Implementational governance as a tool of political steering over entrepreneurial freedom

With regard to overarching societal goals such as climate neutrality and the respect for human rights, companies in Germany and the EU are increasingly being held accountable by legislators through compliance and ESG requirements.

Through legislation such as the German Supply Chain Due Diligence Act or its European counterpart, the Corporate Sustainability Due Diligence Directive (CSDDD), companies are obligated to implement monitoring systems, reporting duties, and other organizational measures. Their right to dispose autonomously of their economic, technical, and financial resources within a framework of clear legal boundaries is thereby disregarded by the legislator. Moreover, legal provisions mandate the monitoring and enforcement of compliance requirements. In this context, companies must cooperate with state actors or civil society organizations such as non-governmental organizations (NGOs), effectively being compelled into collaboration. This, too, constitutes an encroachment on entrepreneurial freedom.

The described implementational governance approach of the legislator thus leads to significant legal-methodological problems: Fundamental entrepreneurial rights, as enshrined in Article 12 of the German Basic Law and Article 16 of the EU Charter of Fundamental Rights, are clearly undermined by the EU Commission and the German federal government. Consequently, both the German Supply Chain Due Diligence Act and the European CSDDD risk developing into an untenable restriction on entrepreneurial freedom from a constitutional and rule-of-law standpoint.

Legislators have meanwhile recognized that the "over-regulation" of companies significantly undermines their international competitiveness. To restore proportionality in implementational obligations, the EU Commission has announced an “omnibus package”. However, the damage extends beyond the loss of competitiveness. The study demonstrates that the current implementational governance approaches and the associated restriction of entrepreneurial discretion must be assessed as an interference with fundamental rights.