Brussels, 12 October 2023
WK 13073/2023 INIT
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DRS
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MEETING DOCUMENT
From:
Presidency
To:
Working Party on Company Law (Attachés)
Subject:
Presidency Flash - 16-17/10/2023 Company Law WP (Attachés & Experts)
meeting
Delegations will find attached the Presidency Flash in view of the Company Law Working Party
(Attachés and Experts) meetings on 16th and 17th October 2023.
WK 13073/2023 INIT
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EN
Working Party on Company Law
Presidency Flash
16 and 17 October
Dear colleagues,
We are pleased to send you the fourth flash on the Due Diligence Directive (CSDDD) in
preparation for the Company Law Group meeting on 16-17 October.
With this meeting, and after discussing the core of the due diligence process on 6 October
without detecting major problems, the objective is twofold: (a) from a more technical basis, to
present the compromise proposal that wil guide the Council's position for the block of articles
17 to 21, which to a large extent determine the public governance system for monitoring the
effective compliance with the obligations; and (b) from a more political perspective, open the
discussion on the relevant political elements with a view to facilitating a change of mandate.
The annexes to this document contain:
• Annex I. Presidency’s compromise proposals for articles 17 to 21. The draft proposals
seek to respect the original mandate while taking into account the discussions with the
Parliament in the inter-institutional meetings. Although these cannot be considered as
a closed proposal, they provide a close view of the area for compromise with the
European Parliament.
• Annex II. Option proposals for the technical elements that cover: (1) Termination of
business relationship –art 7 and 8-; (2) Combating Climate Change –art.15-; and (3)
Financial Sector.
The information provided in the annexes integrates questions to inform the debate.
Delegations' comments wil be taken into consideration to guide the preparaton of negotiating
packages that wil form the core of the change of mandate.
We thank you in advance for your discretion and for maintaining the confidentiality of the
information circulated, as this is highly needed for the ongoing negotiation.
We hope this information helps to have a fruitful discussion.
Kind regards,
The Spanish Presidency Team
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ANNEX I. PRESIDENCY COMPROMISE PROPOSALS FOR
ARTICLES 17 -211.
Al the compromise proposals aim to respect the spirit of the mandate. To this extend, three
criteria have been followed when discussing possible compromises: (a) the proposed solutions
should be feasible in practice; (b) the amendments must not affect legal certainty; and (c) no
new burdens should be introduced –neither for companies nor for administrations-.
A. Article 17. Supervisory Authorities. No major differences were detected between the
mandates of the two institutions. However, changes had to be articulated to ensure
consistency with the compromises in Article 4.a.
A.1. Approach
The structure is maintained while para. 3a is readapted in line with the amendment
proposed for Article 4a (where an inclusion of the cross-reference to Article 18 was
introduced to make it explicit that Article 4a is
without prejudice to the subsidiary being
subject to the exercise of the supervisory authority's powers in accordance with Article 18
and to their civil liability in accordance with Article 22). To ensure this, the solution maintains
the competence of the relevant authority pursuant par 2 or 3 of article 17 while making
reference to coordination and mutual assistance according to article 21.
A.2. Main amendments to the Council´s text
▪ Adaptation of par. 3.a. in the line explained above.
▪ Reference to the description of competences assumed by each competent authority (in
case there is more than one for the same Member State) in the information to be
published by the Commission.
▪ Obligation to publish an annual report on the activities carried out by the supervisory
authorities.
B. Article 18. Powers of supervisory authorities. No major differences were detected
between the mandates of the two institutions. However, changes are being considered in
order to include the possibility of positive injunctive measures by the supervisory authorities
in par. 5. Also, some other changes are included for the sake of a compromise, but with
little practical impact.
B.1. Approach
The structure and content of the article is maintained, so that the burden on administrations
is not raised and ensuring powers to guarantee correct compliance and action to address
adverse impacts. To this extent, the possibility for administrative authorities to establish
mandatory enforcement measures for compliance with the Directive is incorporated. Also,
an obligation for the supervisory authorities to provide information about their actions by,
which is already the case in practice, is included.
1 Additions are shown in
bold and underlined; deletions in italics and strikethrough
(example); undecided issues
in brackets and bold
[XXX].
3
B.2. Main amendments to the Council´s text
▪ Inclusion of positive injunctive measures in 5(a) – stil open to discussion.
▪ Obligation to maintain information on their actions by the supervisory authorities.
▪ Explicit reference to the fact that these actions shal be without prejudice to the
company’s civil liability under Article 22
C. Article 19. Substantiated Concerns. No major differences were detected between the
mandates of the two institutions. The EP called for minor changes to ensure the accessibility
of the procedure and the protection of those submitting substantiated concerns against
possible retaliation.
C.1. Approach
The aim is to ensure that the burden on administrations is not raised. The substance of the
Article is maintained while introducing some precisions on the confidentiality and
accessibility of the procedures.
C.2. Main amendments to the Council´s text
▪ Inclusion of par. 1.a. to include references to accessible procedures and the need to
protect the identity of the person submitting the substantiated concerns.
