As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD is seeking public comments on the Draft Rules for Tax Base Determinations under Amount A of Pillar One.
The purpose of the tax base determinations rules is to establish the profit (or loss) of an in-scope MNE that will be used for the Amount A calculations to reallocate a portion of its profits to market jurisdictions. The rules determine that profit (or loss) will be calculated on the basis of the consolidated group financial accounts, while making a limited number of book-to-tax adjustments. The rules also include provisions for the carry-forward of losses.
The OECD/G20 Inclusive Framework on BEPS has agreed to release this public consultation document (également disponible en français) in order to obtain public comments, but the draft rules do not reflect consensus regarding the substance of the document. The stakeholder input received on the Draft Rules for Tax Base Determinations will assist members of the Inclusive Framework in further refining and finalising the relevant rules.
Interested parties are invited to send their written comments* no later than 4 March 2022. Instructions for submitting comments can be found in the consultation document.
Further information on the two-pillar solution for addressing the tax challenges arising from digitalisation and globalisation of the economy is available at https://oe.cd/bepsaction1.
Contact:

For further information or inquiries, please contact tfde@oecd.org.

Compliments of the OECD.
The post OECD | Tax challenges of digitalisation: OECD invites public input on the draft rules for tax base determinations under Amount A of Pillar One first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission presents its Communication on Decent Work Worldwide that reaffirms the EU’s commitment to champion decent work both at home and around the world. The elimination of child labour and forced labour is at the heart of this endeavour.
The latest figures show that decent work is still not a reality for many people around the world and more remains to be done: 160 million children – one in ten worldwide – are in child labour, and 25 million people are in a situation of forced labour.
The EU promotes decent work across all sectors and policy areas in line with a comprehensive approach that addresses workers in domestic markets, in third countries and in global supply chains. The Communication adopted today sets out the internal and external policies the EU uses to implement decent work worldwide, putting this objective at the heart of an inclusive, sustainable and resilient recovery from the pandemic.
As part of this comprehensive approach, the Commission is preparing a new legislative instrument to effectively ban products made by forced labour from entering the EU market, as announced by President von der Leyen in her State of the Union address 2021. This instrument will cover goods produced inside and outside the EU, combining a ban with a robust enforcement framework. It will build on international standards and complement existing horizontal and sectoral EU initiatives, in particular the due diligence and transparency obligations.
Decent work: the EU as responsible global leader
The EU has already taken strong action to promote decent work worldwide, contributing to the improvement in the lives of people all over the globe. The world has also seen a significant reduction over the past decades of the number of children in child labour (from 245.5 million in 2000 to 151.6 million in 2016). However, the number of children in child labour has increased by more than 8 million between 2016 and 2020, inverting the previous positive trend. At the same time, the global COVID-19 pandemic and transformations in the world of work, including through technological advances, the climate crisis, demographic changes and globalisation, can have an impact on labour standards and workers’ protection.
Against this background, the EU is committed to build on its existing engagement and further strengthen its role as responsible leader in the world of work by using all the instruments at hand and developing them further. Consumers are increasingly demanding goods, which are produced in a sustainable and fair way that ensures decent work of those that produce them. As reflected in debates in the Conference on the Future of Europe, European citizens expect the EU to take a leading role in promoting the highest standards around the globe.
The EU will reinforce its actions, guided by the four elements of the universal concept of decent work as developed by the International Labour Organisation (ILO) and reflected in the United Nations (UN) Sustainable Development Goals. These elements include: (1) promoting employment; (2) standards and rights at work, including the elimination of forced labour and child labour; (3) social protection; (4) social dialogue and tripartism. Gender equality and non-discrimination are crosscutting issues in these objectives.
Key tools for decent work worldwide
The Communication sets out upcoming and existing EU tools in four areas:

EU policies and initiatives with outreach beyond the EU. Key tools include:

EU policies setting standards that are global frontrunners for corporate responsibility and transparency, such as the proposal for a directive on corporate sustainability due diligence and the forthcoming legislative proposal on forced labour.
EU guidance and legal provisions on socially sustainable public procurement will help the public sector lead by example.
EU sectoral policies, for instance on food, minerals and textiles, strengthen respect for international labour standards.

EU bilateral and regional relations: Key tools include:

EU trade policy, which promotes international labour standards.
Respect for labour rights in third countries is an essential part of EU human rights policies.
EU enlargement and neighbourhood policy, which promotes decent work in neighbouring countries.

The EU in international and multilateral fora: Key tools include:

EU support for the implementation of UN instruments on decent work, and the EU’s active contribution to setting labour standards through the ILO.
EU support for the reform of the World Trade Organisation (WTO) to integrate the social dimension of globalisation.
In the G20 and G7 formats, the EU works with other global economic powers to promote decent work.

