Despite a call by the ECB, European financial institutions do not seem to be immediately covered by the new corporate responsibility directive. A majority of member states reportedly do not want to decide on this until after the directive comes into force for non-financial companies.
Last week, the fourth round of negotiations took place on the Corporate Sustainability Due Diligence Directive (CSDDD), a new European directive that will make large corporations and listed companies responsible for any damage to people and the environment caused by their business activities and by activities in their chains. Major bone of contention in the talks between European Parliament , European Commission and European Council is whether financial institutions should also be covered by the CSDD rules.
Dutch MEP Lara Wolters took the initiative for this directive in 2020 and she is leading the negotiations on behalf of the EP. The EP’s position is that the financial sector should be subject to the same obligations as non-financial sectors, but many countries do not feel in favour. According to Politico Europe, a majority of European Council supports a proposal by the Spanish presidency to exclude the financial sector at least for now, with the possibility of further inclusion at a later date - when the consequences have been better examined.
Fines for banks
This position goes against a call made by the European Central Bank (ECB) in the middle of this month. Frank Elderson, vice-president of the ECB’s supervisory board, said then at a conference in Brussels that he sees no reason to “treat financial companies differently from others” when it comes to their responsibility for the green transition. ‘And that also applies in the context of the CSDD.’ Indeed, according to the ECB, it is crucial for that transition ‘that laws and rules are consistent across all sectors’.
Dissatisfaction with the role of banks in the said transition will have been partly behind that call, it seems. For the ECB is unapologetic about the way banks deal with climate- and nature-related risks. Elderson: “Financial institutions should systematically integrate sustainability risks into their decision-making and risk management, but none of the banks under our supervision currently meet our expectations in this regard.” Meanwhile, the ECB has announced enforcement measures. Several banks will be given one last chance to bring risk management up to standard, but if they fail to do so, the central bank will impose fines for every day a bank fails to do so.
Asset managers nil?
During the (likely) final round of negotiations on the CSDD in December, the final decision should be made on whether to include financial institutions. Indeed, according to Politico, that topic was not even addressed last week. This is to give parties an opportunity to formulate a response to the recent majority position of the Council.
For now, the European Commission and at least the countries Germany, the Netherlands, Denmark and Finland are sticking to a solution where at least banks and insurers will be covered by the directive, other sources say. So that would mean that those parties would agree anyway that asset managers will not be included. No official confirmation of that inference has been given, by the way.
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