Why Contracts Need a Holistic Approach to Sustainability?

Abstract

The concept of sustainability––which has become central to today’s legal and economic systems–– is being transformed from a broad social, ecological and business-related concern into a binding legal principle that concerns and affects both public and private law. In other words, sustainability is also being transformed into a binding legal paradigm in the European Union (EU) and beyond, rather than merely a corporate aspiration. However, despite its established status and ongoing efforts, the process of integrating this relatively new concept into contract law systems remains superficial and fragmented. Sustainability obligations are still treated as a fragmented structure that cannot be clearly defined in contracts; they are mostly integrated into contracts as voluntary commitments and independent provisions, which are binding only on the contracting parties. This study argues that achieving sustainability in the literal sense is only possible through a comprehensive contractual approach that embeds and integrates environmental, social, and governance (ESG) elements into the entirety of the contractual relationship. The examination of regulations such as the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) reveals that the sustainability obligations imposed on companies are inevitably transferred to private law relationships, particularly global supply chain contracts. A holistic approach could ensure that the sustainability obligations provisions may embody as binding provisions that are supported not only symbolically but also by measurable standards, audits, accountability mechanisms, and transparency.