Engagement with stakeholders and in global partnerships: Key tools include:

EU support for social partners to ensure respect of labour rights in supply chains.
EU engagement with civil society actors to promote safe and enabling environments for civil society.
EU support for global partnerships and multi-stakeholder initiatives on decent work, in areas such as occupational safety and health.

As part of its “Just and sustainable economy package”, the Commission today also tables a proposal for a Directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains.
Members of the College said
President Ursula von der Leyen said: “Europe sends a strong signal that business can never be done at the expense of people’s dignity and freedom. We don’t want the goods people are forced to produce on the shelves of our shops in Europe. This is why we are working on a ban of goods made with forced labour.”
Executive Vice-President for an Economy that Works for People, Valdis Dombrovskis, said: “The EU economy is connected to millions of workers around the world through global supply chains. Decent work is in the interest of workers, businesses and consumers everywhere: they all have the right to fair and appropriate conditions. There is no place for lowering basic labour standards as a means to gain competitive advantage. We will continue to promote decent labour standards worldwide, making sure of a key role for social dialogue as we work for a fair and strong recovery.”
Commissioner for Jobs and Social Rights, Nicolas Schmit, said: “Decent work is the foundation of a decent life. Many workers worldwide still see their labour and social rights threatened on a daily basis. The EU will continue to play a leading role in promoting decent work that puts people at the centre, making sure their rights and their dignity are respected.”
Next steps
The Commission invites the European Parliament and the Council to endorse the approach set out in this Communication and to work together to implement its actions. The Commission will regularly report on the implementation of this Communication.
Background
President von der Leyen highlighted the Commission’s zero-tolerance policy on child labour in her Political Guidelines. In her 2021 State of the Union address, she stressed that business and global trade “can never be done at the expense of people’s dignity and freedom” and that “human rights are not for sale”.
The European Pillar of Social Rights Action Plan announced a “Communication on Decent Work Worldwide” to provide a comprehensive overview of relevant EU instruments and a blueprint for an EU strategy on taking forward the social dimension in international action.
Compliments of the European Commission.
The post EU Commission sets out strategy to promote decent work worldwide and prepares instrument for ban on forced labour products first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

On 23 February 2022, the Commission proposes new rules on who can use and access data generated in the EU across all economic sectors. The Data Act will ensure fairness in the digital environment, stimulate a competitive data market, open opportunities for data-driven innovation and make data more accessible for all. It will lead to new, innovative services and more competitive prices for aftermarket services and repairs of connected objects. This last horizontal building block of the Commission’s data strategy will play a key role in the digital transformation, in line with the 2030 digital objectives.
Margrethe Vestager, Executive Vice-President for a Europe fit for the Digital Age, said: “We want to give consumers and companies even more control over what can be done with their data, clarifying who can access data and on what terms. This is a key Digital Principle that will contribute to creating a solid and fair data-driven economy and guide the Digital transformation by 2030.”
Thierry Breton, Commissioner for Internal Market, added: “Today is an important step in unlocking a wealth of industrial data in Europe, benefiting businesses, consumers, public services and society as a whole. So far, only a small part of industrial data is used and the potential for growth and innovation is enormous. The Data Act will ensure that industrial data is shared, stored and processed in full respect of European rules. It will form the cornerstone of a strong, innovative and sovereign European digital economy.”
Data is a non-rival good, in the same way as streetlight or a scenic view: many people can access them at the same time, and they can be consumed over and over again without impacting their quality or running the risk that supply will be depleted. The volume of data is constantly growing, from 33 zettabytes generated in 2018 to 175 zettabytes expected in 2025. It is an untapped potential, 80% of industrial data is never used. The Data Act addresses the legal, economic and technical issues that lead to data being under-used. The new rules will make more data available for reuse and are expected to create €270 billion of additional GDP by 2028.
The proposal for the Data Act includes:

Measures to allow users of connected devices to gain access to data generated by them, which is often exclusively harvested by manufacturers; and to share such data with third parties to provide aftermarket or other data-driven innovative services. It maintains incentives for manufacturers to continue investing in high-quality data generation, by covering their transfer-related costs and excluding use of shared data in direct competition with their product.
Measures to rebalance negotiation power for SMEs by preventing abuse of contractual imbalances in data sharing contracts. The Data Act will shield them from unfair contractual terms imposed by a party with a significantly stronger bargaining position. The Commission will also develop model contractual terms in order to help such companies to draft and negotiate fair data-sharing contracts.
Means for public sector bodies to access and use data held by the private sector that is necessary for exceptional circumstances, particularly in case of a public emergency, such as floods and wildfires, or to implement a legal mandate if data are not otherwise available. Data insights are needed to respond quickly and securely, while minimising the burden on businesses.

New rules allowing customers to effectively switch between different cloud data-processing services providers and putting in place safeguards against unlawful data transfer.

