Regulatory Extraterritoriality in EU ESG Governance

This article explores how the European Union’s Environmental, Social, and Governance (ESG) regulatory framework is creating de facto global standards that reach well beyond Europe’s borders. It argues that EU ESG rules represent a significant evolution of the classic ‘Brussels Effect’, extending the EU’s regulatory influence from traditional product standards to the way companies govern themselves, organize their operations, and manage their global value chains. Through landmark instruments the EU is actively shaping corporate behaviour around the world. The article identifies four key mechanisms driving this global diffusion: market access pressure, supply chain governance, financial market alignment, and normative legitimacy. In doing so, it conceptualizes this phenomenon as a new form of conduct-based extraterritoriality, in which EU rules increasingly influence not only what companies produce, but how they operate internally and across borders. At the same time, the article acknowledges important limitations, including growing regulatory fragmentation, high compliance costs (particularly for firms in developing countries), and rising geopolitical contestation. Ultimately, EU ESG regulation emerges as a powerful yet increasingly contested force in the transformation of global governance.