D. Article 20. Penalties. The main differences were in relation to the list of elements to be
considered when deciding whether to impose penalties and, if so, in determining their nature
and appropriate level. EP also included a minimum threshold for maximum sanctions.
D.1. Approach
The objective is to maintain the logic of the original proposal while introducing targeted
amendments. The list of elements that may be taken into account in determining whether
and at what level sanctions should be imposed is fleshed out. In addition, the threshold
suggested by the EP is incorporated. These changes are intended not to unduly limit the
competence of the Member States to set sanctions, while accommodating some of the EP's
demands.
D.2. Main amendments to the Council’s text
▪ Re-adaptation of the list of elements that may be taken into account in determining
whether sanctions should be imposed, and at what level.
▪ Addition of the minimum threshold for maximum sanctions (5%).
D.3. Pending elements
• It should be discussed if penalties could be set at group level.
E. Article 21. European Network of Supervisory Authorities. No major differences were
detected between the mandates of the two institutions. The EP demands to include the
obligation to list the non-EU companies under the scope of the Directive.
E.1. Approach
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Maintain the systematics of the Council text.
E.2. Main amendments to the Council´s text.
▪ Stil being discussed: obligation to publish an indicative list of non-EU companies
under the scope of the Directive
DRAFTING
Article 17
Supervisory Authorities
1. Each Member State shall designate one or more supervisory authorities to supervise
compliance with the obligations laid down in national provisions adopted pursuant to
Articles
65 to 11 and Article 15 (‘supervisory authority’).
2. As regards the companies referred to in Article 2(1), the competent supervisory authority
shal be that of the Member State in which
such the company has its registered office.
3. As regards companies referred to in Article 2(2), the competent supervisory authority shal
be that of the Member State in which
suchthe company has a branch. If the company does
not have a branch in any Member State, or has branches located in different Member
States, the competent supervisory authority shal be the supervisory authority of the
Member State in which the company generated most of its net turnover in the Union in the
financial year preceding the last financial year before the date indicated in Article 30 or the
date on which the company first fulfils the criteria laid down in Article 2(2), whichever
comes last.
Companies referred to in Article 2(2) may, on the basis of a change in circumstances
leading to it generating most of its turnover in the Union in a different Member State, make
a duly reasoned request to change the supervisory authority that is competent to regulate
matters covered in this Directive in respect of that company.
3a.
Where the parent company fulfils the obligations resulting from this Directive on
behalf of its subsidiaries in accordance with Article 4a, the competent supervisory
authority of the parent company shall cooperate with the competent supervisory
authority of the subsidiary, which will remain competent to ensure that the
subsidiary is subject to the exercise of powers in accordance with Article 18.
In this
regard, the Network of supervisory authorities shall facilitate the needed
cooperation, coordination and mutual assistance according to Article 21. 2
4. Where a Member State designates more than one supervisory authority, it shal ensure
that the respective competences of those authorities are clearly defined and that they
cooperate closely and effectively with each other.
5. Pending FS
2 Previous version of Article 3.a. in the Council mandate (lines 241a and 241b of the 4C document) would be
deleted.
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6. By the date indicated in Article 30(1), point (a), Member States shall inform the
Commission of the names and contact details of the supervisory authorities designated
pursuant to this Article, as well as of their respective competence where there are several
designated supervisory authorities. They shal inform the Commission of any changes
thereto.
7. The Commission shal make publicly available, including on its website, a list of the
supervisory authorities
, and, when a Member State has several supervisory
authorities, the respective competences of those authorities in relation to this
Directive. The Commission shal regularly update the list on the basis of the information
received from the Member States.
8. Member States shal guarantee the independence of the supervisory authorities and shal
ensure that they, and all persons working for or who have worked for them and auditors,
experts and any other person or experts acting on their behalf, exercise their powers
impartially, transparently and with due respect for obligations of professional secrecy. In
particular, Member States shal ensure that the authority is legally and functionally
independent from the companies falling within the scope of this Directive or other market
interests, that its staff and the persons responsible for its management are free of conflicts
of interest, subject to confidentiality requirements, and that they refrain from any action
incompatible with their duties.
Recital (53) In order to ensure the monitoring of the correct implementation of companies’
due diligence obligations and ensure the proper enforcement of this Directive, Member
States should designate one or more national supervisory authorities. These supervisory
authorities should be of a public nature, independent from the companies falling within the
scope of this Directive or other market interests, and free
of from conflicts of interest
and
external influence, whether direct or indirect. In order to exercise their powers
impartially, these supervisory authorities should neither seek nor take instructions
from anybody. In accordance with national law, Member States should ensure
appropriate financing of the competent that each supervisory authority.
is provided
with the human and financial resources necessary for the effective performance of
its tasks and exercise of its powers. They should be entitled to carry out investigations,
on their own initiative or based on
complaints or substantiated concerns raised under this
Directive.
These investigations can include, where appropriate, on site inspections
and the hearing of relevant stakeholders. Where competent authorities under sectoral
legislation exist, Member States could identify those as responsible for the application of
this Directive in their areas of competence. They could designate authorities for the
supervision of regulated financial undertaking also as supervisory authorities for the
purposes of this Directive
9.
