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BRUSSELS — A new push by member countries to exempt financial institutions from proposed EU rules on monitoring corporate supply chains risks further complicating already thorny negotiations.
The proposed rules, currently being negotiated by European institutions, aim to force EU-based companies to monitor their global value chains for environmental or human rights risks.
On the eve of a fourth – and potentially penultimate – round of negotiations on Wednesday, EU ambassadors backed a long-standing call from France to exempt the entire financial sector. Paris wants to protect its financial institutions from the compliance burden these rules would bring as they seek to win new markets after Britain and its outsized financial sector leave the EU.
A majority voted last week in favor of a proposal from the Spanish presidency of the Council of the EU to “exclude the financial sector from the scope of application” of the rules and to “delay its extension to this sector at a later stage later by adding a revision. clause.”
But not all countries want total exclusion from the sector, with the Dutch and Danes being among the most vocal critics.
“I always thought there was a trilogue between the Council, the Parliament and the Commission, but it seems that the financial services sector is now also a European institution,” joked a European diplomat.
Several countries, alongside the European executive, are therefore proposing a new compromise which covers banks and insurers, while leaving aside asset managers.
The question of whether the financial sector should be covered by Corporate Sustainability Due Diligence rules has sparked a lobbying war in Brussels.
Supporters – NGOs that want to eradicate scourges like child labor and deforestation, as well as some progressive business organizations – argue that financial institutions should take responsibility for supply chain compliance in projects that ‘they support.
According to sustainable finance think tank Climate & Company, the new rules would incentivize “financial institutions to stop financing harmful activities hidden in the value chains of their customers and the entities in which they invest,” arguing that “it “this is where up to 80% of natural resources are concentrated.” destruction of capital and the majority of human rights violations take place.
Critics in turn fear that the rules could prevent financial institutions from providing certain services to their customers. US investors, asset managers and bankers have also criticized the proposed rules.
Insurance Europe, which represents European insurers, warned that insurers could be “expected or required to refuse the provision of a legally required insurance policy due to a due diligence assessment”.
The European majority’s new position marks a change from a previous position, which would have left the decision to include the financial sector to the discretion of member countries.
This puts countries on a collision course with European lawmakers, who want all sectors – including finance – to control their value chains. This puts negotiators in a difficult situation and under increasing pressure to reach a compromise, as the file must be completed by mid-February to avoid it slipping through the legislative cracks.
Way to go
Although the topic is not on Wednesday’s agenda — obtained by POLITICO — because negotiators need time to flesh out their response to the Council’s new position, it will come to the forefront in the final stages of negotiations.
At last week’s meeting, “the Commission, Germany, the Netherlands, Denmark and Finland all called for a constructive solution to ensure banks and insurers are included in the scope of the directive”, according to the diplomat, who requested anonymity. not authorized to speak officially.
Although proponents of strict rules still argue for all financial institutions to be covered by the rules, they recognize that a distinction between asset managers and banks and insurance companies is at least to some extent justified.
“Insurers and (the) banking sector have specific contractual relationships with their customers,” meaning they can control their supply chains based on contractual agreements, said Ingmar Juergens, CEO of Climate & Company .
“This does not hold true for asset managers,” he added, emphasizing that they are, however, “rather aware of the sustainable implications of their equity investments.”
Aleksandra Palinska, executive director of the European Forum on Sustainable Investment, said the inclusion of all financial institutions would “support risk management” by ensuring they are better aware of sustainability risks and negative impacts of their investments.
But she also acknowledged that very large asset managers are already required to carry out due diligence on investments under the EU Sustainable Finance Disclosure Regulation.
The European Banking Federation and the European Funds and Asset Management Association did not respond to requests for comment.