In addition, the Data Act reviews certain aspects of the Database Directive, which was created in the 1990s to protect investments in the structured presentation of data. Notably, it clarifies that databases containing data from Internet-of-Things (IoT) devices and objects should not be subject to separate legal protection. This will ensure they can be accessed and used.
Consumers and businesses will be able to access the data of their device and use it for aftermarket and value-added services, like predictive maintenance. By having more information, consumers and users such as farmers, airlines or construction companies will be in a position to take better decisions such as buying higher quality or more sustainable products and services, contributing to the Green Deal objectives.
Business and industrial players will have more data available and benefit from a competitive data market. Aftermarkets services providers will be able to offer more personalised services, and compete on an equal footing with comparable services offered by manufacturers, while data can be combined to develop entirely new digital services as well.
Today, in support of the European strategy for data, the Commission has also published an overview of the common European data spaces that are being developed in various sectors and domains.
Background
Following the Data Governance Act, today’s proposal is the second main legislative initiative resulting from the February 2020 European strategy for data, which aims to make the EU a leader in our data-driven society.
Together, these initiatives will unlock the economic and societal potential of data and technologies in line with EU rules and values. They will create a single market to allow data to flow freely within the EU and across sectors for the benefit of businesses, researchers, public administrations and society at large.
While the Data Governance Act, presented in November 2020 and agreed by co-legislators in November 2021, creates the processes and structures to facilitate data sharing by companies, individuals and the public sector, the Data Act clarifies who can create value from data and under which conditions.
An open public consultation on the Data Act ran between 3 June and 3 September 2021 and gathered views on measures to create fairness in data sharing, value for consumers and businesses. The results were published on 6 December 2021.
Compliments of the European Commission.
The post Data Act: EU Commission proposes measures for a fair and innovative data economy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Why is the Commission presenting this initiative?
The transformation to a sustainable economy is a key political priority of the EU. It is essential for the wellbeing of our society and our planet. Companies play a key role in creating a sustainable and fair economy and society but they need support in the form of a clear framework. EU-level legislation on corporate sustainability due diligence will advance the green transition, and protect human rights in Europe and beyond.
In addition to the European Parliament and Council, civil society as well as companies also call for action. Around 70% of companies participating in the 2020 preliminary Study on due diligence as well as the 2021 Open public consultation agreed that a harmonized EU legal framework on due diligence for human rights and environmental impacts is needed. Based on 2020 consumer survey, nearly eight in 10 respondents indicate that sustainability is important for them.
Why is voluntary action by companies not sufficient to address human rights and environmental impacts?
Many companies are already putting in place corporate sustainability tools. For instance, in the 2020 Study on due diligence requirements through the supply chain, a third of respondents from companies across all sectors, said that their companies undertake work in this area, taking into account all human rights and environmental impacts. Such own commitments or voluntary initiatives are laudable, and have helped tackle sustainability problems to a certain extent.
However, research shows that when companies take voluntary action, they focus on the first link in the supply chains while human rights and environmental harm occurs more often further down in the value chain. Furthermore, progress is slow and uneven.
This is why it is time to have clear rules in place.
What will companies be required to do?
The new proposal sets out a corporate due diligence duty to identify, prevent, bring to an end, mitigate and account for adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and their value chains. It builds on the UN’s Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises and responsible business conduct, and is in line with internationally recognised human rights and labour standards.
In practice, the new proposal will require the companies within its scope to:

Integrate due diligence into policies.
Identify actual or potential adverse human rights and environmental impacts.
Prevent or mitigate potential impacts.
Bring to an end or minimise actual impacts.
Establish and maintain a complaints procedure.
Monitor the effectiveness of the due diligence policy and measures.
Publicly communicate on due diligence.

