MEPs shape up for fight over inclusion of investors in EU due diligence directive

Leaked documents show right-wing MEPs are pushing to exempt all investment firms from the CSDDD.

Members of a key European Parliament committee will square off next week over the question of whether financial institutions should be covered by the EU’s upcoming corporate sustainable due diligence directive (CSDDD).

The European Commission’s draft of the directive, which was published in February 2022, included “investment firms” along with banks, insurers and other financial institutions.

Leaked documents seen by Responsible Investor show that the rapporteur of the Committee on Economic and Monetary Affairs (ECON) has proposed changes to the directive that would add “institutional investor” and “asset manager” to the types of institutions covered.

The “draft compromise amendments” document produced by rapporteur René Repasi, an MEP in the Socialists and Democrats (S&D) group, has been backed by the shadow rapporteur from the Renew group, as well as the Greens.

EPP opposition

The proposals are expected to be vehemently opposed by the right-wing EPP Group, which has produced counterproposals.

The document, also seen by RI, exempts all investment firms – including alternative investors and UCITS – from inclusion in the directive, which will impose mandatory human rights and environmental due diligence requirements on institutions.

Other changes include a dramatic increase in the required employee count and turnover for companies covered by the directive, as well as the elimination of any exceptions to the rule. The EPP has also included a clause prohibiting national governments from implementing more stringent regulations than those included in the directive.

At the time of publication, the EPP had not responded to RI’s request for comment.

In February last year, more than 100 global investors, ESG ratings providers and large companies called on lawmakers to include investors and other financial actors within the directive’s scope.

Dutch pension funds and industry bodies also pushed back in November against a call from the European Council to allow EU countries to decide whether domestic financial institutions will fall under the directive.

Industry split

There are indications, however, that the industry is also split on the issue.

The person familiar with the discussions said that a divide has emerged between financial institutions, “with trade associations taking a typically conservative approach that is at odds with more progressive financial entities themselves”.

The ECON committee will open a debate on the commission’s proposals on Monday and is expected to vote on an opinion on Tuesday.

It is one of seven committees which will provide their opinions on the proposals. These will then go to the Committee on Legal Affairs (JURI) for consideration.

The JURI rapporteur, Lara Wolters, has already produced a report on the commission’s proposals.

That called for the scope of the directives to be widened, financial institutions to be included in the “high-impact sectors”, the inclusion of good governance as a third pillar along with human rights and environment, and the removal of the limitation of due diligence to “established business relations”.

After considering the opinions of the seven committees, JURI will make amendments to the Wolters report before voting on the proposal in March.