Externalisation
Eduardo Melero Alonso
One of the basic premises to be taken into account in any definition of ecological justice is the internalisation of environmental damage costs by the responsible subject. In this sense, internalisation is understood as assuming one’s own responsibility for the damage caused. In externalisation, by contrast, the agents causing the damage convey to another subject -or to nature and, thus, to the community- the costs of the environmental damage they have caused.
The internalisation of environmental costs is the logic behind the principle “the polluter pays” (Dupuy and Viñuales, 2018, pp. 81-83), which is one of the basic principles of environmental law. To some extent, environmental law may be viewed as a social instrument for implementing the internalisation of environmental costs.
The main problem with internalising environmental costs is the geographic scope involved. Basically, such internalisation takes place at state level. From the legal point of view, this is due to the supremacy of State sovereignty. Legal instruments attribute environmental damages to the agent producing the good, not to the subject consuming said goods and ultimately benefiting from their production. The European Commission has pointed out that 80% or 90% of certain environmental damages from EU production may be caused in the value chains outside the EU (European Commission, 2022, p. 10). This statement by the Commission was based on the study Atlas on Environmental Impacts. Supply Chains. Environmental Impacts and Hot Spots in the Supply Chain (2017), which analyses the Environmental Impacts in Germany in eight different industrial sectors.
The German sociologist Stephan Lessenich has qualified the world capitalist system as “externalisation societies”. Externalisation allows rich societies in the global North to relocate the negative effects of their activity to less developed countries; for Lessenich, externalisation is a “central dimension” in understanding the inequality affecting world society (Lessenich, 2019, pp. 27-32).
Lessenich sustains that “externalisation is in equal measure a structure, a mechanism and a praxis” (Lessenich, 2019, pp. 55-65-72). Firstly, externalisation occurs in a context of “asymmetrical power structures in world society”. Asymmetry arises with the categories of centre and periphery, which highlight the interrelation between social conditions existing at the centre and in the periphery. Secondly, externalisation may be understood as “a pluridimensional and globalised mechanism of exploitation”, manifest in the categories of exploitation and social closure. Lastly, there is a practical dimension to externalisation, expressly qualified as “externalisation habitus“. According to this habitus, members of rich societies delocalise the costs of their lifestyle, transferring these to the members of societies in the global South, while at the same time concealing this interrelationship, or rather, not wishing to recognise it.
One of the scenarios in which externalisation is most visible world-wide is the environment. Businesses in the global North have delocalised the most environmentally harmful stages of production to countries in the periphery, in particular the extraction of raw materials (see extractivism). Not only are environmental damages externalised, but so are their associated risks. It must be mentioned that externalisation is also practised inside the countries at the centre of world economy, as evidenced by fracking or macro-farms in Spain’s empty quarter, among other examples.
Today, externalisation is a process driven essentially by transnational companies. Special attention should be paid to global value chains, which are these companies’ predominant mode for organising their production. This consists in fractioning production into phases -research, design, engineering, procurement of raw materials, manufacturing components, assembly and packaging of the final product, commercial distribution and after-sales service- and assigning each of these to a set of companies located on different continents all over the world. Around one half of world trade is associated with global value chains (World Bank, 2020, p. 19). The different tasks involved in production may be conducted by companies’ subsidiary firms or by independent enterprises. In any case, one parent company directs and coordinates the entire production process, concentrating the most profitable tasks.
The expansion of these global value chains has been possible thanks to the information technology revolution and advances in transport and communications. Key to the development of these global chains was the legal framework favouring the liberalisation of international trade in goods. A leading role in this development was played by the World Trade Organisation (WTO), made up of 164 states representing over 98% of international trade. The most important agreements under the WTO refer to the free circulation of goods (the General Agreement on Tariffs and Trade – GATT), free trade in services (General Agreement on Trade in Services – GATS) and intellectual property (Agreements on Intellectual Property Rights Aspects related to Trade – TRIPS). No international agreement regarding the environment has been concluded within the framework of the WTO.
Faced with this state of affairs, ecological justice demands that the internalisation of environmental damages should be planetwide, which would require setting up legal mechanisms to promote it. In this vein, to a limited extent, we note European Union’s Directive 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence. The Directive is based on the United Nations Guiding Principles on Business and Human Rights “Protect, Respect and Remedy” Framework, approved by the United Nations Human Rights Council (Resolution 17/4, of 16 June 2011). It also takes inspiration from OECD rules, such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and the OECD Due Diligence Guidance for Responsible Business Conduct.
The Directive on corporate sustainability due diligence establishes that companies should detect the adverse effects on the environment of their value chains, and adopt the appropriate measures to prevent or mitigate said effects. Nonetheless, their scope of applicability is limited to the issues described in part II of the Annex to the proposal. This Annex refers, essentially, to the import and export of species included in the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), the production and use of persistent organic pollutants, the manufacture and use of mercury, the production and consumption of substances that deplete the ozone layer, or the ban on the import and export of hazardous waste.
Directive (EU) 2026/470 of 24 February 2026 has reduced the obligations imposed by Directive (EU) 2024/1760 of 13 June 2024 on corporate sustainability due diligence. Among other things, the number of companies subject to these obligations has been significantly reduced. In general, the Due Diligence Directive applies to companies incorporated in a Member State of the European Union with more than 5,000 employees and a net global turnover exceeding EUR 1.5 billion per year, or which are the parent company of a group that meets these thresholds (in its original wording, the Directive applied to companies with more than 1,000 employees and a net worldwide turnover exceeding €450 million per year). The date of application of the Directive to companies has also been postponed to 26 July 2029.
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