Omnibus Package, particularly those affecting the CSRD, the CSDDD, and the Taxonomy Regulation, reflect concerns that the regulatory burden imposed upon companies had become excessively demanding. The reforms were largely motivated by the conclusion that many companies lacked the organisational capacity necessary to comply effectively with the growing number of sustainability obligations.

Against this background, it is legitimate to ask whether companies that struggle to comply with external regulatory obligations would be prepared to embrace more profound organisational transformations involving changes to their corporate identity and governance structures, which would likely generate additional compliance requirements. Nevertheless, this possibility should not be dismissed. These models may serve as valuable sources of inspiration for future developments in corporate law and may encourage companies to pursue specific public-interest objectives that reflect broader social needs. Whether the EU should or will eventually move in this direction remains an open question.

Conclusion

The evolution of corporate governance within the EU demonstrates that sustainability has evolved from a largely voluntary and peripheral concern into a value strongly protected and promoted by law. Through the introduction of legal obligations relating to transparency, due diligence, and the management of environmental and social impacts, companies have been required to adapt their governance structures and decision-making processes in ways that give greater consideration to a broader range of stakeholders. These developments have altered both the regulatory environment in which companies operate and the very understanding of corporate interest, contributing to the growing centrality of sustainability within corporate governance. At the same time, examples such as the Italian società benefit and the German steward-ownership model demonstrate that some companies have already made sustainability a defining element of their organisational identity and purpose. Nevertheless, there is currently little evidence that the EU intends to establish a specific European corporate form or legal status based on these models. Even so, the increasing importance of sustainability and the emergence of innovative governance structures suggest that the debate concerning purpose-driven and sustainability-oriented corporate forms is likely to play an important role in the future development of European corporate law.

Despite the adjustments introduced by the Omnibus Package, it can be concluded that, as of 2025, the paradigm of corporate sustainability within the EU remains firmly established and continues to evolve. The simplification of existing obligations does not signal a retreat from the Union’s commitment to sustainability; rather, it reflects an effort to ensure that those objectives remain both effective and achievable while preserving sustainability as a central concern of corporate governance.

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[1] Beate Sjåfjell, “Reforming EU company law to secure the future of European business,” European Company and Financial Law Review 18, no. 2 (2021): 205–206, https://doi.org/10.1515/ecfr-2021-0009.

[2] Henry Hansmann and Reinier Kraakman, The end of history for corporate law, Yale Law School Program for Studies in Law, Economics, and Public Policy Working Paper No. 235 (January 2000), 1–7, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=204528.

[3] Milton Friedman, “The social responsibility of business is to increase its profits,” The New York Times Magazine, September 13, 1970, https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html.

[4] European Commission, Promoting a European framework for corporate social responsibility: green paper (Brussels: Commission of the European Communities, 2001), 4–6, https://ec.europa.eu/commission/presscorner/api/files/document/print/en/doc_01_9/DOC_01_9_EN.pdf.

[5] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: a renewed EU Strategy 2011–14 for corporate social responsibility, COM(2011) 681 final (Brussels, 25 October 2011), 6.

[6] European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions: action plan: financing sustainable growth, COM(2018) 97 final (Brussels, 8 March 2018), 1–5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0097.

[7] European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions: The European Green Deal COM(2019) 640 final (Brussels, 2019), 6, https://eur-lex.europa.eu/legal-content/PT/ALL/?uri=CELEX:52019DC0640.

[8] European Commission, Study on directors’ duties and sustainable corporate governance (Luxembourg: Publications Office of the European Union, 2020), https://op.europa.eu/en/publication-detail/-/publication/e47928a2-d20b-11ea-adf7-01aa75ed71a1.

[9] Nicolas Bueno, Nadia Bernaz, Gabrielle Holly and Olga Martin-Ortega, “The EU Directive on Corporate Sustainability Due Diligence (CSDDD): the final political compromise,” Business and Human Rights Journal 9, no. 2 (2024): 294–298, https://doi.org/10.1017/bhj.2024.10.

[10] Marco Speranzin, “Benefit legal entities in Italy: an overview,” European Company Law Journal 19, no. 5 (2022): 142–145, https://www.research.unipd.it/bitstream/11577/3455954/1/EUCL_19_0504.pdf.

[11] Guido Ferrarini and Shanshan Zhu, “Is there a role for benefit corporations in the new sustainable governance framework?”, ECGI Law Working Paper No. 588/2021 (2021), 8–10, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3869696.

[12] Purpose Foundation, Steward-ownership: a short guidebook to legal frameworks (1st ed., 2020), 6–9, https://purpose-economy.org/content/uploads/purpose-guidebook-for-lawyers10022021.pdf.

[13] Marvin Reiff, “Steward ownership, wealth inequality, and LPE,” Verfassungsblog, 10 October 2024, https://doi.org/10.59704/8e5a5a823184a804.

[14] Ferrarini and Zhu, “Is there a role for benefit corporations in the new sustainable governance framework?,” 23–24.

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Picture credit: by Alena Koval on pexels.com.