EU banks wary of sustainability plans

EU banks and other financial institutions have won a break from strict new ESG reporting laws in the European Union.

The bloc is one of the biggest economies in the world and considers itself a global leader in the drive for sustainability, expecting high standards from businesses along the way. 

But now financial institutions may be in line for an opt-out on some of these standards, at least for a while, pending further discussion.

Banks and other financial institutions may be excluded from the initial roll-out of the EU’s Corporate Sustainability Due Diligence Directive, according to a Bloomberg report dated the 9th November. 

The proposal comes from Spain, the country currently holding the rotating presidency of the Council of the European Union. 

It means that when the CSDDD’s new reporting standards come into force – currently expected in 2025 – banks and financial institutions may be exempt from its requirements.

It’s a set of sweeping new reporting standards proposed for many businesses in the European Union. 

Affected companies must thoroughly document their attempts to identify and prevent human rights abuses and non-sustainable actions within their ranks and, pivotally, across their value chains.

By and large, yes. The finance industry, in general, has been lobbying against the new rules for some time. They don’t want the proposals scrapped altogether; they just don’t think the rules will work in their sector. 

There would be “huge” negative ramifications, according to Philippe Angelis, senior policy adviser for corporate reporting and sustainable finance at Insurance Europe.

They are concerned that the requirements will introduce so much new red tape that their global competitiveness and efficiency will take a severe hit. 

The fear stems from CSDDD’s provisions regarding value chains. 

For the most part, banks and other financial institutions have (or can achieve) the capacity to align their reporting to the new standards regarding their own internal activity. They expect this; consider it part of the new normal. 

However, doing the same job across their extensive, diverse value chains and wide range of financial services is a different question. It means applying new and rigorous sustainability and human rights standards across every single client or corporate counterpart. 

Some routine processes – which banks currently boast about due to their efficiency – would be seriously impacted by new checks and standards. The entire industry is concerned that this will harm worldwide reputations and upset stakeholders.

So far, we can’t tell – because the standards are still proposals. They need to go through more talks before becoming reality. 

What is clear at this point is that the financial services industry:

• Agrees with the underlying principles of CSDDD, but…
• Feels that the current proposals are too general and not applicable to them in a meaningful way.

There is nothing to suggest it will definitely happen. Not yet. 

Spain’s proposal is no more than a stall – a window for more discussion. Ultimately, many EU leaders still feel the standards must apply to banks as a key mover of global capital. These stakeholders would not stand for a permanent exemption.