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Economic actors that constitute the supply chains of forest risk commodities require finance from capital markets. Clear guidelines for disclosure and sustainability are necessary to ensure that investors do not (involuntarily) support activities that result in deforestation.
The European Union (EU) has taken some first steps to facilitate financing decisions that protect forests and ecosystems worldwide. In April 2021, the European Commission (EU COM) adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), affecting companies’ disclosure practices. The EU COM is also developing delegated acts to extend the EU taxonomy for sustainable activities, a common classification system for sustainable economic activities. The EU taxonomy with its delegated acts provide financers with a tool to classify sustainable economic activities in terms of their impact on climate and biodiversity.
In our new policy brief, we analyse along with Climate & Company and Rechtsanwälte Günther why sustainability due diligence obligations for financial institutions are key to achieving the EU's climate goals. As an example for this tool, we draw on due diligence obligations for financial institutions to avoid financing projects that cause deforestation. In addition, the policy brief presents specific recommendations for regulating financial actors through the EU Corporate Sustainability Due Diligence Directive (CSDDD).
In our new briefing, Germanwatch and the sustainable finance think tank Climate & Company analyse the expected reporting and due diligence obligations in the financial sector across a number of key EU regulatory measures on sustainability. In particular, the briefing focuses on potential obligations resulting from the respective regulatory measures that may help to identify and minimise the risk of deforestation.