The European Council and the European Parliament on Thursday reached a preliminary agreement on a new European directive mandating corporate social responsibility for large companies, but that will, following lobby pressure, exclude the financial sector.
The Spanish presidency of the European Union announced that the Corporate Sustainability Due Diligence Directive (CS3D) requires companies to exercise ‹due diligence› in sustainability, environmental protection, and human rights, both within the EU and globally.
Initiator of the directive, MEP Lara Wolters, expressed pride in the result. “This new directive obliges companies to address abuses in their production chain, such as child labour, unsafe working conditions, environmental pollution, land grab, and climate damage. This can be achieved by altering production processes and purchasing policies.”
Penalties and civil liabilities
These obligations apply not only to the large companies› activities but also to those of their subsidiaries and business partners. It also outlines penalties and civil liabilities for breaching these obligations, according to the Spanish presidency. Furthermore, companies must adopt a plan ensuring their business model and strategy align with the Paris climate agreement.
A point of contention was whether to include financial institutions, like banks, pension funds, and asset managers, in these responsibilities. Opinions varied across countries and segments. Ultimately, the financial sector was excluded, a decision that disappointed Wolters: «Unfortunately, the member states, led by France, blocked a broader duty of care for the financial sector.»
Financial sector delighted
Representatives from the financial sector expressed satisfaction. “At a time when the EU is seeking to instill new energy in the CMU agenda, we are glad to see EU policymakers have excluded investment activities from the CSDDD, acknowledging that a more thoughtful approach to these is needed than the proposal that was on the table,” said Viktor van Hoorn, head of the Brussels office at ICI Global. “This also recognizes the diversity of financial institutions and activities, some of which are not based on contractual arrangements.”
The Netherlands, along with other countries like Germany and Denmark, supported including banks and insurers under the directive.
Further reading:
- Financial sector looks set to dodge new CSDDD rules
- Will EU exempt finance from its corporate conscience?
- In ESG, voice of asset owners matters more than ever