Member States shall ensure that supervisory authorities publish and make
accessible online an annual report on their activities under this Directive.
6
Article 18
Powers of Supervisory Authorities
1. Member States shal ensure that the supervisory authorities have adequate powers and
resources to carry out the tasks assigned to them under this Directive, including the power
to
request require companies to provide information and carry out investigations related
to compliance with the obligations set out in Articles
[5], 6 to 11 and Article 15.
[As regards
Article 15, Member States shall only require supervisory authorities to supervise
that companies have adopted the plan3.]
2. A supervisory authority may initiate an investigation on its own motion or as a result of
substantiated concerns communicated to it pursuant to Article 19, where it considers that
it has sufficient information indicating a possible breach by a company of the obligations
provided for in the national provisions adopted pursuant to this Directive.
3. Inspections shal be conducted in compliance with the national law of the Member State
in which the inspection is carried out and with prior warning to the company, except where
prior notification hinders the effectiveness of the inspection. Where, as part of its
investigation, a supervisory authority wishes to carry out an inspection on the territory of
a Member State other than its own, it shal seek assistance from the supervisory authority
in that Member State pursuant to Article 21(2).
4. If, as a result of the actions taken pursuant to paragraphs 1 and 2, a supervisory authority
identifies a failure to comply with national provisions adopted pursuant to this Directive, it
shal grant the company concerned an appropriate period of time to take remedial action,
if such action is possible.
Taking remedial action does not preclude the imposition of penalties or the triggering of
civil liability in case of damages, in accordance with Articles 20 and 22, respectively.
5. When carrying out their tasks, supervisory authorities shal have at least the following
powers:
(a) to order:
i. the cessation of infringements of the national provisions adopted pursuant to
this Directive;
ii. the abstention from any repetition of the relevant conduct; and
iii. where appropriate, to provide remediation proportionate to the infringement and
necessary to bring it to an end;
iv. [
The implementation of specific actions carried out in a specified manner
and within a specific period of time to ensure effective compliance with
the obligations under this Directive].
(b) to impose penalties in accordance with Article 20; and
(c) to adopt interim measures in case of
urgency due to imminent risk of severe and
irreparable harm.
3 Reference contingent on the discussion on Article 15.
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6.
While ensuring the effectiveness [and equivalence] of legal remedies, supervisory
authorities shal exercise the powers referred to in this Article in accordance with the
national law:
(a) directly;
(b) in cooperation with other authorities; or
(c) by application to the competent judicial authorities.
7. Member States shal ensure that each natural or legal person has the right to an effective
judicial remedy against a legally binding decision by a supervisory authority concerning
them
, in accordance with national law.
8.
Member States shall ensure that the supervisory authorities keep records of the
investigations referred to in paragraph 1, indicating, in particular, their nature and
result, as well as records of any enforcement action issued under paragraph 5.
9. [
Decisions of supervisory authorities regarding a company’s compliance with this
Directive shall be without prejudice to the company’s civil liability under Article 22.]
Article 19
Substantiated Concerns
1. Member States shal ensure that natural and legal persons
who have, in accordance
with national law, a legitimate interest in the matter are entitled to submit substantiated
concerns, through easily accessible channels, to any supervisory authority when they
have reasons to believe, on the basis of objective circumstances, that a company is failing
to comply with the national provisions adopted pursuant to this Directive (‘substantiated
concerns’).
1a. Member States shall ensure that, where persons submitting substantiated concerns
so request, the supervisory authority takes the necessary measures for the
appropriate protection of the identity of that person and their personal information,
which, if disclosed, would be harmful to that person
2. Where the substantiated concern falls under the competence of another supervisory
authority, the authority receiving the concern shal transmit it to that authority
and inform
the person that has submitted a substantiated concern as provided for in paragraph
1.
3. Member States shal ensure that supervisory authorities assess the substantiated
concerns in an appropriate period of time and, where appropriate, exercise their powers
as referred to in Article 18.
4. The supervisory authority shal , as soon as possible and in accordance with the relevant
provisions of national law and in compliance with Union law, inform the person referred to
in paragraph 1 of the result of the assessment of their substantiated concern and
of its
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decision to accede to or refuse the request for action, providing the reasoning for it,
and, where relevant, a description of the further steps and measures it wil take.
5. Member States shal ensure that the persons submitting the substantiated concern
according to this Article
and having, in accordance with national law, a legitimate interest
in the matter have access to a court or other independent and impartial public body
competent to review the procedural and substantive legality of the decisions, acts or failure
to act of the supervisory authority.
Article 20
Penalties
1. Member States shal lay down the rules on penalties, including pecuniary penalties,
applicable to infringements of national provisions adopted pursuant to this Directive, and
shal take all measures necessary to ensure that they are implemented. The penalties
provided for shal be effective, proportionate and dissuasive.
