Banks may be excluded from EU’s corporate climate accountability rules

Banks and other financial firms may be excluded from the EU’s corporate climate-accountability rules, as member states give in to bank lobby groups who have long pushed against the directive, according to media reports. 

Spain, which holds the presidency of the EU, is expected to propose that the rollout of the corporate sustainability due diligence directive (CSDDD) leave out financial institutions and instead include a review clause to cover financial firms at a later date. 

The landmark legislation is currently under negotiation between the EU Commission and member states, known as the trilogues. 

Under the CSDDD, companies will need to conduct assessments of the potential and actual impact in Scopes 1, 2, and 3 emissions across their supply chains, as well as adopt and implement climate-transition plans. If included in the directive, banks would be accountable for any human rights and environmental breaches of the projects they finance. 

The EU wants companies to take more responsibility for their climate actions, and the CSDDD, along with the corporate sustainability reporting directive, aims to reshape reporting requirements for EU companies, as well as some non-EU companies that are listed or have an EU branch. The CSDDD has raised concerns from the US, with Treasury Secretary Janet Yellen warning against the “negative, unintended consequences” of the directive. 

The inclusion of the financial sector has long been a sticking point in negotiations. The EU Parliament voted in favour of including the finance sector in June. Previously member states agreed to leave it to the discretion of member nations, with France taking the lead in arguing that banks be left out of the mandatory requirements.

But other regulators and climate activists are in favour of including financial institutions in the CSDDD.

In order for private finance to support the green transition, regulation and legislation needs to be consistent across sectors, and financial companies shouldn’t be treated any differently than other companies in the context of the CSDDD, European Central Bank (ECB) executive board member Frank Elderson said in a speech on Tuesday. 

Treating companies and banks consistently will help ensure that they integrate sustainability into their risk and decision-making practices, he said.

“Not excluding the financial sector from the remit of the CSDDD can further help to create greater certainty around financial institutions’ obligations in this area and around climate- and environment-related litigation risks for the financial sector,” he added. 

The proposal from the EU presidency goes against the EU Parliament and shows “a deep lack of respect,” said Olivier Guérin, EU advocacy officer at Reclaim Finance.

“Indeed, the position adopted by [members of the European Parliament] has now been crushed under the weight of the French lobbying against the inclusion of the financial institutions,” he said.

The current proposal delays action needed to fight climate change and “the enablers of climate change, those financing climate chaos, could be given a free pass on climate action,” he said. “This is not acceptable”.