EU ambassadors discuss possible carve-out of finance from due diligence rules

The Spanish Presidency of the EU Council is asking member states to compromise on climate and civil liability provisions in exchange for a carve-out of finance from the proposed EU corporate accountability rules, amid growing calls to include the sector under mandatory due diligence checks.

EU ambassadors will meet on Wednesday (15 November) to renew the Council’s mandate on the corporate sustainability due diligence directive (CSDDD), in view of the next round of negotiations with the European Parliament, set to take place a week later and aimed at finding an agreement on the outstanding aspects of the law.

Negotiations on the law, proposed in 2022 to hold large companies accountable for human rights and environmental violations along their value chains, have been slow due to internal divisions among EU governments and the more ambitious position of the Parliament.

In an effort to unlock negotiations with EU lawmakers, the Spanish presidency has worked to renew the Council’s general approach agreed last year and has put forward a proposal for a carve-out of the financial sector, ahead of Wednesday’s ambassadors’ meeting.

Finance remains out…

In line with a previous document, the latest proposal, seen by Euractiv, maintains the exclusion of financial institutions from the mandatory rules, with a review clause to consider the inclusion of the sector at a later stage.

According to the latest presidency document, the inclusion of the sector would need to follow a detailed impact assessment and would be accompanied by an inter-institutional political declaration.

While a few member states continue to strongly oppose the inclusion of finance, others, such as the Netherlands, continue to be in favour of fully covering the sector.

Several other EU countries would instead be in favour of applying the rules only to banks and insurers, but it is yet unclear whether a compromise could be reached to ensure these sectors are included in the text.

…amid growing concerns

Meanwhile, concerns are growing over the exclusion of the sector.

On Tuesday (14 November), Frank Elderson, a member of the European Central Bank’s executive board, urged the EU institutions to opt for the inclusion of finance under the rules.

“In the absence of clear reasons to the contrary, which I fail to see, financial undertakings should not be treated differently from other companies,” he said, adding that “this can help to ensure that financial institutions – including banks – systematically integrate sustainability matters into their decision making and risk management practices”.

“Not excluding the financial sector from the remit of the CSDDD can further help to create greater certainty around financial institutions’ obligations in this area and around climate- and environment-related litigation risks for the financial sector,” he said in a speech.

The possible carve-out of finance is also worrying civil society organisations. 

In a letter sent to EU ambassadors ahead of Wednesday’s meeting, over 60 NGOs urged the Council to “include meaningful due diligence obligations that would apply to key financial sector activities within the CSDDD,” due to the role that banks, insurers, investors and asset managers play in financing practices that might create adverse impacts.

“Financial institutions are crucial to shaping sustainable economic systems, exerting leverage over a broad range of other economic sectors and business activities, and have a key role in upholding the protection of human rights, the environment and climate globally,” the letter said.

Concessions for the Parliament

The carve-out of finance from mandatory due diligence checks, which is not in line with the Parliament’s position agreed in June, would be compensated with concessions on other aspects strongly supported by EU lawmakers, such as access to justice, the scope of the directive, and climate provisions.

On civil liability, the presidency is proposing to introduce elements to strengthen access to justice for victims of adverse impacts of companies. These would include limitation periods to advance claims, participation of trade unions and civil society organisations, disclosure of evidence, injunctive measures and cost of proceedings for claimants.

On the scope of the directive, while keeping the same thresholds agreed in the general approach, the presidency text proposes to agree on some of the Parliament’s demands, such as the inclusion of franchises and a stronger engagement of stakeholders.

Finally, the presidency is proposing concessions on climate change, with obligations for companies to adopt a transition plan and link it to the directors’ remuneration, in line with the position of the European Parliament.

[Edited by Zoran Radosavljevic]

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