MEPs move closer to holding companies accountable for profiting from destroying the planet.
Posted on 25 April 2023
Today, the European Parliament's Committee on Legal Affairs (JURI) cast a final vote on the Corporate Sustainability Due Diligence Directive (CSDDD). Their vote raises the expectations for the upcoming plenary session in early June.A significant number of businesses in the EU neglect sustainability concerns in their operations and value chains. This not only has detrimental effects on the environment but also impacts their own business practices. To address this issue, the CSDDD offers a clear legal framework for companies to manage sustainability risks and impacts, promoting greater responsibility and accountability.
“The climate and biodiversity crisis has seen many companies profiting from environmental destruction, but the EU is now moving closer to holding them accountable. While several improvements will be necessary, today’s vote is a promising step forward in ensuring that the Corporate Sustainability Due Diligence Directive would benefit both companies and the planet,“ said Uku Lilleväli, Sustainable Finance Policy Officer at the WWF European Policy Office
Although not perfect, the compromise deal is an improvement from the proposal tabled by the European Commission. Notably, all companies with more than 250 employees and EUR 40 million net turnover should have to develop and implement climate transition plans to ensure their operations and business models would align with the goal of limiting global warming to 1.5°C. Moreover, the position stipulates that companies must incentivise their directors to meaningfully implement the plans by linking their bonuses to the achievement of their sustainability goals.
In addition, when reviewing the Directive, the Commission will be able to extend the transition plans to environmental issues more widely, making the requirements more relevant to sectors such as fishing, forestry and others, to whom biodiversity and other environmental issues are at least as important as climate change.
On the downside, it is disappointing that the requirements in the transition plans have been weakened. For instance, companies can argue to be exempt from having to set absolute emission reduction targets and five-year rolling targets that are crucial to making the transition plans meaningful for both companies and the planet .
Furthermore, the position defines a comprehensive list of environmental risk categories that the companies must consider in conducting due diligence, depending on what is most relevant to their operations and value chains. These include climate change, biodiversity loss, pollution on air, water and soil, deforestation, and others.
Moreover, the adopted position foresees that all sectors, including financial institutions, should conduct sustainability due diligence in their portfolios.
“What is worrying is the legal unclarity for some financial firms, given that the position articulates due diligence obligations for institutional investors and asset managers, but excludes investment portfolios from the definition of the financial sector's value chain.” added Uku Lilleväli, Sustainable Finance Policy Officer at the WWF European Policy Office.
Unfortunately, MEPs have also decided to significantly delay the implementation of the Directive until at least 2027, which is not aligned with the urgency of adequately addressing the climate and environmental crises.
WWF urges all Members of the Parliament to back the ambitious aspects of the JURI position and address the shortcomings, notably by ensuring that all financial institutions, including institutional investors and asset managers, would have to conduct sustainability due diligence in their portfolios.
Note to editors
Using ‘relative’ emission reduction targets only, the absolute emissions can still increase, for instance, when the targets are based just on intensity (e.g. lowering emissions per million euros in revenues) or on comparisons with a business-as-usual scenario.
WWF European Policy Office
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