EU due diligence rules should include finance, Commissioner says

Commissioner for Justice Didier Reynders said the EU executive’s goal is to include the financial sector under the EU rules on corporate accountability after it was carved out from mandatory due diligence by member states in their common negotiating position.

The corporate sustainability due diligence directive – also known as the CSDDD – was proposed by the Commission in February 2022 to make companies responsible for violations to human rights and international environmental standards.

According to the original proposal, companies with more than 500 employees and €150 million turnover would have to identify, mitigate and remediate risks and violations along their value chains. 

The rules would also apply to companies with over 250 employees and €40 million turnover in high-risk sectors, such as the textile industry, while the financial sector, including banks and financial institutions, would be required to carry out due diligence checks at the inception of contracts.

Finance in

“We want to see the financial sector inside [the scope of the directive],” Commissioner Reynders told EURACTIV, adding that the goal is to achieve a “horizontal approach and to take all the sectors on board”.

In its proposal, the Commission included “safeguards” for the financial sector, which would be required to conduct due diligence in the pre-contractual phase.

“I fully understand that it’s impossible to ask the banks or the investment firms to control the supply chain of all their clients, but it must be possible to at least control and to organise due diligence on the first client,” Reynders said.

However, member states opted to carve out financial services from mandatory due diligence in their common position agreed upon in December. The decision was reached under the pressure of the French government and has been widely criticised, as the financial industry is seen to have a large influence on companies’ behaviour and would thus have a lever to put pressure on them.

Member states agreed to replace the notion of “value chain” with “chain of activities” including only a very restricted section of the downstream part of the value chain, which would make due diligence requirements negligible for banks in practice.

Commenting on this decision, Reynders said “if it’s possible to find another wording, but reach the same goal [of the Commission] to touch all the sectors, fine”.

However, he added: “I’m not sure that with the actual wording coming from the Council this will be the case. If [the goal] is just to put the financial sector out of the scope, we’ll have new discussions.”

More negotiations ahead

Before negotiating with member states, the EU executive will have to wait for the Parliament’s final position on the directive, which will be voted on in the May plenary session.

Earlier this week, several parliamentary committees, including the committee of economic affairs (ECON), voted in favour of including mandatory due diligence rules for the financial sector in their opinions, which will then feed into the final Parliament’s report on the file.

The votes pleased NGOs and activists who have been pushing for stricter due diligence requirements for financial services.

“The inclusion of financial services is hugely critical,” Hannah Storey, Amnesty policy advisor, told EURACTIV after the votes, adding that the results show “MEPs are willing to improve on the Commission and Council positions”.

Yet, the Commissioner was cautious looking at negotiations ahead and stressed the need to find a way to combine the Parliament’s amendments with the position of member states.

“I’m not saying that the best way is to go back to the proposal of the Commission, but you know that sometimes it’s in the middle of the position of the Parliament and the Council,” Reynders said.

Businesses concerns

In December, member states also questioned the scope of the directive and introduced a phase-in approach in the compromise text, according to which the rules would first apply to companies with over 1,000 employees, before including companies with over 500 workers.

At the same time, most MEPs are pushing to extend the rules to smaller companies. On Tuesday (24 January), the economic affairs committee voted to include companies with more than 250 employees and a €50 million turnover or 50 employees and a €10 million turnover in high-risk sectors.

Yet, the Commissioner said the Commission’s original proposal was already “most ambitious” and compared it to due diligence regulations in France and Germany, which apply to companies with over 5,000 and 3,000 employees respectively.

At the same time, he did not exclude broadening the scope of the directive after it enters into force.

Businesses meanwhile continue to express concerns about the impact of the new rules on smaller enterprises. On 19 January, a group of business associations wrote a letter calling on the Commission to limit due diligence requirements in relation to the size and means of companies.

Asked about the businesses’ concerns regarding the regulation, the Commissioner said: “Sometimes it’s strange to listen to the business federations because they are saying that they are doing the job on a voluntary basis, but if that’s the reality, it’s not so difficult just to explain what they are doing.”

The Commissioner said he hoped negotiations between EU institutions would start in June, before the end of the Swedish presidency of the EU Council, and to reach a final agreement during the Spanish presidency of the EU Council in the second half of the year.

[Edited by János Allenbach-Ammann/Nathalie Weatherald]

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