Due Diligence Directive deal ignores financial sector as driving force of environmental damage

Posted on December, 14 2023

In the early hours of the morning, the European Parliament, Commission, and Council reached a disastrous political agreement on the Corporate Sustainability Due Diligence Directive (CSDDD), which will allow the financial sector to keep violating human rights and harming the environment.
While the directive will help firms transition to net zero, the requirements on due diligence fail to meaningfully address corporate abuses on the environment. 

“Today is a dark day. Despite the historic opportunity, the negotiators agreed that financiers must be allowed to freely violate human rights and worsen the already poor health of the ecosystems,” said Uku Lilleväli, Sustainable Finance Policy Officer at WWF European Policy Office. “The deal is an insult to people and communities suffering from the severe harms that EU financiers are contributing to globally. By fully exempting financial activities from due diligence obligations, the agreement completely ignores finance as a key driving force of today’s economy, thereby severely weakening the impact of the Directive. The deal also deprives the financial sector of the opportunity to foster more informed, risk-resilient financial decisions.”

The negotiators also agreed to require companies and financial institutions to both adopt and implement climate transition plans with mandatory emission reduction targets. “When it comes to transitioning, the negotiators reached a landmark deal, as the CSDDD is the first EU law requiring large companies from across all sectors not only to adopt transition plans, but also take concrete steps in putting these into action,” added Uku Lilleväli. “Moving from reporting to implementing could be the defining moment in alleviating corporate impacts on climate change.” 

In addition, the deal foresees that managers of larger firms must be financially incentivised to implement the transition plan. On the downside, there will be no liability or public enforcement to ensure the effectiveness of the implementation, leaving room for grave greenwashing and suboptimal performance. 

Despite progress on climate targets and plans, the Directive fails to adequately address corporate abuses on the environment. This is because negotiators defined environmental impacts not as wide impact areas, such as climate change, biodiversity and pollution, but as violations of a narrow set of international treaties. The treaties also exclude some of the fundamental agreements, including the Paris climate agreement, which means that firms can ignore emissions outside the mid- to long-term transition plans in their daily decisions.

“The list of conventions covers only a fraction of all possible adverse environmental impacts. Even so, most of these are already restricted or banned, begging the question of the added value of the due diligence law,” added Uku Lilleväli. “Drastically restricting the environmental scope makes it difficult, if not impossible to address, for instance, air, water or soil pollution from chemicals used in the fashion, textile, mining, agriculture or other industries. This will also create an unfair playing field as some sectors are more affected than others, and add inconsistencies with sustainability reporting laws, increasing the burden for companies. This is another issue, among many, which must be reviewed and tightened as soon as possible in the next Commission’s mandate.”

The provisional agreement will now be finalised on the technical level, before being formally endorsed by the European Parliament and the Council. WWF calls on the negotiators to fix all the loopholes in the technical discussions, in order to ensure the directive will benefit people, businesses and the planet.
Financial activities will be exempted from due diligence obligations under the new law
© Shutterstock / Leung Cho Pan / WWF