The financial sector needs to pay more attention to human rights in its activities, especially in its supply chains, a Luxembourg NGO said in a report it presented this week. Industry representatives said the criticism does not yet fully consider new legal requirements that recently entered into force.
The report by Action Solidarité Tiers Monde, or ASTM Luxembourg, criticised the commitment to human rights in the Grand Duchy’s financial sector, noting that only three out of 22 analysed organisations have mentioned human rights in their governance documents.
“Within the Luxembourg financial centre, the commitment to human rights is insufficient,” ASTM said, calling for the creation of a legislative framework that ensures private companies, including those in the financial sector, “conduct human rights due diligence”.
New rules entered already in force
Financial sector representatives however underlined that industry participants - including institutions as well as UCITS and AIF funds - now are required to report on human rights under the EU’s Sustainable Finance Disclosure Regulation, or SFDR, which entered into force in March last year.
“This is obviously the case for Luxembourg as well as for any other Member State of the EU,” said ALFI, Luxembourg’s asset management association, in an emailed statement.
The new SFDR requirements define sustainability factors, said ALFI, that specifically mention respect for human rights in addition to environmental, social and employee matters, anti-corruption and anti-bribery matters.
ABBL raising awareness
ABBL, representing Luxembourg’s banking sector, noted that the ASTM report recognised that it has already taken steps to help raise awareness on human rights. ABBL has included a human rights paragraph in its code of conduct, is a signatory to a Luxembourg’s national human rights treaty, and offers training to member banks.
“We are monitoring the developments at EU level on the foreseen Corporate Sustainability Reporting Directive, upon which a national regulatory framework will be based, and will continue to inform our members on these matters,” said ABBL.
‘No gold-plating’
Luxembourg’s government and financial regulator CSSF have said that European regulations, including the SFDR and the Taxonomy, will be strictly enforced in Luxembourg. The provisions of SFDR came into force on 10 March 2021, while the EU’s Taxonomy Regulation is applicable from 1 January 2022.
“There is no intention to gold-plate or deviate from the European legislative framework,” ALFI said.
Human rights due diligence
ASTM said it believes that the government and financial regulators have no oversight of the respect for human rights by financial companies and their business activities. It said that its report showed how Luxembourg-based financial actors are linked to human rights violations in China, Palestine, and Latin America, through investments for example in technology companies that support the Chinese government.
“As voluntary commitments have proven to be ineffective, a binding human rights due diligence law must be adopted which includes the financial sector,” said ASTM, adding that public bodies that deal with financial institutions “should have the mandate, skills, and resources to promote and monitor respect for human rights.”
Supply chains pose difficult questions
Human rights due diligence is expected to be further discussed in Luxembourg and the EU in the near future. European governments still are divided on how to approach human rights in supply chains. The current sustainable finance framework does not fully consider the supply chains in the private sector. A difficult question for Luxembourg will be to decide which types of companies would be bound by such an expanded legal framework.
European Parliament awaits proposal
The Luxembourg government appears to be waiting for a cue from Brussels on the direction of EU legislation. The European Commission has postponed several times a proposal for a directive that will address human rights due diligence. The European Parliament, in a briefing paper released last October, said it is keen to adopt a stronger legal framework that obliges EU companies to take up their responsibility towards human rights and environmental norms in international supply chains.
Addressing human rights in supply chains, and a possible ban on EU imports from non-EU countries that violate human rights, European Commission Vice President Valdis Dombrovskis told the European Parliament in December that said such a ban could be challenged by EU trading partners. “If a ban has to be pursued, it should be a ban of all goods produced with forced labour, no matter where the forced labour took place,” Dombrovskis wrote in December in a letter that was seen by the Financial Times.
Luxembourg website Reporter said on Thursday that Luxembourg’s foreign ministry has asked Luxembourg University to prepare a study on human rights due diligence, which is to serve as a basis for further discussions.
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