Let me share a few thoughts on a certain EU directive. Before I lose anyone whose job does not mandate an intimate knowledge of regulation, let me also say that this particular directive comes with an unusually consequential impact for the business of banking, and outside of the European bloc too. It is the EU’s Corporate Sustainability Due Diligence Directive.
CSDDD proposes that companies be responsible for the environmental and social impacts of their activities throughout supply chains, including in, say, a manufacturer’s choice of raw materials providers and of its distribution channels. If applied to the financial sector, the “downstream” supply chain requirement would make banks responsible for reporting and taking action on clients’ environmental, social and human rights abuses.
The pushback against CSDDD has been enormous, not least from banks. A December draft temporarily excluded the financial services sector from those downstream requirements, though imposed the creation of transition plans to deal with climate change. But the rules are still viewed as highly prescriptive.
Concerns over CSDDD and its potential implication for EU competitiveness may delay and weaken its current form. EU member states were meant to discuss the directive today, with the view to reach an agreement, but CSDDD slipped out of the meeting agenda, as our colleagues at Sustainable Views report.
The subjects it tackles and the responsibilities it attempts to codify, however, are unlikely to fall off regulators’ as well as the broader public debate. Arguably, the directive is only a sign of the increasingly obvious need to address what society expects of companies, particularly as endless surveys remind us that younger generations (of consumers, voters and financial services users) value the concepts of sustainability and accountability.
Cumbersome regulation may not be the best way to go about addressing this. Yet, it is more likely that a tweaked version of CSDDD or a derivative set of rules come to life, than the subject of corporate sustainability obligations disappear completely. For banks too.
Even Germany, the most influential opposer of the EU directive in its current form, introduced legislation along the same lines last year. The German Supply Chain Duty of Care Act does include regulated financial institutions too, though in a limited and more specific way.
France, which has led the opposition to including the financial sector in CSDDD, has had a Corporate Duty of Vigilance law since 2017. Last year, three non-profits sued BNP Paribas, claiming France’s largest bank had breached its obligations under the law.
Other countries in Europe and elsewhere are looking at due diligence regulations.
Even those criticising EU rulemakers as having an “experimental” approach to standards and regulations that need to be practical, rather than philosophical — as a UK consultant recently described to me in exasperation — appreciate the ultimate objective of that regulatory exercise. That is: to make the economy “greener, and fairer”, as the consultant said. Whether directly or indirectly, banks will inevitably be caught in this change.
Silvia Pavoni is editor in chief of The Banker. Follow her on LinkedIn here.
Get in touch at thebankereditorial@ft.com.