In order to achieve a meaningful contribution to the sustainability transition, due diligence under this Directive should be carried out with respect to all adverse human rights and environmental impacts identified in its Annex.
This means that companies must take appropriate measures to prevent, end or mitigate impacts on the rights and prohibitions included in international human rights agreements, for example, regarding workers’ access to adequate food, clothing, and water and sanitation in the workplace. Companies are also required to take measures to prevent, end or mitigate negative environmental impacts that run contrary to a number of multilateral environmental conventions.
In addition, the new proposal requires certain large companies to adopt a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
What are directors obliged to do and how will their duties be enforced?
The Directive also introduces duties for the directors of the EU companies that it covers. These duties include setting up and overseeing the implementation of the due diligence processes and integrating due diligence into the corporate strategy. In addition, when directors act in the interest of the company, they must take into account the human rights, climate and environmental consequences of their decisions and the likely consequences of any decision in the long term. Companies have to duly take into account the fulfilment of the obligations regarding the corporate climate change plan when setting any variable remuneration linked to the contribution of a director to the company’s business strategy and long-term interests and sustainability.
The rules on directors’ duties are enforced through existing Member States’ laws.
Will all companies be affected by these rules?
The new rules will only apply to large limited liability companies with substantial economic strength. Small and Medium Enterprises are excluded from the direct scope. This is about companies with 500+ employees and a net turnover over €150 million worldwide. 2 years after the new rules start applying, new rules will also be extended to other limited liability companies with 250+ employees and a net turnover over €40 million worldwide, in sectors where a high-risk of human rights violations or harm to the environment has been identified, e.g. in agriculture, textiles or minerals. The Directive will also apply to non-EU companies active in the EU with a turnover threshold aligned with the above, generated in the EU.
Will SMEs be affected by the new rules?
SMEs do not fall under the scope of the Directive. Nevertheless, they might be indirectly affected by the new rules as a result of the effect of large companies’ actions across their value chains. Therefore, the proposal foresees specific support addressed to SMEs, such as guidance and other tools to help them gradually integrate sustainability considerations in their business operations. Member States shall provide further technical support, and may provide financial support to SMEs to facilitate adaptation. The proposal will also contain elements to protect SMEs from excessive requirements from large companies.
What happens if companies do not comply with the new rules?
Member States will supervise that companies comply with their due diligence obligations. Member States could impose fines to companies, or issue orders requiring the company to comply with the due diligence obligation.
It is particularly important to enable victims to obtain compensation for damage. Therefore, the proposal will also give those affected by harm the opportunity to hold companies to account. This means that victims will have the possibility to bring a civil liability claim before the competent national courts. Such civil liability concerns companies’ own operations and its subsidiaries and established business relationships with which a company cooperates on a regular and frequent basis, where the harm could have been identified, and prevented or mitigated, with appropriate due diligence measures.
How will effective enforcement be ensured?
Member States will designate an authority to ensure effective enforcement. The Directive also requires Member States to adapt their rules on civil liability to cover cases where damage results from failure by a company to comply with due diligence obligations, building on their existing regimes on civil liability.
At European level, the Commission will set up a European Network of Supervisory Authorities that will bring together representatives of the national bodies, in order to ensure a coordinated approach and enable knowledge and experience sharing.
What are the benefits for citizens?
Citizens will become more aware of the impact of the products they buy and services they use. The main benefits will be the following:

More transparency and reliability on how products are made and services delivered.

Protection of human rights – sustainable business models have to prevent human rights abuses.

Healthier environment and a longer-term commitment to the environment from companies. Citizens could also feel more motivated to protect the environment, knowing that they are not alone in their efforts and companies are doing their share as well.

What are the benefits for companies?
For the first time ever, companies operating in the EU market will have common and clear rules on corporate sustainability due diligence.  The main benefits will be the following:

Preventing legal fragmentation. Some EU countries have developed national rules (such as France, Germany or the Netherlands) or want to do so (e.g. Austria, Belgium, Finland, Denmark) but the scope of these measures varies a lot from one country to the other. Moreover, there are many voluntary initiatives in place. This causes legal uncertainty for companies across the EU.

Meeting consumers’ expectations. Consumers are drawn increasingly to products made in an ethically and environmentally sustainable way, for example, without using harmful substances. They also perceive greater benefit and value from products sold by a socially responsible company, like ethical cocoa.

Meeting investor expectations. Investors prompt transparency requirements. Without mandatory action, investors and consumers would miss consistent benchmarks to be assured about the value chain standards.

Reinforcing risk management. Thanks to the new rules, companies will have a clearer view of their operations and supply chain, including higher awareness of their negative impacts, and will be able to detect problems and risks (including reputational risks) early.

Generating economic benefits. Research shows that companies which incorporate sustainability factors into their policy generate higher returns.

Increasing resilience. Researchers found that companies which had integrated social, environmental and health considerations into their strategies weathered the COVID-19 crisis better and saw a milder drop in stock prices during the pandemic than those who had not.

