Finance should be excluded from sustainability law, says some EU states

By Huw Jones

LONDON (Reuters) - A European Union draft law forcing large companies to check if their suppliers use slave or child labour is facing calls from several member states to shield or even fully exclude the financial sector, EU documents seen by Reuters showed.

The European Commission, the EU's executive body, proposed the Corporate Sustainability Due Diligence directive (CSDDD) in February, which would also oblige boards of EU based firms to ensure that their business model and strategy align with targets limiting global warning.

EU states and the European Parliament have the final say, but the strength of unease among major member states means some changes are likely.

Luxembourg, Ireland and Germany have indicated they want to exclude asset managers and institutional investors from scope, with France and Italy going further and calling for the entire financial sector to be left out, an EU diplomat familiar with the negotiations said.

Ireland said in a submission it could not signal its agreement to including financial undertakings, and called for an assessment from the EU's securities, insurance and banking watchdogs on how finance would be impacted if included.

Applying the proposal would cause significant administrative and cost burdens on occupational pension schemes in Ireland, the Irish submission said.

An impact assessment should also look at overlaps between the proposal and existing EU financial rules, the Irish submission added.

"In order to come up with a CSDDD framework that is fit-for-purpose and takes into account the specificities of the financial sector, it is necessary to exclude investment activities from the scope of the directive," Luxembourg said in its submission.

The Netherlands, however, has said that excluding the finance would the wrong signal, the EU diplomat said.

The current proposal calls for EU states to designate an authority to impose sanctions for non-compliance.

EU president Czech Republic said in a note to EU states that its proposed compromises should "disperse concerns of some member states as regards the regulation of financial undertakings".

(Reporting by Huw Jones; Editing by Josie Kao)