2. In deciding whether to impose penalties and, if so, in determining their nature and
appropriate level, due account shal be taken
in particular of the company’s efforts to
comply with any remedial action required of them by a supervisory authority, any
investments made and any targeted support provided pursuant to Articles 7 and 8, as well
as collaboration with other entities to address adverse impacts in its chain of activities, as
the case may be.
of:
(a) the nature, gravity and duration of the infringement and the severity of the
impacts that the company’s infringement caused;
(b) any investments or targeted support provided pursuant to Articles 7 and 8;
(c) any collaboration with other entities to address the impacts concerned;
(d) where relevant, the extent to which prioritisation decisions were made in
accordance with article 6a;
(e) any relevant previous infringements by the company of national provisions
adopted pursuant to this Directive found by a final decision;
(f) the extent to which the company carried out any remedial action with regard to
the concerned subject matter;
(g) the financial benefits gained from or losses avoided by the company due to the
infringement;
(h) any other aggravating or mitigating factors applicable to the circumstances of
the case.
2a. At least the following penalties shall be provided for:
(a) pecuniary penalties;
(b) a public statement indicating the company responsible and the nature of the
infringement;
3. When pecuniary penalties are imposed, they shal be commensurate
withto the
company’s
net worldwide
turnover. The maximum limit of pecuniary sanctions shall
9
be not less than 5% of the net worldwide net turnover
of the company in the business
year preceding the fining decision.
4. Member States shal ensure that any decision of the supervisory authorities containing
penalties related to the infringements of the national provisions adopted pursuant to this
Directive is published, publicly available for at least 3 years and sent to the European
Network of Supervisory Authorities. The published decision shal not contain any personal
data within the meaning of Article 4(1) of Regulation (EU) 2016/679.
Article 21
European Network of Supervisory Authorities
1. The Commission shal set up a European Network of Supervisory Authorities, composed
of representatives of the supervisory authorities. The Network shal facilitate the
cooperation of the supervisory authorities and the coordination and alignment of
regulatory, investigative, sanctioning and supervisory practices of the supervisory
authorities and, as appropriate, sharing of information among them.
The Commission may invite Union agencies with relevant expertise in the areas covered
by this Directive to join the European Network of Supervisory Authorities.
1.a.
Member States shall cooperate with the Network in order to identify the
companies within their jurisdiction, in particular by providing all necessary
information in order to assess whether a non-European company fulfils the criteria
set in Article 2. The Commission shal set up a secured system of exchange of
information regarding the net turnover generated in the Union by a company referred to in
Article 2(2), that does not have a branch in any Member State or has branches located in
different Member States.
where Member States shal regularly communicate information
they have regarding the net turnover generated by those companies. The Commission
shal analyse this information within a reasonable period of time and notify the Member
State where the company generated most of its net turnover in the Union in the financial
year preceding the last financial year, that the company is a company within the meaning
of Article 2(2) and the supervisory authority of the Member State is competent in
accordance with Article 17(3).
2. Supervisory authorities shal provide each other with relevant information and mutual
assistance in carrying out their duties and shal put in place measures for effective
cooperation with each other. Mutual assistance shal include collaboration with a view to
the exercise of the powers referred to in Article 18, including in relation to inspections and
information requests.
3. Supervisory authorities shal take all appropriate steps needed to reply to a request for
assistance by another supervisory authority without undue delay and no later than 1 month
after receiving the request. When it is necessary due to the circumstances of the case, the
period may be extended by a maximum of two months based on a proper justification.
Such steps may include, in particular, the transmission of relevant information on the
conduct of an investigation.
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4. Requests for assistance shal contain all the necessary information, including the purpose
of and reasons for the request. Supervisory authorities shall only use the information
received through a request for assistance for the purpose for which it was requested.
5. The requested supervisory authority shal inform the requesting supervisory authority of
the results or, as the case may be, of the progress regarding the measures to be taken in
order to respond to the request for assistance.
6. Supervisory authorities shal not charge each other fees for actions and measures taken
pursuant to a request for assistance.
However, supervisory authorities may agree on rules to indemnify each other for specific
expenditure arising from the provision of assistance in exceptional cases.
7. The supervisory authority that is competent pursuant to Article 17(3) shal inform the
European Network of Supervisory Authorities of that fact and of any request to change the
competent supervisory authority.
8. When doubts exist as to the attribution of competence, the information on which that
attribution is based wil be shared with the European Network of Supervisory Authorities,
which may coordinate efforts to find a solution.
9. The European Network of Supervisory Authorities shal publish
[an indicative list of non-
EU companies under the scope of the Directive and] the decisions of the supervisory
authorities containing penalties as referred to in Article 20(4).
ANNEX II. OPTION PROPOSALS FOR THE POLITICAL ELEMENTS
OPTIONS ARTICLE 7/8
TERMINATION OF BUSINESS RELATIONSHIP
CONTEXT
The conditions for the termination of business relationships represent one of the politically
sensitive elements of the due diligence process. In this respect, in view of the preparation of
trilogues, it is necessary to define some criteria to facilitate the compromise between the two
institutions.