What are the costs for companies?
The new rules on due diligence will apply to companies of significant size and economic strength and those operating in high impact sectors such as textiles, agriculture, extraction of minerals. While SMEs are not subject to direct obligations in the proposal, accompanying measures will support SMEs that may be indirectly affected.
In order to comply with the new rules, companies may incur costs related to establishing and operating due diligence processes and procedures. In addition, companies may also incur additional transition costs from investments needed to change their own operations and value chains to address adverse impacts.
How will this proposal ensure EU companies remain competitive?
Companies’ competitiveness increasingly relies on their ability to ensure sustainable practices all along their value chains. Consumers are more and more aware of the choices they make with their purchases, raising demands for sustainable and responsibly sourced products and services. At the same time, investors are also increasingly considering businesses’ sustainability when looking for new investment opportunities. The varying existing and planned national due diligence rules as well as numerous voluntary initiatives cause legal uncertainty for companies across the EU, fragmentation of the Single market, additional costs and complexity. The proposal therefore aims to provide a harmonised, clear and coherent framework. It will also potentially become a model worldwide on sustainable value chains.
By helping companies better address the impacts in their value chains, the proposal will not only improve companies’ competitiveness, but also their efficiency and financial performance, preparedness and long-term resilience.
What is the impact of the new rules on developing countries?
The new rules will bring multiple benefits for developing countries, including a better protection of human rights and the environment, better adoption of international standards and facilitation of better access to remedies for victims of harmful corporate practices.
The proposal should achieve the most significant positive impacts in the EU’s main trading partners in developing countries. The Commission looks forward to working further with EU trading partners to ensure mutually reinforcing initiatives, including development of voluntary sustainability standards, support of multi-stakeholder alliances and industry coalitions, as well as accompanying support provided through EU development policy and other international cooperation instruments.
The proposal also aims to address potential negative effects on trading partners in developing countries, which could include companies withdrawing from very risky territories if they cannot mitigate harm due to systemic issues. In this regard, the proposal contains accompanying measures, such as capacity-building support for SMEs with a view to mitigating such possible impacts. The aim is to make clear that companies should prioritise engagement with business relationships in the value chain, instead of disengaging, which should stay a last resort.
Are there international standards on corporate sustainability due diligence?
2011 United Nations Guiding Principles on Business and Human Rights state that companies should avoid infringing the human rights of others and should address adverse human rights impacts with which they are involved in their own operations and through their direct and indirect business relationships. The OECD Guidelines for Multinational Enterprises, related Guidance on Responsible Business Conduct and sectoral guidance specify and further develop this concept of due diligence. The recommendations of the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy also embed this concept. The OECD framework extended the application of due diligence to cover environmental harm.
What are examples of mitigating measures?
The Commission has conducted a comprehensive mapping of existing EU-funded actions whose objectives and results are accompanying the implementation of the Directive. The mapping identified about 75 relevant ongoing Commission actions.  An example of such action is the garment traceability project with UNECE and ITC. This project provides tools for companies that are immediately relevant for their due diligence obligations.
Compliments of the European Commission.
The post Questions and Answers: Proposal for a Directive on corporate sustainability due diligence first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission has adopted a proposal for a Directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains. Companies play a key role in building a sustainable economy and society. They will be required to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss. For businesses these new rules will bring legal certainty and a level playing field. For consumers and investors they will provide more transparency. The new EU rules will advance the green transition and protect human rights in Europe and beyond.
A number of Members States have already introduced national rules on due diligence and some companies have taken measures at their own initiative. However, there is need for a larger scale improvement that is difficult to achieve with voluntary action. This proposal establishes a corporate sustainability due diligence duty to address negative human rights and environmental impacts.
The new due diligence rules will apply to the following companies and sectors:

EU companies:

Group 1: all EU limited liability companies of substantial size and economic power (with 500+ employees and EUR 150 million+ in net turnover worldwide).
Group 2: Other limited liability companies operating in defined high impact sectors, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of EUR 40 million worldwide and more. For these companies, rules will start to apply 2 years later than for group 1.

Non-EU companies active in the EU with turnover threshold aligned with Group 1 and 2, generated in the EU.

Small and medium enterprises (SMEs) are not directly in the scope of this proposal.
This proposal applies to the company’s own operations, their subsidiaries and their value chains (direct and indirect established business relationships). In order to comply with the corporate due diligence duty, companies need to:

integrate due diligence into policies;
identify actual or potential adverse human rights and environmental impacts;
prevent or mitigate potential impacts;
bring to an end or minimise actual impacts;
establish and maintain a complaints procedure;
monitor the effectiveness of the due diligence policy and measures;
and publicly communicate on due diligence.

