The EU moves to pass ESG due diligence bill (2023)

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April 25, 2023

The European Union is getting closer to passing a bill that will require greater due diligence on the part of most businesses with respect to ESG-related factors. The bill could expose companies to greater liability and penalties for certain ESG violations such as environmental damage caused by a corporation (or damage caused by a company that a corporation does business with). Some European businesses are pushing back against the bill:

Some of the most powerful lobbyists in Europe’s finance industry are preparing to fight the passage of an ESG bill, after it won early backing from European Union lawmakers.

The Association for Financial Markets in Europe, whose members dominate the region’s debt and equity capital markets, says a planned EU law designed to make it easier to sue companies for ESG violations ignores the unique status of financial firms.

The Corporate Sustainability Due Diligence Directive (CSDDD) moved a step closer to becoming law last week, after the EU Parliament’s legal affairs committee struck a preliminary agreement to cover all sectors, including the finance industry. If passed, the law will force companies to pay a lot more attention to their value chains.

In practice, that means that human rights abuses or environmental damage that occurs in an EU corporation’s value chain may expose that company to civil liability or regulatory penalties.

CSDDD has the potential to be one of the EU’s most far-reaching pieces of environmental, social and governance rulemaking. While ESG regulations passed to date impose disclosure requirements on companies, the due diligence directive would force them to act on the information they’re disclosing. If they don’t, they can be punished by regulators and sued by stakeholders.

Lara Wolters, the EU Parliament member responsible for ushering CSDDD through the chamber, said she’s bracing for a “tough” battle with the finance industry. She also said there’s too much at stake for lawmakers to cave.

The power that banks, asset managers and insurers have “is huge,” Wolters said. So to suggest “that power isn’t going to be used to try to affect any positive change” would be “crazy,” she said.

The next step for CSDDD is a formal vote of the parliament committee, which is due to take place on Tuesday. After that, it goes to the full chamber and then to the European Council.[1]

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  1. Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.