Due diligence in global value chains: Conceptualizing ‘adverse environmental impact’

Due diligence norms often require enterprises to address ‘adverse environmental impacts’ in their value chains. It is, however, rare for that phrase to be defined. Thus, it is not known precisely what effects are to be prevented or remedied or, where relevant, when sanctions and/or liability can be imposed. This article seeks to determine how ‘adverse environmental impact’ should be conceptualized in these norms, a question largely unexplored in the literature. It is argued that the polluter‐pays principle, and theory of cost internalization that it is built upon, offers a stable normative base from which to sculpt a robust definition. With specificity garnered from exemplar legal frameworks, it is demonstrated that ‘traditional damage’ (e.g. damage to property or human health) and damage to the environment itself ought to be covered by the phrase. This will ensure that incentives for prevention can be harnessed and that the costs of an enterprise’s goods and services will reflect their true social cost more closely.