More concretely, this means more effective protection of human rights  included in international conventions. For example, workers must have access to safe and healthy working conditions. Similarly, this proposal will help to avoid adverse environmental impacts contrary to key environmental conventions. Companies in scope will need to take appropriate measures (‘obligation of means’), in light of the severity and likelihood of different impacts, the measures available to the company in the specific circumstances, and the need to set priorities.
National administrative authorities appointed by Member States will be responsible for supervising these new rules and may impose fines in case of non-compliance. In addition, victims will have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.
In addition, group 1 companies need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
To ensure that due diligence becomes part of the whole functioning of companies, directors of companies need to be involved. This is why the proposal also introduces directors’ duties to set up and oversee the implementation of due diligence and to integrate it into the corporate strategy. In addition, when fulfilling their duty to act in the best interest of the company, directors must take into account the human rights, climate change and environmental consequences of their decisions. Where companies’ directors enjoy variable remuneration, they will be incentivised to contribute to combating climate change by reference to the corporate plan.
The proposal also includes, accompanying measures, which will support all companies, including SMEs, that may be indirectly affected. Measures include the development of individually or jointly dedicated websites, platforms or portals and potential financial support for SMEs. In order to provide support to companies the Commission may adopt guidance, including about model contract clauses. The Commission may also complement the support provided by Member States with new measures, including helping companies in third countries.
The aim of the proposal is to ensure that the Union, including both the private and public sectors, acts on the international scene in full respect of its international commitments in terms of protecting human rights and fostering sustainable development, as well as international trade rules.
As part of its ‘Just and sustainable economy package’, the Commission also presents today a Communication on Decent Work Worldwide. It sets out the internal and external policies the EU uses to implement decent work worldwide, putting this objective at the heart of an inclusive, sustainable and resilient recovery from the pandemic.
Members of the College said:
Věra Jourová, Vice-President for Values and Transparency, said: “This proposal aims to achieve two goals. First, to address consumers’ concerns who do not want to buy products that are made with the involvement of forced labour or that destroy the environment, for instance. Second, to support business by providing legal certainty about their obligations in the Single Market. This law will project European values on the value chains, and will do so in a fair and proportionate way.”
Didier Reynders, Commissioner for Justice said: “This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain. With these rules, we want to stand up for human rights and lead the green transition. We can no longer turn a blind eye on what happens down our value chains. We need a shift in our economic model. The momentum in the market has been building in support of this initiative, with consumers pushing for more sustainable products. I am confident that many business leaders will support this cause.”
Thierry Breton, Commissioner for the Internal Market, said:”While some European companies are already leaders in sustainable corporate practices, many still face challenges in understanding and improving their environmental footprint and human rights track record. Complex global value chains make it particularly difficult for companies to get reliable information on their suppliers’ operations. The fragmentation of national rules further slows down progress in the take up of good practices. Our proposal will make sure that big market players take a leading role in mitigating the risks across their value chains while supporting small companies in adapting to changes.”
Next steps
The proposal will be presented to the European Parliament and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the Commission.
Background
European companies are global leaders in sustainability performance. Sustainability is anchored in EU values and companies show a commitment to respecting human rights and to reducing their impact on the planet. Despite this, companies’ progress in integrating sustainability, and in particular human rights and environmental due diligence, into corporate governance processes remains slow.
To address these challenges, in March 2021, the European Parliament called on the Commission to submit a legislative proposal on mandatory value chain due diligence. Similarly, on 3 December 2020, the Council in its conclusions called on the Commission to present a proposal for an EU legal framework on sustainable corporate governance, including cross-sector corporate due diligence along global value chains.
The Commission’s proposal responds to these calls, taking closely into account the responses gathered during an open public consultation on the sustainable corporate governance initiative launched by the Commission on 26 October 2020. In preparing the proposal, the Commission also considered the broad base of evidence collected through two commissioned studies on directors’ duties and sustainable corporate governance (July 2020) and on due diligence requirements in the supply chain (February 2020).
Compliments of the European Commission.
The post Just and sustainable economy: EU Commission lays down rules for companies to respect human rights and environment in global value chains first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

