The European Parliament has incorporated the financial sector in a proposed new EU due diligence law, but campaigners say they are disappointed with the watering down of the rules into a “light touch” regime.
On Tuesday (25 April) the European Parliament’s Legal Affairs Committee adopted its position on the EU’s corporate accountability legislation, urging businesses to care about people and the planet, in what is seen as a strong indication of the eventual law.
The members of the parliament acknowledged the role financial institutions have to play in protecting human rights and the environment by including them in the legal text of the EU’s proposed Corporate Sustainability Due Diligence Directive (CSDDD).
The financial sector’s inclusion means financial companies will have to carry out environmental and human rights due diligence on companies they interact with as clients, and exert leverage on them to ensure harmful practices are stopped.
Initially the sector had been excluded from these planned rules.
Financial companies will not, however, be judged as causing harm themselves by having relationships with clients that are doing harm to the environment or human rights, or be held liable for their impacts.
Isabella Ritter, EU policy officer at ShareAction, called this “the Ccmmittee’s decision to water down the due diligence rules for financial institutions”.
“The current proposal requires the financial sector to only carry out light touch due diligence, in clear contrast with international standards.”
She welcomed “some crucial wins”, in particular on directors’ duties, transition plans, and executives’ remuneration, but added “we are very disappointed, however, to see that the rules for financial institutions were weakened on many accounts”.
Ritter said: “Considering the financial sector has a critical role in protecting the people and planet, it is important that financial institutions make full use of the tools that are available to them to take actions against environmental harm and human rights abuses.
“We need a regulatory framework that will achieve this, but the report voted today doesn’t go far enough. We urge the European Parliament to reconsider this in the next steps of the process.”
Under current plans the CSDDD will not introduce any new reporting requirements, with all the disclosures instead done via the EU’s Corporate Sustainability Reporting Directive.