EU informal deal on corporate due diligence leaves out banks

December 20, 2023|Written by Moriah Costa

EU lawmakers reached a provisional deal on its corporate due diligence law last week, watering down requirements for the financial sector under pressure from the French government.

The corporate sustainability due diligence directive (CSDDD) requires companies to assess the potential and actual impact of scope 1, 2, and 3 emissions across their supply chains, and be held accountable for any human rights or environmental breaches.

While the EU parliament had pushed to include financial institutions in the legislation, which would have made banks responsible for any violations or breaches of the projects they finance, the European Council pushed back and asked for banks to be excluded.

Under the compromise text, financial institutions will be temporarily excluded from the scope of the directive but with a review clause that makes it possible for their inclusion at a later date.

As it stands, banks will only have to do due diligence on their upstream activities. They will, however, have to set emissions reduction targets and implement transition plans.

Advocates were disappointed by the exclusion of the financial sector in the CSDDD, which many had pushed for.

Isabella Ritter, EU policy officer at nonprofit ShareAction, said that while the CSDDD was a win, lawmakers “have missed a resounding opportunity for more transformative change” by giving into pressure from the council and excluding banks.

“This grants financial institutions a free pass to neglect human rights and environmental harms,” she said.

French nonprofit Reclaim Finance shared a similar sentiment, saying in a press release that it deplored lawmakers’ lack of ambition around excluding financial institutions from due diligence requirements. Although financial institutions are covered in French law on due diligence, “the French government, responding to the siren calls of the lobbies, did its utmost to counter the position of the European Parliament and of most member states, by arguing for the exclusion of financial services and against the recognition of the rights of indigenous peoples,” the nonprofit wrote.

The EU parliament and European Council still need to formally accept the agreement, which is expected in the first quarter of 2024.

This page was last updated December 21, 2023

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