France takes a hot-and-cold approach to ESG banking regulation
On December 1, EU member states agreed on a general approach for the Corporate Sustainability Due Diligence Directive. The final text shields banks from their full responsibility to prevent environmental harm, thanks in part to France’s post-Brexit ambitions.
France’s polarised approach to sustainability can be confusing. French president Emmanuel Macron emerged triumphant from COP27, with glowing headlines around the new solar-panels-on-car-parks law and the ban on domestic short-haul air routes.
France is also one of the first countries to measure the impact of its budget vert, which last year amounted to €52.8 billion, according to the IMF. This echoes the strategic agenda of the central bank, Banque de France, which aims to phase out activities in coal, oil, and gas by 2024.
However, developing sustainability regulation for the financial sector seems to be taking a back seat as Paris makes a bid to become the new European financial epicentre of a post-Brexit world.
The French government has recently come under fire for threatening to create a blocking minority if financial services were included in the scope of the Corporate Sustainability Due Diligence Directive (CSDDD). In the end, negotiators reached a compromise that leaves the inclusion of the financial sector in the regulation as optional.
In an official statement, the French government dismissed suggestions it wanted to exempt the banking sector from abiding by the regulation. Indeed, during the negotiations, France’s secretary of state for European affairs, Laurence Boone, said that for the directive to be operational and effective, the financial sector should be dealt with in the same way as other sectors.
The problem is that, as it stands, the CSDDD won’t be treating all sectors equally.
An effective shield
The proposed directive will affect liability for human rights violation and environmental impact in a companies’ 'chain of activities', which largely excludes the downstream value chain and instead looks at the supply chain. For banks, this change effectively shields them from being held liable for any violations resulting from their lending activities.
The French position isn’t all that surprising, given that the nation's banks, such as BNP Paribas or Societe Generale, are lending far more to higher-emitting sectors than many of their European peers. But it is also a strategic move from a country hoping to incentivise global financiers to set up their European businesses in Paris rather than London.
The problem is that France’s position also impacts the EU bloc’s international credibility as the leader when it comes to environmental, social and governance regulation. While several European member states voted in favour of the inclusion of the financial sector in the scope of the CSDDD, the competitiveness of their national banking sectors will be threatened by a dual approach.
The text will face another round of negotiations in the European Parliament next year, but if France gets its way, banks will avoid more rigorous oversight on the sustainability impact of their activities once again.