APPROACH OF THE TWO INSTITUTIONS AND MAIN DIFFERENCES
The
Council’s mandate includes an exception to the termination obligation based on two
conditions: (a) that the impacts of the termination are more severe than those that the
termination is intended to resolve, and (b) that there is no available alternative to that business
relationship that provides a raw material, product or service essential to the company. In
addition, it establishes particularities for the financial sector, which is exempted from the
termination obligation.
The Parliament, on the contrary, does not include an exception for termination where there is
no available alternative to the business relationship, under the rationale that company's activity
cannot be prioritised in the face of environmental or human rights impacts such as those
contemplated by the Directive. At the same time, it also gives special treatment to financial
services, which are only exempted in the event of bankruptcy.
Leaving aside the particularities of the financial sector, there are some coincidences in the
approach of the two institutions: the need for termination to be dynamic in nature, being
necessarily a last resort solution and having to take into account the impacts of termination
versus non-termination. That could provide some ground to maintain the exception in
paragraphs 7.7a and 8.8.a of the Council's mandate, but not necessarily for the exception in
point b (absence of alternative suppliers).
OPTIONS TO EXPLORE: RELEVANT ELEMENTS FOR TRANSACTION AND POSSIBLE
LANDING ZONES
As a compromise, it could be suggested to introduce an obligation to terminate the business
relationship, but subject to a maximum deadline. This would give the company time to resolve
the absence of alternatives for the supply of products or services essential to its production
process and would also avoid termination at sensitive moments in the economic cycle or
specific economic scenarios (i.e. emergencies or relevant economic disruptions). In this line,
a deadline of 5 years could be reasonable.
Basis for text proposal (indicative version –further amendments could be explored):
no available alternative to that business relationship, that provides a raw material,
product or service essential to the company’s production of goods or provision of
services, exists and the [temporary suspension or] termination would cause
12
substantial prejudice to the company. This derogation shall apply for a
maximum period of [5] years from the date the company reports to the
competent supervisory authority its decision not to [temporarily suspend or]
terminate the business relationship pursuant the second subparagraph.
Question 1: Could you support the approach?
Question 2: Should this deadline be extended or shortened?
Question 2. Would it be needed to include further conditions?
OPTIONS ARTICLE 15
COMBATING CLIMATE CHANGE
CONTEXT
In view of the discussions on the two institutions, it can be assumed that Article 15 is one of
the main political elements of the proposal. This is also an article in which relevant differences
in the approach of the two institutions are detected. In part, these differences are due to the
different perceptions of the difficulty of applying to companies obligations that were original y
intended for States. This raises doubts and concerns on the practical feasibility and legal
certainty, in addition to those related to the disruption of corporate governance national
provisions.
APPROACH OF THE TWO INSTITUTIONS AND MAIN DIFFERENCES:
The
Council's approach has sought to decouple climate change obligations from those
relating to environmental impacts. This separation means that climate change obligations, as
well as their content and scope, are practically constrained to this article. With this approach,
the obligation is linked only to the largest companies within the scope of the regulation, is
limited to the approval of the plan - without an exhaustive description of its content and not
including specific obligations for its implementation or setting intermediate targets for the
reduction of greenhouse gases- and is dissociated from any element of corporate governance
(by deletion of Article 15.3).
In contrast, the
Parliament opts for a more ambitious approach, incorporating the
implementation of the plan, extending the scope to all companies within the scope of the
Directive, developing its content and aligning it with the CSRD, setting intermediate
greenhouse gas targets, linking the article to that of civil liability and incorporating the element
of linkage to director’s remuneration.
OPTIONS TO EXPLORE: RELEVANT ELEMENTS FOR TRANSACTION AND POSSIBLE
LANDING ZONES
In order to examine the possible compromises, this document lists the possible options in
relation to the relevant variables detected in order to assess the flexibility of the Council for
different negotiation packages. The analysis is structured following the three par. of the Article.
▪
Article 15.1. Scope and substance of the obligation.
In this section, the following variables are identified as being susceptible to compromise:
1. Whether or not to apply the obligation to smaller companies under the scope of the
Directive. That is: not only including companies covered by Article 2(1), point (a), but
also including companies covered by Article 2(2), point (a).
2. Possible re-draft of the
implementation actions reference.
3. Further specification of the contents of the plan, by clarifying some of the elements
that should be included –alignment with CSRD-.
4. Inclusion of greenhouse gas emission reduction targets (to be analysed in point
15.2)
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Question 1. On which variables would you have more flexibility?
Along these lines, as starting solutions, two possible areas for compromise could be
envisaged with these variables:
Option A. Extending the scope while maintaining the substance of the obligation.
The obligation to adopt a plan to combat Climate Change could be extended to all
companies falling under the scope of the directive, in line with the EP’s proposal. In return
to this concession, the content of the plan would be maintained as set out in the Council’s
approach to: i) implementation actions, i ) related investment and financial plans, i i)
identification of the extent to which CC is a risk to the company or a product of the
company's operations, and iv) where appropriate, the company's exposure to fossil fuels.
