Dutch pension funds and industry bodies have criticised the European Council decision to allow EU countries to decide whether domestic financial institutions will fall under the bloc’s corporate sustainable due diligence (CSDD) directive.
The long-awaited draft of the directive, which would impose mandatory human rights and environmental due diligence requirements across the market, was published by the Commission earlier this year. Reactions to the draft proposal were mixed, but it has been broadly welcomed by the investor community.
However, EU ministers last week agreed that it would be up to individual member states to decide for themselves whether they would enforce the rules across financial markets in a last ditch effort to prevent the legislation from being blocked. The Council will soon begin negotiations with the European Parliament to decide the final version of the legislative text.
More than 100 global investors, ESG ratings providers and large companies have previously called on lawmakers to include financial actors within the directive’s scope.
A spokesperson for Dutch metalworker scheme Pensioenfonds Metaal en Techniek (PMT) told Responsible Investor: “This a missed opportunity to create a level playing field. A strong, EU-wide signal to take due diligence, and sustainability matters in general, seriously is ever so important in the context of growing anti-ESG movements around the world.”
PMT said it was in favour of including the financial sector in the CSDD directive, as long as the final text of the directive is aligned with the OECD guidelines for Multinational Enterprises and other relevant legislation, such as the EU’s sustainability disclosure rules for financial institutions and companies.
Dutch pension fund PME and the Federation of Dutch Pension Funds also panned the move by EU member states.
Ger Jaarsma, chairman of the Federation of the Dutch Pension Funds, told RI: “Bringing investment in scope of the proposal would create a consistent international framework and require all actors in the investment chain to conduct due diligence, making it easier for pension funds to achieve their sustainability objectives.”
A spokesperson for Triodos Bank told RI the position “is not in line with international standards on due diligence, such as the OECD Guidelines and UNGPs”.
They added: “The position of the Council… is harming the financial sector more than it will do good to the world. Leaving this to member states will result in an uneven level playing field within the European Union. Financial institutions that want to do due diligence or are obliged by their member states have a disadvantage compared to those financial institutions that don’t have to comply with due diligence obligations.”
The Dutch sustainable bank and asset manager also came out in support of a November report put out by the directive’s rapporteur, Lara Wolters, which included an estimated 250 amendments to the commission’s proposal.
At the time, investors and NGOs hailed her amendments.
Representatives from NGOs – including ShareAction, Business & Human Rights Resource Centre (BHRRC) and WWF – have separately raised concerns.
Johannes Blankenbach, senior EU/Western Europe researcher and representative at BHRRC, said: “It is a severe blow to workers, communities and the environment suffering the impacts of irresponsible investment. While presumably an effort to shield financial industries, such a move would miss a historic opportunity to future proof the sector.”
Blankenbach criticised another proposed change by the EU Council which would see the law applied mainly to a company’s upstream activities. This will leave room for “impunity on downstream impacts from the use of companies’ products and services”, he said.
Separately, Eurosif’s executive director Aleksandra Palinska said it was important to avoid any duplication with existing regulatory requirements.
As an example, she said due diligence on investments is already covered by SFDR and delegates acts on UCITS and AIFMD. “However, activities like bank’s lending and insurance-related services are not covered.”
“Making the scope a member states option would result in market fragmentation and make life of global financial institutions very difficult similarly to what happened with the audit market reform several years back. With CSDDD we want to avoid inconsistencies and overlaps, and close any loopholes on things not covered by other rules.”
The European sustainable finance industry body is also worried about the removal of director responsibilities regarding climate and due diligence from the original EC draft of the rules.
Palinska concluded by calling on the European Parliament “to strive for an ambitious report on the CSDDD to balance out the low ambition reflected in the text adopted by the Council”.
France, Germany, Luxembourg, the Netherlands and Finland have introduced or are planning to develop national mandatory human rights and environmental due diligence legislation. However, Dutch investors have expressed concerns that its proposed legislation will put local firms at a disadvantage.