“Check against delivery”
Good morning. It is a pleasure for me to take part in this joint ECFIN-EESC conference on the way forward for the EU’s economic governance framework.
This event forms part of our effort to engage in a wide-ranging and inclusive debate on the economic governance review with all stakeholders.
We have taken good note of the very useful European Parliament resolution of July 2021 that Ms Marques coordinated.
We have also paid close attention to the own-initiative opinion of the European Economic and Social Committee of March last year steered by Ms Biegon, as well as the discussions in the Committee of Regions.
And we have been engaging with Finance Ministers, in bilateral discussions and in the ECOFIN and Eurogroup meetings, and these exchanges will continue.
The online consultation that closed at the end of last year received a large number of contributions, which we are still analysing.
This conference as another opportunity for us to listen and learn from representatives of civil society.
[Economic outlook]
Thanks to our strong and coordinated policy response, the EU was able to cushion the pandemic’s socio-economic impact and rebound remarkably quickly.
However, downside risks to our economic outlook grew stronger in the last quarter of 2021 and weakened our momentum as we headed into the New Year: notably, the surge in COVID infections, high energy prices and continued supply-side disruptions.
Still, the fundamentals of our economy remain solid, which is why we expect that the EU economy will regain traction after the current winter slowdown. A continuously improving labour market, high household savings, still favourable financing conditions, and the full deployment of the Recovery and Resilience Facility are all projected to sustain a prolonged and robust expansionary phase.
Having considered all of these factors, on 10 February we revised slightly our growth forecast compared to our November projections: downwards for this year and upwards for 2023. GDP in the EU is now expected to increase by 4.0% in 2022 and 2.8% in 2023. But, uncertainty remains around us. And the violation of international law through Russian recognition of two separatist territories in Ukraine will strongly increase this uncertainty. So, huge challenges remain ahead of us:
First, challenges such as climate change and digitalisation and the resulting investment needs have become even more relevant with the COVID-19 crisis.
Second, the unprecedented economic downturn and policy response, which was necessary in a time of crisis, have led to an increase in government deficits and pushed public debt to historically high levels. But we must avoid an overly drastic adjustment that would risk choking growth and investment in the recovery period.
So, an ambitious challenge. We must achieve not merely a rebound, but durable, sustainable growth for the next decades, even beyond the end of the RRF in 2026.
[Investment]
The Recovery and Resilience Facility has been a game changer. As of today, the RRF has already disbursed € 56.5 billion in pre-financing to Member States and € 10 billion for the first payment to Spain. We have received further payment requests worth over € 33 billion from France, Italy, Greece and Portugal. And many more will come
Together with our traditional structural and investment funds, the RRF will help Member States to implement reforms and investments, but it will not be enough.
Our estimate is that the additional private and public investment needs related to the green and digital transitions will be around €650 billion per year until 2030.
We must reflect on the role of our economic governance framework to incentivise national investments and reforms in green and digital areas. Both public and private investments will be necessary to reach the goals of the twin transition.
Focusing on the quality of public finances could help to ensure debt sustainability while investing in key areas of our economies.
When we eventually begin to gradually consolidate our public finances, we must learn from the past. In the aftermath of the global financial crisis, public investment bore the brunt of consolidation and fell to zero in net terms. We must absolutely avoid repeating this mistake.
[Fiscal sustainability]
The investments needed to achieve our common objectives must be balanced against the need for fiscal sustainability.
The challenge will be to find the right balance between debt reduction and supporting growth, while placing growth at the front and centre of our framework of rules. Because it is clear that growth is essential to maintain debt sustainability.
Debt reduction can only be credible if it is done in a gradual, sustainable and growth-friendly way.
[Economic stabilisation and tackling imbalances]
Over the past decade – I should probably say over the past decades – EU fiscal policy has often displayed a pro-cyclical drift, and our rules have only partially mitigated this trend. That is, governments did not build fiscal buffers in good times and were then forced into austerity during economic recessions.
Going beyond the fiscal issues: After several years of gradual correction, macro-economic imbalances have revived during the pandemic. Private debt has increased again, alongside public debt, while for several Member States their external liabilities continue being sources of vulnerability. To respond to this, we also need to reflect on how the macroeconomic imbalances procedure can be improved, and how to promote structural reforms that increase competitiveness, or reduce debt biases.
[Simplification and enforcement]
Over the years, our fiscal rules have become too complex and hard to understand, due to the multiplication of sub rules and the reliance on variables that are subject to continuous revision. So simplifying the framework is also an essential objective of the review.
Simplifying the framework will also help to increase national ownership and support strong national fiscal frameworks. In this regard, we may look to the RRF for inspiration. This new instrument has a unique governance approach: on the one hand allowing Member States to take ownership of the reforms and investments presented in their recovery and resilience plans; on the other hand, ensuring that these plans all pull in the direction of commonly agreed European rules and policy priorities.
[Conclusion]
We intend to present our proposals on the way forward before the summer break, once we have listened to all stakeholders and digested their views. Our objective is to build a consensus on the new economic governance well in time for 2023. This will not be an easy task, but I am encouraged by the open minds I have encountered in all Member States. It is a unique opportunity to modernise our economic governance framework and ensure it is aligned with our ambition for strong, sustainable and inclusive growth in Europe.
In the meantime, next week we will put forward our fiscal policy guidance for 2023, focusing on how governments should pivot from crisis mode to recovery mode, and how to start a gradual reduction of high debt ratios, supporting in the meantime a durable and sustainable growth path.
Let me conclude by thanking DG ECFIN and the European Economic and Social Committee for organising this conference.
The involvement of civil society and social partners in the review is key, since the EU’s economic governance framework affects all sectors of the economy. I look forward to today’s event as an occasion to bridge different perspectives and to find new solutions together.
Thank you.
The post Speech by Commissioner Gentiloni at the European Economic and Social Committee: The way forward for EU economic governance first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

European security situation
The Foreign Affairs Council discussed on the European security situation.
The Council condemned the Russian military build-up around Ukraine, increased ceasefire violations and provocations from the Russia-backed separatists in eastern Ukraine. It also condemned actions, staged events and information manipulations aimed at creating a pretext for military escalation against Ukraine.
Furthermore, it commended Ukraine’s restraint in the face of intimidation and violations of the Minsk agreements and international law.
During their discussion, ministers had the opportunity to informally exchange views with the Ukrainian Foreign Minister Dmytro Kuleba. Ministers reaffirmed their unity, resolve and the EU solidarity’s with Ukraine.

