Landmark EU law obliges companies to act on climate, misses chance to make banks green investments

Brussels, December 14 – The European Union today
agreed a landmark law that will help prevent large companies from damaging
the environment and threatening human rights, after negotiators concluded
late-night talks on the Corporate Sustainability Due Diligence Directive
(CSDDD).

For the first time, there will be a comprehensive legal
framework for communities anywhere in the world to sue companies responsible
for human rights abuses and environmental harms in European courts.Companies will also need to write and put into effect
climate transition plans, which will put Europe’s biggest corporate players –
including fossil fuel majors – on a pathway towards reducing their emissions in
line with the Paris Agreement and the EU’s climate targets.

While banks and insurers will have to implement climate
transition plans – steps that would bring them closer to climate-friendly
investments – the financial sector secured a broader carve-out and will not be
obliged to ensure that their loans or investments are not tied to human rights
abuses.

A ‘political declaration’ commits
lawmakers to re-considering this decision in the coming years – although what
this means in practice is unclear.

Arianne Griffith, corporate accountability lead at Global
Witness said “The EU has agreed a ground-breaking new law that could
finally curb the unchecked power big companies have enjoyed for so long. It
will mean Europe’s biggest polluters – including fossil fuel majors – will need
to reduce their climate emissions and gives people who are at risk from
dangerous business practices a chance to fight back. However, it’s shocking
that Member States have sunk plans to ensure that banks stop investing in
environmental and human rights abuses.”

Crucially, the law will require companies to engage with
people affected by their project before it begins, and throughout its life
cycle.

In February, Global Witness identified
how hundreds of residents were displaced to make way for a new mega-airport in
the Philippines after a botched ‘consultation process’ in which residents
reported that armed soldiers went door-to-door, leaving community members
feeling “terrified”. The law will help end such coercive consultation
processes.

It will also reduce the obstacles that communities face when
taking legal action against companies.

Courts could ask companies to disclose greater evidence if
claimants bring forward a solid case, and affected communities will have at
least five years to bring their cases before courts. This will help to reset
the imbalance of power that often makes it impossible to build a case against
the companies that withhold the evidence victims need to support their
claims.

The text is expected to be rubber-stamped by the European
Council and Parliament in early 2024, after which Member States will have two
years to transpose the Directive into national legislation.