• The financial sector is largely exempt from the European supply chain rules and thus from due diligence obligations regarding its impact on the environment and human rights.
• This is no coincidence: the exemption is the result of intense lobbying by asset manager BlackRock and other influential lobbying groups. The exemption was pushed through despite divisions within the financial industry itself. 
• With the "Omnibus" package, the European Commission is currently planning, among other things, to make the exemption for the financial sector permanent. European decision-makers should instead resist attempts at deregulation, correct past mistakes, and include the financial sector in due diligence obligations.

In a new report, Finanzwende shows how the financial lobby at the European level managed to largely exempt the financial sector from the supply chain law. This unprecedented lobbying success should be undone as part of the ongoing revision of European rules for sustainable financial markets.

European Rules on Supply Chain Due Diligence

In 2024, the European Union adopted the Corporate Sustainability Due Diligence Directive (CSDDD). This regulation requires large companies to assess and address human rights abuses and environmental harm across their supply chains.

By holding businesses accountable for their suppliers' actions, it aims to prevent harms such as worker exploitation, deforestation and pollution. The directive strengthens supply chain transparency and marks a significant step toward corporate responsibility in the EU.

The Initial Proposal: Making Finance Play Its Role

The initial CSDDD proposal from February 2022 included the financial sector. The European Commission explicitly recognized finance’s significant influence over corporate behavior and sought to prevent loans and investments from supporting harmful business practices. 

Consequently, the proposal required financial institutions to conduct due diligence on the companies they finance or invest in. It covered banks, investment firms, fund managers, insurance providers, reinsurance companies, and pension institutions.

The Response of the Financial Lobby: A Sector Divided on Due Diligence

Several industry representatives supported including the financial sector in the CSDDD, albeit with conditions:

• The European Banking Federation (EBF), representing over thirty national banking associations, accepted due diligence requirements for corporate lending but not household loans.
• The Dutch Banking Association (NVB) strongly advocated for a sector inclusion, arguing it would raise awareness of human rights and environmental risks.
• The German Investment Funds Association (BVI) even suggested linking executive pay to sustainability targets. Meanwhile, some financial industry groups opposed due diligence obligations.

Despite these divisions, the European Parliament’s proposal kept finance in the directive, but limited due diligence to corporate clients as a compromise.

BlackRock’s Push for an Asset Manager Exemption

US-based asset manager BlackRock was not satisfied with this compromise. Arguing that asset managers lack direct operational ties with investee companies, it continued to push to remove due diligence obligations for asset managers.

Ahead of the Council meeting on the CSDDD, it reportedly gained support from the French government. Whatever happened behind closed doors, a leaked Council compromise text from November 2022 granted what became known as the “BlackRock exemption”, limiting the directive’s scope to banks and insurance companies and leaving asset managers free from due diligence obligations on investee companies.

The Upstream Activities Loophole: Removing Financial Sector Responsibility

What started as an exemption for asset managers soon expanded into a broader financial sector carve-out. At the Council meeting in December 2022, France, backed by select member states, pushed for a loophole that removed meaningful due diligence obligations for all financial institutions.

Earlier, a coalition of member states around France had already succeeded in shifting the directive’s focus toward “upstream” activities—which include suppliers, raw materials, and production inputs—while downplaying obligations for “downstream” activities, such as the distribution, sale, and use of products or services.

By arguing that the financial sector should be treated like any other industry, the French representative ensured that banks and investment firms were primarily required to assess risks in their own supply chains—such as office suppliers or IT services—while facing little to no scrutiny over the companies they finance. This left the financial sector largely unaccountable for the environmental and human rights risks associated with its core business. Despite opposition from Germany and the Netherlands, the Council upheld the exemption.

Finance’s Exemption Secured: Lobbying Seals the Deal

However, this exemption was not final. Both the European Commission and the Parliament had included the financial sector in their versions of the directive, meaning the final text still had to be negotiated. In late 2023, talks between the European Parliament, the Council, and the Commission—known as the trilogue—determined the directive’s final wording. During this phase, major finance lobby groups, including the Association for Financial Markets in Europe (AFME) and Germany’s insurance association GDV, ramped up efforts to secure the carve-out in the final compromise.

The final CSDDD text in 2024 adopted the Council position that financial institutions would not have to conduct due diligence on the companies they finance, leaving only a review clause as a fallback.

The Omnibus Package: Cementing the Financial Sector's Exemption

The financial sector’s exemption from due diligence obligations in the CSDDD is a stark example of how special interest groups can override the will of elected parliamentarians and several member states. Instead of reversing this unfair carve-out, the European Commission is now working to cement it.

As part of the Omnibus package, published in February 2025, it is proposing to drastically water down the CSDDD and scrap its review clause, which required reconsidering the finance exemption after two years. If adopted, the move would permanently shield financial institutions from accountability for the environmental and human rights impacts of their investments.

Back to the Start: Make Finance Play its Part!

Instead of further weakening sustainability regulations through the Omnibus package, the European Commission should use this opportunity to correct past mistakes and reintegrate the financial sector into due diligence obligations. Exempting financial institutions from accountability for the environmental and human rights impact of their investments undermines the very purpose of supply chain due diligence. The EU legislators now have a chance to ensure that capital flows do not support harmful practices—or hand another victory to special interests.