Proactive contract theory in the context of corporate sustainability due diligence

Abstract

The article discusses how proactive contract theory could be used to translate the ambitious objectives of the European Commission's current draft proposal on corporate sustainability due diligence into actual business practices in complex value chains and networks. Proactive contract theory regards contracts as legal, economic, managerial and social artefacts that should be designed to prevent undesirable results and promote favourable outcomes. Moreover, the theory highlights the need for multiprofessional collaboration and user-centricity in contract design. Based on these principles, we introduce four ways to promote corporate sustainability due diligence in supply contracts via proactive contracting: turning from one-sided safeguarding towards shared responsibility and collaboration, incentivizing responsible and sustainable business practices via promotive contract clauses, engaging end users in the contract design process and preventing disputes.