Dive Brief:
- The European Council and European Parliament reached an agreement last week on a final draft of the Corporate Sustainability Due Diligence Directive that excludes financial institutions from the initial scope of companies that need to comply. Financial companies will still have to account for social and environmental harms within their operations, but not across their supply chains.
- The deal, however, includes a review clause to possibly include the financial sector after further review. The law will apply to any non-European Union-based company with more than 500 employees and over 150 million euros ($164 million) in revenue generated in the EU beginning three years after the law goes into effect.
- The law will require companies to create detailed transition plans to limit the effects of their business and their supply chain on the environment and human rights. The European Commission will publish a list of non-EU companies that fall into the law’s scope at a later date.
Dive Insight:
Banks’ potential absence from the law was first reported last month, after a draft from Spain, who holds the EU’s rotating presidency, was seen by Bloomberg. The CSDDD, part of the EU’s larger package of environmental and corporate sustainability reporting laws proposed in February 2022, will create civil penalties for companies that fail to appropriately identify, mitigate, account for and prevent detrimental environmental and social impacts within their business operations.
The final compromise agreement places a five-year time limit for people, trade unions or civil society organizations to bring a claim that they have been adversely affected by a business. The deal limits evidence disclosure, injunctive measures and court costs for claimants.
The deal also creates a last resort for companies who identify adverse impacts from their business partners, which will require the companies to end the business relationship if the environmental or social impacts cannot be prevented or ended.
In addition, the deal requires the companies to talk to and consult affected stakeholders as part of the due diligence process and creates injunctive measures for any company that fails to pay the imposed fines.
The carveout for financial institutions was opposed in a July letter from the United Nations Working Group on Business and Human Rights, which called such an exclusion for banks “unjustified.” It pointed to the fact that the sector “has a particularly important role in respecting human rights,” and an “unparalleled ability to influence companies and scale up the implementation of the Guiding Principles.”
After the agreement was finalized last week, the Netherlands-based Centre for Research on Multinational Corporations called the agreement a “significant milestone in corporate accountability,” but said the law “does not represent the transformative change” the nonprofit and its partners believed it would.
“Financial actors … are engines for both harmful and sustainable corporate activity,” the nonprofit’s advocacy director Joseph Wilde-Ramsing wrote. “Their exclusion is a major shortcoming that will hamper progress toward sustainable economies and responsible investment practices.”
