EU financial institutions to report on due diligence for responsible business conduct in line with OECD guidance
18/04/2019 - Landmark legislation approved calling on EU financial institutions to report on due diligence for responsible business conduct in line with OECD guidance
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The European Parliament overwhelmingly approved an EU Regulation for Sustainability-related Disclosures in the Financial Services Sector. The Regulation is the second legislative agreement reached under the EU Sustainable Finance Action Plan. In calling on financial institutions to disclose sustainability risks and impacts, the Regulation represents a milestone in efforts to encourage financial institutions to take into account impacts to society and the environment.
The Regulation introduces transparency rules for financial institutions on the integration of sustainability risks and impacts in their processes and financial products, including reporting on adherence to internationally recognised standards for due diligence. It also notes that when reporting on due diligence, practitioners “should consider the due diligence guidance for responsible business conduct developed by the Organisation for Economic Cooperation and Development.”
In recent years, financial institutions have stepped up efforts to implement strategies that take into account environmental and social impacts. However, to date, such approaches have not been mainstreamed or applied consistently across financial institutions. A lack of standards can create challenges to monitoring and benchmarking sustainability strategies and can heighten the risk that such strategies result in green-washing rather than achieving meaningful impact. |
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Promoting due diligence approaches that are in line with international standards such as the OECD Due Diligence Guidance for Responsible Business Conduct and OECD due diligence recommendations for institutional investors can help promote impactful approaches and a level playing field for sustainable investment and finance. “The financial sector has enormous potential to mainstream responsible business practices globally. This Regulation is a major step towards aligning business practices with sustainable, long-term value creation,” said Greg Medcraft, Director of the OECD’s Directorate for Financial and Enterprise Affairs. “The use of OECD recommendations on due diligence, which have been developed in collaboration with industry leaders, government and civil society, will help provide clarity and predictability for practitioners and promote harmonization of expectations across jurisdictions and initiatives.”
The OECD Guidelines for Multinational Enterprises, UN Guiding Principles on Business and Human Rights and ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy all call on businesses to carry out due diligence – a process to identify and respond to real and potential negative impacts related to a businesses’ own operations as well as their value chains. Due diligence is increasingly recognized as the central framework for knowing and showing whether a business is behaving responsibility. In 2017 the OECD published guidance on Responsible business conduct for institutional investors which lays out due diligence approaches for asset owners and investment managers to identify and respond to environmental and social risk in their portfolios. The approach outlined in the paper was developed in close consultation with leading investment managers including APG, Blackrock, NBIM and other stakeholders. It has been formally approved by 48 governments.
For more information on OECD’s work to promote and implement RBC, please visit:
https://mneguidelines.oecd.org/duediligence
https://mneguidelines.oecd.org/rbc-financial-sector.htm
For more information on the EU Sustainable Finance Action Plan and legislative process, please visit:
https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance_en
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