GW press release / March 7, 2019
Global Witness celebrates significant agreement and shift in mind-set from the EU on investor due diligence
Thursday 7th March 2019 - The European Parliament and Council have today reached a provisional political agreement on a new set of rules requiring European investors such as banks, pension funds and insurers, to carry out due diligence.
This means investors will need to disclose the steps they have taken to address the adverse impact of their investment decisions on people and planet.
The agreement, which was reached in the early hours of this morning, also fundamentally redefines the risks that investors must consider when decision making – moving away from pure financial risk to their profits, and towards risks to human rights and our global environment.
Global Witness, who have been long campaigning for a more ethical and sustainable financial sector in the EU, today celebrated the historic agreement.
The anti-corruption NGO has previously highlighted how Europeans’ money – and EU-based investors – far too often play a key role in funding projects linked to human rights abuses, land grabs and large-scale environmental destruction. They have highlighted examples from oil exploration in Africa’s oldest national park to a mining project in India which sparked violent protests.
Investors across Europe play a powerful role in improving the overseas and European operations of the companies they invest in. By using their significant leverage, they can insist on higher environmental, social and governance standards in the companies and projects they invest in.
Richard Gardiner, EU Campaigner, Global Witness said:
“This agreement is an important step forward in ensuring EU investors can no longer be blind to the environmental and human rights abuses carried out by the companies they invest in. It will lead to greater investor accountability and understanding of the impact that investors have on climate change and human rights abuses.”
The NGO pointed towards the recent Brumadinho dam burst in Brazil, which left over a hundred people dead and hundreds missing. Following the disaster, Brazilian regulators have ordered mining company Vale, who operated the dam, to suspend activity in this and two more of its mines. On Friday Vale’s CEO also resigned.
This example makes it clear that voluntary mechanisms are not enough to tackle the corporate damage done to communities, and our environment, is no longer cost-free. - Rachel Owens, Head of EU Advocacy, Global Witness
Rachel Owens, Head of EU Advocacy, Global Witness said:
“80% of investors in Vale, the company at the heart of this devastating mining dam disaster, were signed up to the UN’s Principles for Responsible Investing – but missed major red flags such as concerns around the land being secured illegally. The EU has today agreed to rules for investors to ensure they no longer bankroll projects and companies who cause harm to people and planet.”
"It is also especially encouraging to see pension funds in scope - which huge amounts of ordinary people's funds flow through.
“What's more, this EU decision sets a global example for other governments to follow suit. For the UK, to remain competitive in a post-Brexit landscape it must implement similar or more stringent rules for investors.”
The rules still however, the NGO said, have weaknesses.
On top of this, investors will initially only be subject to a ‘comply or explain’ compliance mechanism, although it will become mandatory for large investors after 18 months. This means that investors themselves will need to determine whether they consider the adverse impacts of the investment decisions or not.
‘There is a real risk that investors intent on putting profit before people could continue to ignore the substantial environmental, social and governance risks as regulators will have fewer tools to challenge those investors that do not comply with the rules. The Commission and Regulators must strictly enforce these rules, and challenge those investors that do not comply, and do not satisfactorily justify why their investments are not contributing to human rights or environmental abuses. Only through strict enforcement can the goals of these rules be fully achieved,” Owens confirmed.
The new rules are a cornerstone of the EU’s Action Plan on Financing Sustainable Growth which was launched in March last year. The EU is currently leading the way on ensuring finance is re-orientated towards sustainable economic activity.
Interviews are available on request. Please e-mail [email protected] or call 0044 7828 505 758.
Visuals of Land and Environmental Defenders – the people at the sharp end of investment decisions gone wrong – can be found here.
Co-legislators have agreed on the following in the Regulation:
Comply or Explain: Investors themselves must decide whether they consider adverse impacts of investment decisions on sustainability factors and that they will put in place the relevant due diligence. If they not decide to comply then they must explain the reasoning for not doing so. After 18 months of the application of this regulation, this broad ‘comply or explain’ mechanism will be replaced with a defined thresholds to decide which investors must comply with these rules.
Sustainability factors: The regulation outlines the minimum factors that investors must take into account as part of their due diligence policies, namely they must consider the following factors: environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. These will be further developed for investors to be brought in line with the UN PRI Reporting Framework – Main Definitions 2018.
Due Diligence policies: The major development in this Regulation is that investors must have in place a statement on their due diligence policies outlining how they consider the adverse impacts of their investment decisions on sustainability factors. These policies must be in adherence to existing responsible business conduct codes and internationally-recognised standards for due diligence, namely the “OECD (2017) Responsible business conduct for institutional investors: Key considerations for due diligence”. They may also disclose the degree of alignment with the long-term carbon emission reduction goals of the Paris Climate Agreement.
Previous European Parliament position on regulation of the European Parliament and of the Council on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341, as agreed in the ECON Committee on 9 November 2018, can be downloaded here.
The Briefing ‘Indecent Exposure: How EU based investors and their subsidiaries are helping to bankroll human rights violations and environmental destruction’ can be downloaded here (PDF).
Global Witness Briefing ‘EU Investor Due Diligence: Ensuring finance works for people and planet’ from October 2018 can be downloaded here (PDF).
More information on the 2017 report on attacks on Land and Environmental defenders: ‘At What Cost?’ released in July 2018 can be found.
Global Witness investigates and campaigns to change the system by exposing the economic networks behind conflict, corruption and environmental destruction.