Europe is adopting laws holding investors and asset managers to account for the environmental and social impacts of their value chains.
The EU’s Legal Affairs Committee has voted to apply the Corporate Sustainability Due Diligence Directive to some financial firms, including asset managers and institutional investors. However, alternative investment funds, credit rating agencies, market operators and pension funds can be excluded from the legislation at the discretion of individual member states.
The directive, launched by the European Commission in February 2022, aims to compel businesses based or operating in the EU to police their global value chains for risks of environmental or human rights violations. This would oblige them to conduct due diligence on their own operations, as well as those of their subsidiaries and other entities in their value chains.
Companies would need to develop and implement “prevention action plans”, secure contractual assurances from business partners that they will comply with such plans, and verify compliance.
The committee also voted in favour of mandatory climate transition plans, starting with large firms in high-emission sectors. However, it rejected a proposal to link directors’ pay to due diligence obligations.
The European Parliament is expected to consider the legislation next month. Negotiations with member states are due to begin later this year.
