EU Ushers in Sustainability Era, Leaves Banks out of Directive on Human Rights and Environment

Large companies will have to adopt and put into effect a transition plan for climate change mitigation. The agreement lays emphasis on access to justice of persons affected. “It establishes a period of five years to bring claims by those concerned by adverse impacts (including trade unions or civil society organisations). It also limits the disclosure of evidence, injunctive measures, and cost of the proceedings for claimants,” the Council underlined.

Companies that identify adverse impacts on environment or human rights by some of their business partners will have to end those business relationships when these impacts cannot be prevented or ended.

The Directive comes with punitive measures. “For companies that fail to pay fines imposed on them in the event of violation of the Directive, the provisional agreement includes several injunction measures, and takes into consideration the turnover of the company to impose pecuniary penalties (i.e. a minimum maximum of 5% of the company’s net turnover). The deal includes the obligation for companies to carry out meaningful engagement including a dialogue and consultation with affected stakeholders, as one of the measures of the due diligence process.”

The agreement leaves out the financial sector. The Council said: “According to the deal reached today, the financial sector will be temporarily excluded from the scope of the directive, but there will be a review clause for a possible future inclusion of this sector based on a sufficient impact assessment.” 

This comes in the wake of hectic and incessant lobbying by some EU Member States. A Bloomberg report said: “The decision follows a proposal by Spain, which holds the EU’s rotating presidency, that the finance sector get a reprieve from CSDDD’s initial rollout in order to reach consensus before the end of the year. Lawmakers, member states and the commission want the process finalized before next year’s EU elections.”

Spain was not the only country lobbying for leaving out the finance sector. The Financial Times had reported earlier: “Home to one of the bloc’s largest banking sectors, France has argued that a broader application of the rules to include end customers would hamper lending, though some EU lawmakers disagree. Financial institutions could be excluded from the new rules during a phase-in period, or the directive could be watered down, people close to the talks said.”

Oxfam EU’s Economic Justice Policy Lead, Marc-Olivier Herman, remarked:  "This deal marks a significant milestone as the largest of companies will finally have to clean up their act. But it did not get through unscathed with the regressive business lobby and a group of EU countries led by France and Germany punching holes in the law.

"First, the law will leave 99% of companies off the hook—ignoring too many companies in sectors rife with labour exploitation. Second, France shielded banks and investors so they can continue bankrolling human rights violations and environmental destruction. Third, Germany made it harder for survivors of corporate abuse to stand a chance in court with the scales tipped in favour of companies."

Amnesty International’s Policy Advisor on Business and Human Rights, Hannah Storey, expressed similar views: “This new law sets important human rights requirements for companies – which Amnesty International has long campaigned for – but the EU has failed to go far enough. We know that EU member states have introduced a loophole which means that companies are not required to address all of their human rights harms.

“Companies producing potentially dangerous products, including weapons and spyware, will not be required to assess how end users may use their products to harm human rights. Exemptions for the financial sector mean investors could continue to fund projects which harm people and planet, and the CSDDD only applies to very large companies, meaning many others will be able to continue harming human rights unchecked.”

Isabella Ritter, EU Policy Officer at ShareAction, said: "We've scored an important win for people and planet… Yet EU negotiators have missed a resounding opportunity for more transformative change. Despite strong support from financial sector representatives and civil society, EU policymakers, due to the Council’s pressure, chose to exempt financial institutions from due diligence requirements when offering financial services to their clients. This grants financial institutions a free pass to neglect human rights and environmental harms."