Inclusion of finance sector in EU due diligence law on the brink

In the picture: JP Morgan CEO Jamie Dimon (L) listens to French President Emmanuel Macron as they inaugurate the new French headquarters of JP Morgan bank in Paris, France, 29 June 2021. The French government did much to reposition France as an attractive place for the finance sector. [Michel Euler (EPA-EFE)]

Ahead of Thursday’s (1 December) meeting of EU industry ministers, the fight over whether to include the financial sector in the scope of the Corporate Sustainability Due Diligence Directive (CSDDD) is still ongoing with France, Italy, and Spain threatening to block a common member state position.

First proposed by the EU Commission in February this year, the CSDDD aims to make companies responsible for human rights violations and international environmental standards in their value chains. It is currently negotiated in Parliament and among member states in the EU Council, where the Czech Presidency seeks to find an agreement on Thursday.

While the chief negotiators of the EU member states seemed to have a sufficiently large majority after the last negotiation round on Friday (25 November) to table the issue for a vote among ministers this week, France, Italy, Spain, and Slovakia now threaten to form a blocking minority in case the text would not be changed, multiple EU sources confirmed to EURACTIV.

According to a French proposal to amend the Council position, seen by EURACTIV, the goal of the minority is to exclude banking services from the scope of the CSDDD. This would mean that banks could not be held liable for human rights violations that happen through business activities financed by their loans.

Renewed negotiations on Wednesday (30 November)

However, “if the banking sector gets taken out, there might be a blocking minority on the other side,” the diplomat of an EU member state told EURACTIV, referring to the dissatisfaction among some member state governments that the scope of the directive had already been narrowed down too much.

Last week, for example, it became clear that the Council position would exclude investment activities from the directive’s scope.

To find a compromise, member state negotiators will reopen the debate on the common position on Wednesday (30 November), one day ahead of the meeting of member state ministers who should pass the ‘general approach’, as the member state position is called.

In the financial sector, views vary on the CSDDD. Invest Europe, an association of investment companies that had previously warned that too large a scope would create “a level of business uncertainty and litigation concerns that could make the EU as a whole a very unattractive investment destination,” now seems rather happy with the text that was agreed on last Friday.

“We are reasonably satisfied,” Invest Europe’s public affairs director Martin Bresson told EURACTIV.

Divided views in the financial sector

However, this sentiment is not shared by all investment companies. On 24 November, an alliance of sustainable investment associations and companies issued a statement calling for “robust, ongoing due diligence from financial and non-financial companies throughout the value chain.”

Meanwhile, banks are in a different situation since direct lending would still be within the scope of the directive in contrast with equity investments or corporate bonds, according to a compromise text seen by EURACTIV.

“The European Banking Federation (EBF) supports the agreement on a general approach for the CSDDD,” an EBF spokesperson told EURACTIV before it was clear that France, Italy, and Spain would threaten to block the agreement.

WSBI-ESBG, an alliance of retail and savings banks, is more critical of the directive. “We are convinced that a profound evaluation of the proposed rules under the present political and economic circumstances is necessary,” Peter Simon, the managing director of the European Savings and Retail Banking Group (ESBG), said, referring to the shortage of raw materials and the energy crisis.

Asked about the French push to remove banking services from the scope of the CSDDD, WSBI-ESBG said they believed “that the consideration from the French authorities is generally to be welcomed.”

Foregoing an important lever to influence business behaviour?

Civil society actors, meanwhile, are dismayed at the way the negotiations among member states seem to go.

“The situation regarding the financial sector is really bad,” Sylvia Obregon, a policy officer at the European Coalition for Corporate Justice (ECCJ), told EURACTIV.

“Financial companies have an enormous influence on the behaviour of companies,” she added, regretting that this lever to protect human rights and the environment would not be used, according to the text of the member states.

“If such a powerful sector is excluded, this won’t bring us any closer to our climate goals.”

Parliament will also have a say

Before the directive can be passed, the member states will have to agree with the European Parliament. In the European Parliament, however, the process of finding a common negotiating position on the CSDDD is less advanced and is expected to take until March 2023.

There, the finance industry could meet a less welcoming environment.

“For [the CSDDD] to be effective, the financial services sector must be included in the scope due to its size and importance,” Barry Andrews, one of the leading members of the European Parliament on the file from the liberal group, told EURACTIV, saying he was “disappointed by the fact that investment activities have been taken out of the scope in the Council text.”

[Edited by Alice Taylor]

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