Basis for text proposal: would be assembled on the basis of the Council’s proposal with
deletion of reference to 2(1), point (a) and Article 2(2) point (a).
(…) in
Article 2(
1), point (a), and Article 2(2), point (a), shal adopt a plan (…)
Option B. Maintain the scope and flesh out the substance of the obligation
This means: only larger companies falling under the scope of the Directive shal adopt a
plan to combat climate change, while the content of the plan is specified to a greater extent,
considering the EP’s proposal and CSRD rules.
Basis for text proposal (indicative version only –further amendments could be explored):
Member States shal ensure that companies referred to in Article 2(1), point (a),
and Article 2(2), point (a), shal adopt a plan, including implementing actions and
related financial and investments plans, to ensure that the business model and
strategy of the company are compatible with the transition to a sustainable
economy and with the limiting of global warming to 1.5 °C in line with the Paris
Agreement and the objective of achieving climate neutrality by 2050 as established
in Regulation (EU) 2021/1119, and where relevant, the exposure of the
undertaking to coal-, oil- and gas-related activities, as referred to in Articles 19a(2),
point (a)(i i), and 29a(2), point (a)(i i), of Directive 2013/34/EU. This plan shall
include, [where relevant]:
(a) a description of the resilience of the company’s business model and
strategy to risks related to climate matters;
(b) a description of the opportunities for the company related to climate
matters;
(c) the plans of the company, including implementing actions and related
financial and investment plans, to ensure that its business model and
strategy are compatible with the transition to a sustainable economy and
with the limiting of global warming to 1,5 °C in line with the Paris
Agreement and the objective of achieving climate neutrality by 2050 as
established in Regulation (EU) 2021/1119 of the European Parliament and
of the Council;
(d) where relevant, the exposure of the company to coal-, oil- and gas-related
activities as referred to in Articles 19a (2), point (a)(i i), and 29a(2), point (a)(i i),
of Directive 2013/34/EU;
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Question 2: Could you support the approach?
Question 3: which option would you prefer?
Question 4. Should any additional element be included?
▪
Article 15.2. References to intermediate greenhouse gas emission reduction targets.
The inclusion of greenhouse gas reduction targets is included in the mandates of both
institutions. However, only the European Parliament includes the intermediate target,
which makes this element susceptible to be included in a compromise package, along with
elements referred to in par. 1.
Basis for text proposal (indicative version –further amendments could be explored):
Option A. Incorporate reference to greenhouse gases and intermediate targets.
The operative part of the text could include that, when climate change is or should have
been identified as a risk or an impact for the company, the plan must include the progress
made by the company in reducing greenhouse gas emissions. Moreover, an addition in
recitals 50 could be made in order to explain that time bounds targets may be included as
part of this plan, based on scientific evidence.
Basis for text proposal for b2 (indicative version –further amendments could be explored):
2. Member States shal ensure that, in case climate change is or should have
been identified as a principal risk for, or a principal impact of, the company’s
operations, the company includes greenhouse gas emission reduction
objectives in its plan as well as the progress made in this regard.
Addition to recital 50: In order to ensure that this Directive effectively
contributes to combating climate change, companies should adopt a plan to
ensure that the business model and strategy of the company are compatible
with the transition to a sustainable economy and with the limiting of global
warming to 1.5 °C in line with the Paris Agreement. In case climate is or should
have been identified as a principal risk for or a principal impact of the company’s
operations, the company should include greenhouse gas emissions reduction
objectives in its plan, such as time-bound targets related to the absolute
greenhouse gas emission reduction targets for 2030 and 2050, based on
conclusive scientific evidence, as well as a description of the progress the
company has made towards achieving those reduction objectives.
Option B. Include greenhouse gas targets in the operative part.
The operative part of the text could include that, when climate change is or should have
been identified as a risk or an impact for the company, the plan must include, when
appropriate, time bounds targets of greenhouse gas emission reduction, as well as a
description of the progress made in this regard.
Basis for text proposal (indicative version only –further amendments could be explored):
2. Member States shal ensure that, in case climate change is or should have
been identified as a principal risk for, or a principal impact of, the company’s
operations, the company includes
greenhouse gas emission reduction
objectives in its plan. [
Where appropriate,] the plan shall include a
description of the time-bound targets related to the absolute greenhouse
gas emission reduction targets at least for 2030 and 2050, based on
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conclusive scientific evidence, and a description of the progress the
company has made towards achieving those targets.
Question 5: Could you support the approach?
Question 6: Which option would you prefer?
▪
Article 15.3. Link with the remuneration policy
The link between the obligation contained in this article with the variable remuneration of
directors has been one of the elements that has been strongly contested by Member
States. However, with a view to assessing possible compromise scenarios, changes in
this element should also be discussed.
Taking into account that the obligation to implement the plan and the responsibility of the
directors in this task are two elements of the EP’s proposal that cannot be accepted under
any circumstance, the directors’ variable remuneration policy can be a way to incentivize
the implementation of the plan, without being too intrusive in terms of corporate
governance.
Option A: Companies with more than 1,000 employees must take into account the
implementation of the transition plan as a variable in their compensation policy.
