- Financial institutions are absent from a proposed European Union sustainability disclosure law that will hold businesses accountable for their corporate governance and company operations tied to their supply chains, Bloomberg reported Monday.
- Spain, who currently holds the EU’s rotating presidency, proposed banks be excluded from the Corporate Sustainability Due Diligence Directive, which would create civil liabilities for companies for failing to appropriately identify, mitigate, account for and prevent detrimental human rights and environmental impacts within their business operations.
- The rule will apply to non-EU companies that reach certain revenue and employee benchmarks, but is still pending approval from other member states and lawmakers. U.S. Treasury Secretary Janet Yellen expressed concerns earlier this year about the regulation posing unintended consequences for U.S. companies.
The EU first proposed the CSDDD in February 2022 as part of the bloc’s larger package of environmental and corporate sustainability reporting laws like the Corporate Sustainability Reporting Directive. The law will require companies to create detailed transition plans for how they will mitigate environmental and social impacts across their supply chain.
The law will apply to EU-based companies with more than approximately $43.25 million (40 million euros) in global revenue and over 250 employees and parent companies with more than $160 million and over 500 employees. The law will also apply to non-EU companies with over $160 million in global revenues, if more than $43.25 million are generated in the EU, and parent companies that meet the same revenue thresholds and have more than 500 employees.
The proposed carveout for financial institutions comes despite a July letter from the United Nations Working Group on Business and Human Rights that said such exceptions would be “unjustified.” The group’s guiding principles say corporate human rights responsibilities apply “to all enterprises regardless of their size, sector, operational context, ownership and structure.” The U.N. organization, which serves as a global platform for stakeholders to discuss trends and challenges linked to business and human rights, recommended the final rule include the entire financial sector.
“[A]ll financial institutions, of every type, have the same responsibility to respect human rights, and creating carveouts or presumptions for the financial sector in the draft Corporate Sustainability Due Diligence Directive would be inconsistent with international standards on business and human rights,” the letter says.
The law is unlikely to be enforced until 2025 “at the earliest,” KPMG estimates. The regulation also includes a timeline of three years to phase in reporting requirements.