Opinion: New EU law on responsible business conduct leaves funding for human rights violations untouched

This piece is written by Barbara Oosters, Project Lead of the Eerlijke Geldwijzer - Fair Finance The Netherlands

Early this morning, the European Union approved a new European law that aims to hold companies accountable for the damage they cause to people and the planet - the Corporate Due Diligence Directive (CSDDD). This is a milestone and a big step in the right direction. However, the financial sector, as it now seems, largely escapes the dance. This is due to the heavy lobbying, led by France and the French banking sector. The Dutch government and financial sector tried to include the financial sector until the last minute.

Businesses in the EU depend on complex global value chains. If companies do not properly map and monitor them, unintentional human rights violations or environmental pollution are lurking. Research shows that only 37% of European businesses do some "due diligence" and only 16% do so for the entire value chain. So a very large part of it operates in a large black hole. This law was supposed to change this. But the final law has been badly watered down by regressive corporate lobbying and a group of EU countries led by France and Germany.

The law only applies to the very largest companies, which means that 99% of the companies are left out. Sectors that are notorious for labour exploitation, such as the agricultural or clothing sector, slip through the cracks of this law. In addition, the law contains an exception for banks, investors and insurers. They get away with it when it turns out that they are financially involved in human rights violations. In this way, the financial sector remains relieved of the responsibility to scrutinise their investments and loans.

However, banks and insurers must draw up and implement a climate plan, just like other companies that fall under the CSDDD. The option has also been created to fully incorporate financial institutions 6 years after the entry into force of the CSDDD. It is good to see that financial institutions will have to take their responsibility on climate. But having to wait 6 years for the same responsibility for human rights violations is absurd.

The almost complete exclusion of the financial sector from this law actually increases the risk that the financial sector will become involved in human rights violations. Continuous and mandatory due diligence ensures that risks are identified and addressed in a timely manner.

The Dutch financial sector is well aware of this. Both the Dutch banking sector and investors have openly spoken out in favour of including the financial sector in the CSDDD and not only to a limited extent. The Dutch government also worked hard for this until the end. The Fair Finance Guide calls on the Dutch government to continue this position when introducing European law in the Netherlands and not to make any exceptions for the financial sector in the Netherlands.

The Fair Finance Guide will be fully committed to a revision of the European law in 6-8 years' time. Only then will it be considered whether the financial sector should be fully included. In addition, we hope to find the Dutch financial sector and government on our side in the negotiations on the Dutch initiative law on international responsible business conduct.

Because of Europe's failure, the ball is back in the court of the Member States to ensure that we do not look away when workers are exploited elsewhere in our name and with our money, when children are put to work, rivers are polluted or people are driven off their land.