One of the biggest battlegrounds for the CSDDD is proving to be the inclusion of the finance sector

European lawmakers will descend on Strasberg today to discuss the future of the Corporate Sustainability Due Diligence Directive.

Known as CSDDD or CS3D, it’s being touted as the most important piece of sustainability legislation Europe has ever seen, holding companies with major EU operations accountable for mitigating environmental and social abuses in their global supply chains.

But concerns are growing that, if it survives the political process at all, it will come out the other side without its teeth.

Countries split over role of finance

One of the biggest battlegrounds for the CSDDD is proving to be the inclusion of the finance sector.

Over recent weeks, a split has emerged in the European Council between member states that want the entire finance sector covered by the law (The Netherlands, Finland and Denmark); those who only want banks and insurers covered (Germany, Italy and Ireland); and those that want finance exempt (France, Czech Republic, Bulgaria, and a number of others).

Germany and its allies argue that due diligence is reasonable when institutions sign contracts with companies, like lenders and insurers, but this is not the case for portfolio managers, whose relationships are more fluid and indirect.

Denmark is pushing for the inclusion of finance because it already has a national due diligence law, so an EU equivalent could reduce competitive disadvantages.

But France, which has been unflinching in its determination to have finance removed from the EU proposals, also has a national due diligence law. Introduced in 2017, the French Vigilance Law covers financial institutions.

Insiders say the country’s push to omit finance from CSDDD is being driven by its banking sector.

Julia Otten at Frank Bold

Julia Otten at Frank Bold

“One diplomat described this as a trialogue not just between the Commission, the Council and the Parliament,” said Julia Otten, a senior policy officer at purpose-driven law firm Frank Bold. “But one where the finance sector is clearly sitting at the table, too – mainly French banks.”

No banks have publicly opposed the CSDDD, but it’s worth noting that the pushback from France comes as its largest bank, BNP Paribas, is being sued for allegedly breaching the French Vigilance Law.

NGOs filed the lawsuit earlier this year before the Paris Court of Justice, and the introduction of EU-wide expectations on due diligence would be likely to strengthen their case.

BNP Paribas declined to comment on its position on CSDDD.

The French Banking Federation told IPE: “The banking industry wishes to be subject to the same rules as all economic players.”

Who supports the inclusion of finance?

There have been some supportive voices on the inclusion of finance.

Most recently, P+ Pension for Academics, AkadmikerPension, AP Pension and Storebrand Asset Management joined forces to argue that “carving out the financial sector or parts of the financial sector, such as institutional investors, from the scope of the Directive, as proposed by some negotiating parties, would run counter to the international consensus that all businesses – financial and non-financial – have responsibilities to avoid and address adverse impacts on human rights and the environment”.

In October, the heads of the Dutch Federation of Pension Funds, Association of Insurers and Banking Association signed a joint letter calling for EU legislators to “bring financial institutions in scope of the CS3D”.

The Principles for Responsible Investment said the move to reduce due diligence requirements for investors “undermines the opportunity for a harmonised approach [and] could lead to sustainability risks and impacts being unidentified and could cause legal uncertainty for the financial market”.

Frank Elderson DNB, NGFS

“In the absence of clear reasons to the contrary, which I fail to see, financial undertakings should not be treated differently from other companies”

Frank Elderson, vice chair of the ECB’s supervisors board

Last week, influential central banker Frank Elderson made a speech in which he argued for a level playing field across sectors.

“In other words, in the absence of clear reasons to the contrary, which I fail to see, financial undertakings should not be treated differently from other companies,” said the vice chair of the European Central Bank’s supervisors board.

He said the ECB thought the inclusion of finance in the CSDDD would help institutions to “systematically integrate sustainability matters into their decision making and risk management practices” and “create greater certainty around financial institutions’ obligations in this area and around climate- and environment-related litigation risks”.


As it stands, though, the European Council is going into today’s trialogue with a negotiating mandate based on France’s position, after ambassadors last week approved proposals to remove the entire finance sector.

Parliament and Commission will both fight to keep the sector in.

It’s unlikely that a decision will be made during the negotiations today, said Frank Bold’s Otten, because a fifth trialogue has been agreed for December and co-legislators will probably keep the most contentious issues back as bargaining chips during those final negotiations.

Other key issues due to be debated include the weight the rules give to climate transition plans and civil liabilities.

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