Basis for text proposal (indicative version –further amendments could be explored):
3. Member States shall ensure that companies with more than 1000
employees on average have a variable remuneration policy for directors
that [integrates/takes into account/contemplates/reflects on] the
implementation of the plan referred to in this Article. [Such a policy shall
be approved by the Annual General Meeting.]
Option B: Companies with more than 1,000 employees must have a relevant and
effective policy to promote the implementation of the plan. The variable remuneration of
directors linked to the implementation of the plan is proposed as an option within this policy
and not as an obligation.
Basis for text proposal (indicative version – further amendments could be explored):
3. Member States shall ensure that companies with more than 1000
employees on average have a relevant and effective policy to promote the
implementation of the plan referred to in this Article, such as variable
remuneration for directors.
Question 7: Could you support the approach?
Question 8: Which option would you prefer?
It is important to note that the elements incorporated in paragraphs 1 and 2 could be
considered as an alternative transaction to the amendment proposed in paragraph 3 and
vice versa.
Question 8: Could you support the approach?
Question 9: If a package is set in terms of 15.1 and 15.2 Vs 15.3, which element
should be maintained as it is in the Council Mandate?
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OPTIONS ON FINANCIAL SECTOR
CONTEXT
The treatment of the financial sector is one of the most controversial elements of the proposal,
and one of the aspects that wil occupy a relevant part of the political discussion to close a
provisional agreement in trilogues.
The ES PCY has made its best efforts to strike a balance between the COM proposal, the EP
proposal and the General Approach of the Council. The text should be seen as a package and
the starting point for further fine tuning, aligned with the trilogue discussions.
To put in place a viable mandate of the Council to discuss this issue on the trilogues, the ES
PCY has a comprehensive proposal for financial undertakings, which could lead to the best
possible outcome during the negotiations. Competitiveness of the European markets and well-
functioning of EU financial companies, along with a strong compromise with the human and
the environmental rights, should be a cornerstone of this proposal regarding the financial
aspects.
APPROACH OF THE TWO INSTITUTIONS AND MAIN DIFFERENCES:
The financial aspects of the proposal have created a heated debate both in the EP and in the
Council.
On the general approach of the Council, from 2022, financial undertakings are
included on the scope of the proposal in the upstream part of the chain of activities. However,
it leaves to each Member State to decide whether to include financial services within the
definition of "chain of activities" when transposing the CSSD into national law. This approach
has come under criticism for undermining a core function of EU Directives in creating a
harmonised approach among EU Member States. Besides, article 3 (g) on the definition of
“chain of activities” for financial services, only includes the bank and assurance and
reassurance services (an exclusion of investment services). There are also specific references
in articles 6, 7 and 8 to create the necessary adjustment for the due diligence of the financial
undertakings
On the other hand,
the European Parliament position stablished a broader definition of
“value chain” for financial undertakings, including the three main sectors of the financial
markets (investment, banking and assurance). Also, in its proposal, there is no room for a
national option to apply or not the CSDD to the downstream part of the financial companies.
Specifically, the European Parliament aims to introduce an obligation for them to “induce their
investee companies to bring actual adverse impacts caused by them to an end”. This means
that institutional investors and fund or asset managers (and possibly the funds which they
control) should be required to engage with investee companies, namely by exercising voting
rights to induce companies’ managers to minimize or end any negative impacts to human rights
and the environment.
• Financial services´ discussion is deeply intertwined with the final agreement of article
3 (g) and the definition of value chain (EP) or chain of activities (GA). Both discussions
should be going hand in hand, to assure a common and coherent framework for
financial undertakings. Moreover, the scope and the thresholds of article 2 will be
extremely relevant to analyze the final impact on the European financial markets of this
directive.
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OPTIONS TO EXPLORE: RELEVANT ELEMENTS FOR TRANSACTION AND POSSIBLE
LANDING ZONES
The main changes and substantive elements of the draft presented by the ES PCY would be
as follows:
•
Article 2 (“scope”): regarding articles 2.6, 2.7 and 2.8, the substance of the proposal that
would be made by the Council is kept on articles 2.6 and 2.7. The ES PCY considers that
both paragraphs are necessary to avoid a burdensome regulation of specific financial
products. However, the national option to include or not the downstream part of the chain
of activities could be erased if needed for the compromise. To this extend, it could be a red
line for the EP, and it might hamper the level playing field among member states.
Question 1: Could you support to maintain the national option for pensions institutions
which are considered to be social security schemes (article 2.6)?
Question 2: Could you support the exclusion of certain financial products of Directive
2019/2088 (article 2.7)?
Question 3: Could you support the deletion of the national option foreseen on article
2.8? If do so, how would you write up the definition of chain of activities regarding
financial services?
•
• On article 3 (g) and the definition of chain of activities/value chain for financial undertakings,
the main elements proposed by the Council would be kept, but adjustments could be
introduced to allow the upcoming negotiation with the European Parliament. On this
regard:
a.
