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EU supply chain law must include financial sector

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EU Supply Chain Law (CS3D): The exclusion of the financial sector and sustainability incentives for managers undermines the Green Deal

The Legal Affairs Committee of the European Parliament plans to adopt its negotiating position on the Corporate Sustainability Due Diligence (CS3D) Directive on March 13 and will decide on key aspects of the proposal in the coming weeks. The Economy for the Common Good (ECO) is asking MEPs to vote for financial sector involvement and incentives to ensure managers promote the common good.

Work on the CS3D is in full swing in the European Parliament. Most of the associated committees adopted their reports on 24-25 January and the drafting process for compromise amendments has started in the lead Legal Affairs Committee (JURI). Ahead of the JURI committee vote scheduled for March 13, some political parties are pushing to exclude financial firms from the scope of the proposal and to reject the idea of ​​linking executive pay to a company's sustainability performance - a move that will GWÖ's view would undermine EU regulatory efforts to create a more sustainable and socially responsible financial and economic system.

The financial sector should be included in the scope

While the European Commission wants to include the financial sector in the scope of CS3D, the Council is going in the opposite direction and wants to exempt financial companies. And the die is not yet cast in the European Parliament: positions adopted by several committees in January include the financial sector, but some MEPs are trying to remove the entire sector from scope. Given the crucial role played by the financial sector in the transition to a sustainable economy, such attempts at dilution must be avoided. 

Francisco Álvarez, former director of the Paris Stock Exchange and spokesman for the Economy for the Common Good, says: »How can that be? The financial sector is considered by the OECD to be a high-risk sector in terms of sustainability issues, and excluding it and not holding financial managers accountable would defuse the Green Deal. Sustainable finance is a strategic focus of current EU policies – the Green Deal in general and the Sustainable Finance Action Plan in particular. The year 2022 will go down in history as the year when the fifth and sixth of the nine planetary boundaries were crossed. The time for lazy compromises must be over,” says Álvarez.

Managers' remuneration should be linked to sustainability performance be linked by companies

Another debate where the stakes are high is executive compensation. Here, too, the Council and parts of Parliament are trying to change the Commission's proposal to link variable remuneration for managers to climate protection measures and reduction targets. The Economy for the Common Good is asking MEPs to vote in favor of linking executive pay to a company's sustainability performance. Álvarez: “Let's be honest. Up until now, sustainability has often been seen as a threat to manager salaries. We need a fundamental change in mentality. Incentives for the right goals are key«.

Upper limit for the remuneration of bank salaries

According to the European Banking Authority (EBA), the number of top earners in the banking sector who receive remuneration of more than one million euros has increased from 1.383 in 2020 to 1.957 in 2021, the last reporting year - an increase of 41,5 %1. This development goes against the recommendations contained in the 2018 annual reports of the International Monetary Fund (IMF), the World Bank Association, the FED and the European Central Bank on the need to limit salaries. As a first step, the GWÖ proposes limiting executive salaries to EUR 1 million. “One million euros a year is about 40 times a possible minimum wage of 2.000 euros a month in high-income countries. Income exceeding this threshold should be taxed at 100%, lest society break up,” argues Álvarez. And »1 million euros should only be available to top earners who prove that they are doing good for society and the planet«. A better world needs both: at least the same weighting of sustainability performance in the variable part of remuneration as financial performance and an absolute upper limit for the income of managers.  

1 https://www.eba.europa.eu/eba-observed-significant-increase-number-high-earners-across-eu-banks-2021

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Written by ecogood

The Economy for the Common Good (GWÖ) was founded in Austria in 2010 and is now represented institutionally in 14 countries. She sees herself as a pioneer for social change in the direction of responsible, cooperative cooperation.

It enables...

... companies to look through all areas of their economic activity using the values ​​of the common good matrix in order to show common good-oriented action and at the same time gain a good basis for strategic decisions. The "common good balance sheet" is an important signal for customers and also for job seekers, who can assume that financial profit is not the top priority for these companies.

… municipalities, cities, regions to become places of common interest, where companies, educational institutions, municipal services can put a promotional focus on regional development and their residents.

... researchers the further development of the GWÖ on a scientific basis. At the University of Valencia there is a GWÖ chair and in Austria there is a master's course in "Applied Economics for the Common Good". In addition to numerous master's theses, there are currently three studies. This means that the economic model of the GWÖ has the power to change society in the long term.

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