Press release: 14 December 2023

Transition plan requirement ‘only saving grace’ in the EU’s watered down corporate sustainability directive

The EU Parliament and Council have reached a political agreement on the Corporate Sustainability Due Diligence Directive (CSDDD) after intense negotiations that ran late into Thursday morning.

A positive outcome from the negotiations is the requirement for companies to set emissions reduction targets and implement plans to transition their business to align with the 1.5°C temperature goal.

However, decision-makers agreed to partially exclude the financial sector from some of the rules, which ClientEarth lawyers called a major blow to the law’s potential to tackle the EU corporate sector’s global footprint on the environment and human rights.

Banks, insurers and investors will be subject to the requirement on transition plans, but now those actors will not be required to conduct due diligence; a move that is disappointingly out of step with international standards. EU institutions will reconsider the downstream impacts of financial actors during the first review of the legislation.

ClientEarth lawyer Amandine Van Den Berghe said: “While the existence of this first-of-its-kind law is a major milestone, the significant watering down of the environmental scope is a big disappointment. The transition plan requirement is the only saving grace when it comes to climate.

“The vast majority of the corporate sector has shown that it won’t put in place credible transition plans voluntarily. There must be a legal impetus. This law should provide the stick needed to ensure EU companies are actively working to bring down their emissions and properly manage climate risk.

“The carve out for the financial sector is completely nonsensical and ignores industry’s own widespread pleas for equal treatment under the law. The agreement has given banks and other powerful financial actors a free pass to look away from the serious environmental damage and human rights violations they are bankrolling.

“It’s bad for legal clarity, bad for economic resilience, and bad for the EU’s climate and environmental goals. Deforestation, pollution, fossil fuel expansion won’t be stopped while the money keeps flowing into these destructive practices.”

ClientEarth is also concerned the definition of environmental impacts does not give sufficient legal clarity to companies on the types of adverse environmental impacts they will need to identify and address.

Van den Berghe added: “Again, the law risks perpetuating legal uncertainty by failing to give companies a robust list of environmental impacts that they must conduct due diligence against.

“This is just the beginning of a new era of mandatory due diligence rules. The directive will need to be properly transposed by Member States and we will be watching closely to ensure this happens.”

ENDS

Notes to editors:

• ClientEarth warned the French government that failing to address the private sector’s full environmental footprint under the CSDDD will put people’s health, nature and the economy at risk – and could be in contrary to its international human rights obligations.

  The United Nations Working Group on Business and Human Rights warned that unjustified carveouts for the financial sector departs from international standards and ignores existing practice.

  Leading figures in academia and business call on the French government to make financial actors responsible for the social, environmental and climate-related impacts of their services.

  Frank Elderson, Member of the Executive Board and Vice-Chair of the Supervisory Board of the ECB, said the inclusion of the financial sector in the CSDDD would provide greater certainty around financial institutions’ obligations.

  Storebrand Asset Management, ASN Bank, Tridos Asset Management, Dutch Banking Association, Pensioen Federatie, and Dutch Association of Insurers, Nordic investors, IIGCC, PRI, Eurosif all support financial sector inclusion in the CSDDD.

  ClientEarth’s briefing on the inclusion of the financial sector for the Corporate Sustainability Due Diligence Directive in trilogue negotiations is available here.

About ClientEarth

ClientEarth is a non-profit organisation that uses the law to create systemic change that protects the Earth for – and with – its inhabitants. We are tackling climate change, protecting nature and stopping pollution, with partners and citizens around the globe. We hold industry and governments to account, and defend everyone’s right to a healthy world. From our offices in Europe, Asia and the USA we shape, implement and enforce the law, to build a future for our planet in which people and nature can thrive together.