ISDA Joins Associations in Call for Risk-based Approach to CSDDD

On January 23, ISDA joined the Association for Financial Markets in Europe, the Futures Industry Association and the European Payment Institutions Federation to publish a whitepaper that highlights the importance of ensuring the proposed EU Corporate Sustainability Due Diligence Directive (CSDDD) takes a proportionate, risk-based and workable approach and that it provides a clear, practical and legally certain framework.

The Associations highlight serious challenges faced by financial institutions if CSDDD obligations are applied beyond their upstream supply chain to their relationships with corporate clients or trading counterparties in their downstream value chain, and extended to downstream financial services, such as trading, derivatives, custody, clearing and payments. The whitepaper argues that the inclusion of these services in the scope of the value chain is unlikely to actively cause or contribute to human rights abuses or environmental harm in view of the nature of the service and given that relevant financial institutions cannot effectively influence the behavior of their counterparties. To the extent that the co-legislators decide to incorporate downstream client relationships, the Associations believe that it is essential to take account of the distinguishing features of financial institutions’ downstream value chains and ensure a risk-based and proportionate approach, focused on the provision of financing where the inclusion of the services within the Directive is expected to have the greatest impact on safeguarding human rights and the environment.

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