Opinion: Financial sector activities need to be included in the EU’s CSDDD
By Roel Nozeman, Head of Biodiversity, Kirsten Kossen, Head of Human Rights, Linda van Dongen, Head of Climate ASN Bank, Finance for Biodiversity Pledge signatory and FfB Foundation member
We strongly support including the financial sector in the Corporate Sustainability Due Diligence Directive (CSDDD) of the EU. There are no clear reasons why the financial sector should be treated differently than companies. We believe the financial sector is crucial to shaping sustainable economic systems. By exerting leverage over a broad range of other sectors and business activities, they are key in protecting human rights and the environment globally. Therefore, they cannot be excluded from CSDDD.
This is not only my opinion. Also, other progressive investor groups, such as the IIGCC, have emphasised how CSDDD could and should address the limitations of other, mostly disclosure-based sustainability-related laws. Other investor groups have also stressed the need to apply the Directive to financial activities, the European Central Bank, Banking Association, Pension Association, the UN in its Guiding Principles, the OECD in its general and investor-specific guidelines, and countless other stakeholders.
In the face of escalating environmental and social global challenges, there is a critical need for financial institutions to adopt a proactive and responsible stance toward sustainability. Failing to consider or address these issues could have severe repercussions for our planet and financial institutions may overlook the financial risks associated with the mounting impacts of climate change and environmental crises.
The EU has laid the groundwork for its sustainable finance regulatory framework, making progress notably in enhancing the consistency and transparency of sustainability data through laws such as Corporate Sustainability Reporting Directive (CSRD), Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy. However, recognising that data serves as a tool rather than a solution, a critical gap remains, as the EU still lacks adequate legal incentives to compel financial institutions to utilise this data actively. While existing laws oriented towards disclosure provide insight into the nature of financed activities and implicitly discourage supporting polluting endeavours, the financial institutions in the EU are still allowed to overlook or neglect adverse impacts they are involved in, causing them also to miss the relevant financial risks.
The EU’s upcoming Corporate Sustainability Due Diligence Directive (CSDDD) can provide the financial sector with a proportionate framework to pave the way for more informed and responsible financial decisions and practices.
By requiring companies to integrate sustainability matters into their due diligence process via a risk-based approach, the Directive can incentivise financial institutions to address sustainability risks and impacts most relevant to activities and portfolios. The consistent inclusion of all financial players and activities in the CSDDD is critical to create a level playing field and going beyond reporting and providing the necessary behavioural incentive for a structural change in financial practices across the EU and beyond. Financial actors will continue to fail to adopt risk-resilient and responsible practices without making financial activities subject to due diligence requirements.
We call on the policymakers in the EU Member States, the European Parliament and the European Commission to ensure that financial institutions and activities are subject to due diligence requirements in the Corporate Sustainability Due Diligence Directive, creating a level playing field.
Mandatory due diligence requirements in the CSDDD for all financial actors and activities would not only signify the imperative to tackle sustainability concerns in the broader economy but also empower financial institutions to enhance their resilience and ensure long-term financial stability. This is the sole way to ensure market forces’ fair play and encourage the entire financial sector to manage sustainability impacts and risks.