The Justice Commissioner tells EURACTIV.com that EU rules should cover finance

According to Justice Commissioner Didier Reynders, the EU executive’s aim is to include the financial sector in EU rules on corporate responsibility. His comments come after member states excluded him from mandatory due diligence on the common negotiating position.

The Corporate Sustainability Due Diligence Directive, also known as the CSDD Directive, was proposed by the Commission in February 2022 to hold companies accountable for breaches of human rights and environmental standards.

The original proposal called on companies employing more than 500 people and generating a turnover of 150 million euros to identify, mitigate and correct risks and irregularities along the entire value chain.

The rules will also apply to companies with more than 250 employees and a turnover of €40 million in high-risk sectors such as the textile industry. The financial sector, including banks and financial institutions, will be required to carry out due diligence checks from the outset of contracts.

Financial focus

“We want to see the financial sector inside[du champ d’application de la directive]», Commissioner M. Reynders told EURACTIV. He also added that the goal is to achieve a “Horizontal approach and connecting all sectors”.

The Commission included in its proposal “guarantees” for the financial sector required to exercise due diligence at the pre-contractual stage.

“I fully understand that it is impossible to ask banks or investment firms to monitor the supply chain of all their customers, but at least it should be possible to monitor the first customer and organize a duty of vigilance”said Mr. Reynders.

However, Member States chose to exclude financial services from the duty of care in their common position adopted in December. The decision came under pressure from the French government and was widely criticized because the financial sector has a large influence on the behavior of companies and is therefore thought to have leverage over them.

Member States have agreed to replace the concept of “value chain” with the concept of “chain of activities” which represents only a very limited part of the downstream part of the value chain. Thus, in practice, due diligence requirements for banks will be negligible.

Commenting on the decision, Mr. Reynders said: “If it is possible to find another formula, but achieve the same goal [de la Commission] it’s about covering all sectors, the better.”

However, he clarified: “I’m not sure that will happen with the current wording of the council. Whether [l’objectif] It is simply to exclude the financial sector from the scope, and we will have further discussions. »

Other negotiations in perspective

Before starting negotiations with member states, the EU executive will have to wait for the final position of the Parliament on the directive, which will be voted on at the plenary session in May.

Last week, several parliamentary committees, including the Economic Affairs Committee (ECON), voted in favor of including mandatory due diligence rules for the financial sector in their opinions. These will then be included in the parliament’s final report on the dossier.

The vote was welcomed by activists calling for stronger due diligence obligations for NGOs and financial services.

“Inclusion of financial services is critical”, Amnesty policy advisor Hannah Storey told EURACTIV after the vote. And it should be added that the results show it “European parliamentarians are ready to improve the positions of the Commission and the Council”.

However, the Commissioner approached the upcoming negotiations with caution and stressed the importance of finding ways to combine Parliament’s amendments with the position of member states.

“I’m not saying the best way is to go back to the Commission’s proposal, but you know sometimes it’s halfway between the Parliament’s position and the Council’s position.”said Mr. Reynders.

Business concerns

In December, member states also questioned the scope of the directive and adopted a step-by-step approach in the compromise text. Under this approach, the rules would first apply to businesses with more than 1,000 employees before being rolled out to businesses with more than 500 employees.

At the same time, most members of the European Parliament demand that the rules also apply to small businesses. The Economic Affairs Committee voted on Tuesday (January 24) to include companies with more than 250 employees and 50 million euros or a turnover of 50 employees and a turnover of 10 million euros in high-risk sectors.

However, the Commissioner said that the original Commission proposal was over “most ambitious” and compared this with the duty of care rules applicable to companies with more than 5,000 and 3,000 employees in France and Germany, respectively.

Moreover, he did not rule out the extension of the scope of the directive after its entry into force.

However, businesses continue to express concerns about the impact of the new rules on small businesses. On January 19, a group of business associations wrote a letter asking the Commission to limit due diligence requirements according to the size and capabilities of companies.

Asked about companies’ concerns about the rules, the commissioner responded: “It’s sometimes strange to listen to business federations because they say they do it on a voluntary basis, but the reality is it’s not that hard to just explain what they do. »

The commissioner added that he hopes that negotiations between the EU institutions will start in June before the end of Sweden’s presidency of the EU Council. He also wants to reach a final agreement during Spain’s presidency of the EU Council in the second half of this year.