EU Vote on Human Rights ‘Due Diligence’ Looms for Financial Services Firms

Financial services companies would be required to take action if their clients were failing to protect human rights and the environment, a preliminary deal due to be voted on later this month by a panel of European Union lawmakers showed.

The EU’s executive European Commission in 2022 proposed the Corporate Sustainability Due Diligence Directive or CSDDD, a set of measures whose reach has split lawmakers and EU states, and raised concerns in the United States about their extraterritorial nature.

EU states and the European Parliament have the final say, and the inclusion of financial services has become one of the draft measure’s most controversial aspects.

Last December, EU states reached a deal among themselves, deciding to give themselves the option of excluding financial services from the rules.

But parliament’s lead legal affairs committee is due to vote on the draft measure on April 24, and its members have reached a tentative cross-party compromise that includes financial services, setting up a clash.

Banks and insurers would have to make due-diligence checks on their customers, but not terminate a loan or other services if it meant the customer would become bankrupt, the compromise showed.

It appears to give asset managers some leeway, saying they should “take appropriate measures” to “induce their investee” to bring actual adverse impacts to human rights or the enviroment to an end.

“Where the adverse impact cannot be brought to an end, Member states shall ensure that institutional investors and asset managers induce their investee companies to minimize the extent of such an impact,” the lawmaker compromise says.

Asset managers should engage with companies, use their voting rights to end harmful impacts, it added.

After this month’s vote, lawmakers would meet with EU states to thrash out a final version that becomes law.

(Reporting by Huw Jones; editing by Angus MacSwan)