On investment services, the ES PCY would try to strike a balance between the
exclusion of these services on the council proposal, and the broad definition of the EP
plus the added article 8.a (referred to institutional investors and asset managers).
Some Member States have expressed their concerns about that article.
Regarding the institutional investors, asset managers and activities of investment, it
should be highlighted that there is no link (nor direct nor indirect) between the investor´s
activity and the operations of the investee company. In this case, the leverage to use
against the investee company is lower in comparison with the banking sector or the
assurance sector. But the European Union and Member States are deeply committed
with the ESG aspects, so there should be some sort of application of this Directive to
investment activities.
For that reason, the ES PCY considers that article 8.a of the EP proposal is a good
starting point. It is necessary to avoid unnecessary burden upon investment
companies, so article 3g of the
Directive on the exercise of certain rights of
shareholders in listed companies (“engagement policy”) could be a model to be
followed. While some Member States have expressed their concerns on voting
behaviour wording of the EP proposal, the ES PCY considers that it should be possible
to reach a landing zone if the legislative proposal goes further on the engagement
policies.
The Council mandate can go on that direction, allowing negotiation during trilogues
based on this premise. An equal treatment between investment services and the
banking or assurance sectors can be avoided, but we can go further on engagement
policies and requirements on human and environmental impacts and consequences.
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Question 4: Could you support the proposed approach on investment services?
If Member States consider the negotiation strategy reasonable, there could be two
alternative options. Firstly, the CSDD could modify article 3g of
Directive 2007/36/EC
on the exercise of certain rights of shareholders in listed companies, going further on
the requirements of the engagement policies. The drawback on that option is that we
would be limiting the obligation only to listed companies. The second option could be a
specific article on the CSDD which describes a comprehensive and thorough
engagement policy for those companies included in the scope of the proposal. The
wording of this article should be defined in a later stage of the negotiation process, with
further fine tuning.
Question 5: which option would you prefer?
1. Modification of article 3g of Directive 2007/36/EC
2. A new article stablishing new requirements on engagement policies for companies
included in the scope of CSDD.
b. The situation for the
banking sector and the assurance sector is different. In this
case, the ES PCY would like to distinguish between direct and indirect relationship with
the potential or actual impacts. In the upstream part of their chain of activities or value
chain, companies should be covered by CSDD with the same treatment that any other
business. But that is not the case when we are dealing with the downstream part (once
we erase the national option of article 2.8).
Under any circumstance, it could be understood that those financial companies have a
direct link with the adverse impacts that companies receiving loans or credits are
creating (downstream part). However, it seems reasonable to stablish an indirect link
between the financial service provided (credit, loans, assurance and so on) and the
adverse impact generated by the company receiving those services. This categorizing
would be key to explain a reasonable proposal on CSDD for those financial
undertakings on banking and assurance.
Given that financial undertakings have no access to information about the whole chain
of activities or value chain of their clients, and the aim of this directive is not to create
an obligation for financial companies to make a look through of their clients and their
value chain, the CSDD should be adapted to the special nature of financial services.
This is why there are
several options:
▪ Instead of creating an equal approach for the financial and non-financial sector (when
there are significant differences), the first one should check whether their clients have
adopted proper due diligence procedures against actual or potential adverse impacts,
according to this Directive. Instead of requiring a comprehensive due diligence, even a
look through, the ES PCY proposal would imply to create a proportional, yet
reasonable, obligation for financial undertakings to avoid any potential or actual impact.
This option is based on the indirect link is included that has been previously explained.
With this option, financial undertakings would have an obligation to check if that
company is fulfil ing their obligations on human and environmental rights. However, the
proposal is not imposing to financial companies a burdensome obligation to supervise
the whole value chain of their clients. The proposal is fully aligned with the goals and
objectives of CSDD.
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▪ Besides the previous approach, there should also be a revision of sanctions imposed
by infringements of this directive. If any company has been sanctioned under the
penalty regime stablished in CSDD, financial undertakings should be refrained, or at
least take appropriate precautions, of enter relationships with that company.
Question 6: Could you support the proposed approach on bank and assurance
services services?
If the Council’s finds these proposals as a reasonable approach, two options could be
foreseen to go further on the trilogue negotiations. On one hand, the financial services
due diligence could be included in the general process stablish in articles 6 to 8, as it
is so far in the COM proposal. On the other hand, there is an option to develop an entire
separate procedure for financial companies, adapted to its specificities. In this case,
the ES PCY would integrate in a comprehensive article (or articles) for the whole
process the different references to financial services made in this directive (articles 6.3,
7.6 and 8.7 of the COM proposal).
Question 7: which option would you prefer?
a) Maintain the financial services due diligence on the general process, with their
specificities on articles 6, 7 and 8.
b) Creating a new comprehensive article or articles to develop a suitable due diligence
process for financial undertakings.
Depending on what Member States decides on the previous issues, the ES PCY would
deal with articles 6.3, 7.6, 8.7 and 10.2 on financial services specifications. From the
PCY perspective, those are relevant, but rather technical aspects of the proposal, and
there should be room to discuss them in the trilogues.
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