EU countries come together to exempt banks from new green and human rights rules

BRUSSELS – A new push by member states to exempt financial institutions from proposed EU rules on oversight of business supply chains could further complicate already thorny negotiations.

The proposed rules, now being negotiated by EU institutions, are designed to force companies operating in the EU to monitor their global value chains for environmental or human rights risks.

Ahead of Wednesday’s fourth and potentially penultimate round of talks, EU ambassadors backed away from France’s long-standing call to liberalize the entire financial sector. Paris wants to protect its financial houses from the compliance burden such rules would bring as they seek to win new business after Britain and its large financial sector leave the EU.

Last week, a majority voted in favor of a proposal by the Spanish presidency of the EU Council to “exclude the financial sector from the scope of the rules” and “postpone its extension to a later stage by adding a review”. point”:

However, not all countries want the full formation of this sector, with the Dutch and Danes being among the most active critics.

“I always thought there was a trilogue going on between the Council, the Parliament and the Commission, but it seems that the financial services sector is now an EU institution too,” quipped one EU diplomat.

Several countries, along with the EU executive, are therefore proposing a new compromise that includes banks and insurers while leaving out asset managers.

Lobbying war

The question of whether the financial sector should be covered by Corporate Sustainability Due Diligence rules has unleashed a lobbying war in Brussels.

Proponents, NGOs that want to end evils such as child labor and deforestation, as well as several progressive business bodies, argue that financial institutions should take responsibility for supply chain compliance in the projects they support.

According to Climate & Company, a sustainable finance think tank, the new rules will provide an incentive “for financial institutions to stop funding harmful activities hidden in the value chains of their customers and investors”, arguing that “up to 80 percent of this is natural. capital destruction and the majority of human rights violations are taking place.”

Critics fear the rules could mean financial institutions can’t provide certain services to their customers. US investors, asset managers and bankers have also spoken out against the proposed rules.

Insurance Europe, which represents European insurers, has warned that insurers may be “expected or required to refuse to issue a legally required insurance policy due to a due diligence assessment”.

The new position of the EU majority marks a departure from the previous position, which left the decision to include the financial sector to the discretion of member states.

It puts countries on a collision course with European lawmakers who want all sectors, including finance, to control their value chains. That puts negotiators in a difficult position and under increasing time pressure to find a compromise, as the file must be wrapped up by mid-February to avoid legislative loopholes.

Way forward

While the topic was not on Wednesday’s agenda, obtained by POLITICO, as negotiators need time to clarify their response to the Council’s new position, it will come to the fore in the closing stages of the talks.

At last week’s meeting, “the Commission, Germany, the Netherlands, Denmark and Finland all called for a constructive solution to ensure that banks and insurers are covered by the directive,” said the diplomat, who spoke on condition of anonymity. not authorized to speak on the record.

While proponents of strict rules still favor all financial institutions being covered by the rules, they acknowledge that the distinction between asset managers and banks and insurance companies is at least somewhat warranted.

“Insurers and [the] the banking sector has a specific contractual relationship with its customers’, meaning they can control their supply chains based on contractual agreements,’ says Ingmar Jürgens, CEO of Klima and Company.

“It doesn’t apply to asset managers,” he added, pointing out that they are, however, “quite aware of the sustainability implications of their equity investments.”

Alexandra Palinska, executive director of the European Sustainable Investment Forum, said including all financial institutions would “support risk management” by making sure they are better aware of the sustainability risks and impacts of their investments.

But he also acknowledged that many large asset managers are already required to carry out due diligence on investments under the EU’s sustainable finance disclosure regulation.

The European Banking Federation and the European Fund and Asset Management Association did not respond to requests for comment.