Investment industry calls for clarity on EU due diligence rules

Norges Bank Investment Management (NBIM) has urged the EU to align its sustainability and due diligence laws with international standards, while the Principles for Responsible Investment (PRI) has called for greater legal certainty over how the rules apply to investors.

The European Commission closed its consultation on practical guidance for implementing the Corporate Sustainability Due Diligence Directive (CS3D) on 14 August, following a major rewrite of the law. The consultation received more than 500 responses.

In its response, NBIM urged the Commission to align the guidance closely with the UN Guiding Principles and OECD standards, including distinctions between causing, contributing to and being directly linked to harm.

“As a long-term investor, we depend on reliable and comparable sustainability information to make informed investment decisions, assess material risks, and engage effectively with companies through stewardship,” NBIM said.

NBIM’s Carine Smith Ihenacho, chief governance and compliance officer, and Shilpi Nanda, senior policy adviser, also asked the Commission to provide practical, risk-based guidance on prioritisation, stakeholder engagement, remediation and conflict-affected areas.

Meanwhile, the PRI warned that the guidance should provide greater legal certainty for institutional investors. It urged the Commission to preserve genuinely risk-based, rather than box-ticking, due diligence and make the CS3D interoperable with the Corporate Sustainability Reporting Directive (CSRD), European Sustainability Reporting Standards (ESRS) and Sustainable Finance Disclosure Regulation (SFDR).

“The guidelines should clarify how in-scope investors are expected to conduct due diligence on their own operations, those of their subsidiaries and, regarding the financial services or products they develop or provide, their upstream business partners,” the PRI said.

Due diligence

The CS3D, which came into force in 2024, introduces due diligence requirements for European companies, holding them accountable for environmental and human rights abuses occurring in their own businesses and supply chains.

The law was substantially narrowed under the EU’s Omnibus reforms. The reforms also reduced requirements under the CSRD and simplified EU Taxonomy reporting.

The overhaul proved divisive among investors, with more than 150 financial institutions urging the EU not to weaken the rules, arguing that the CSRD, CS3D and EU Taxonomy work together to provide investors with comparable sustainability information.

The final Omnibus agreement significantly reduced the number of companies covered by the CSRD and CS3D and removed the CS3D’s climate-transition-plan requirement.

The guidance produced following the consultation will not create new legal obligations but will influence how companies, investors and national authorities interpret the directive.

The Commission’s main guidelines are due by 26 July 2027, with additional guidance due by 26 July 2028.