Russia has created the biggest threat to peace and stability in Europe since the Second World War. We call upon President Putin to respect international law and the Minsk agreements. It is up to the Russian leadership to decide how they want to be seen by international community and by history.
Josep Borrell, High Representative for Foreign Affairs and Security Policy

The Council decided on a series of measures to support Ukraine’s resilience. It adopted a decision to provide €1.2 billion in macro-financial assistance, and decided to provide support for Ukraine’s professional military education under the European Peace Facility. The EU will also increase its support to counter cyber-attacks and disinformation by sending a mission of experts to the country.
EU embassies and diplomatic missions, as well as the EU delegation to Ukraine, will remain open and fully operational, with limited exceptions.
The High Representative also made clear that any aggression against Ukraine would have severe consequences for Belarus should an attack be conducted from its territory or with its involvement.

Council adopts €1.2 billion assistance to Ukraine (press release, 21 February 2022)
EU relations with Ukraine (background information)
EU restrictive measures in response to the crisis in Ukraine (background information)
EU sanctions against Russia over Ukraine (infographic)

Bosnia and Herzegovina
The Council discussed the situation in Bosnia and Herzegovina and how to preserve the sovereignty, territorial integrity and unity of the country.
The Council urged the country’s political leaders to take responsibility for preserving the Constitution, ensure the full return of competencies to the state institutions and deal with all open issues.

There is no place in Europe for a divided Bosnia and Herzegovina and those who work in this direction are strongly wrong. They are depriving their people of a prosperous European perspective and life.
Josep Borrell, High Representative for Foreign Affairs and Security Policy

Ministers expressed full support for the EU Special Representative in Bosnia and Herzegovina, Johann Sattler, the EUNAVFOR Operation ALTHEA, and the High Representative for Bosnia and Herzegovina, Christian Schmidt. Both the EU and the US are trying to facilitate political dialogue in order to reach an agreement on constitutional and electoral reform, including a limited constitutional amendment that could improve the functionality of the federation.
The EU remains ready to use all available instruments, if the situation so requires, including EU financial assistance and restrictive measures as a last resort.
Dialogue remains the priority to ensure the reforms needed prior to the forthcoming elections.
Climate diplomacy
The Council exchanged views on climate diplomacy and approved conclusions on the matter.

Climate Diplomacy: Council calls for accelerating the implementation of the Glasgow COP26 outcomes (press release, 21 February 2022)
Climate goals and the EUʼs external policy (background information)

Current Affairs
The Council was informed about the situation in Mali and the ongoing negotiations in the framework of the nuclear deal with Iran (the JCPOA).
Council conclusions
The Council also approved conclusions on the Coordinated Maritime Presences concept.

Coordinated Maritime Presences: Council extends implementation in the Gulf of Guinea for two years and establishes a new Maritime Area of Interest in the North-Western Indian Ocean (press release, 21 February 2022)

26th GCC-EU Joint Ministerial Council
In the margins of the EU FAC, foreign affairs ministers met their counterparts from the Gulf countries in the 26th joint council of the European Union and the Gulf Cooperation Council.
The EU is the biggest investor in the Gulf, and the second biggest trade partner with the region. Ministers agreed that it was time to commit to working more closely on green transition, development cooperation and humanitarian action. Yemen was also discussed.

Gulf Cooperation Council (European External Action Service)

The Council also adopted without discussion the items in the lists of legislative and non-legislative A items.
Compliments of the European Council.

The post Main results: Foreign Affairs Council, 21 February 2022 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The world is producing twice as much plastic waste as two decades ago, with the bulk of it ending up in landfill, incinerated or leaking into the environment, and only 9% successfully recycled, according to a new OECD report.
Ahead of UN talks on international action to reduce plastic waste, the OECD’s first Global Plastics Outlook shows that as rising populations and incomes drive a relentless increase in the amount of plastic being used and thrown away, policies to curb its leakage into the environment are falling short.
Almost half of all plastic waste is generated in OECD countries, according to the Outlook. Plastic waste generated annually per person varies from 221 kg in the United States and 114 kg in European OECD countries to 69 kg, on average, for Japan and Korea. Most plastic pollution comes from inadequate collection and disposal of larger plastic debris known as macroplastics, but leakage of microplastics (synthetic polymers smaller than 5 mm in diameter) from things like industrial plastic pellets, synthetic textiles, road markings and tyre wear are also a serious concern.
OECD countries are behind 14% of overall plastic leakage. Within that, OECD countries account for 11% of macroplastics leakage and 35% of microplastics leakage. The Outlook notes that international co-operation on reducing plastic pollution should include supporting lower-income countries in developing better waste management infrastructure to reduce their plastic leakage.
The report finds that the COVID-19 crisis led to a 2.2% decrease in plastics use in 2020 as economic activity slowed, but a rise in littering, food takeaway packaging and plastic medical equipment such as masks has driven up littering. As economic activity resumed in 2021, plastics consumption has also rebounded.
Reducing pollution from plastics will require action, and international co-operation, to reduce plastic production, including through innovation, better product design and developing environmentally friendly alternatives, as well as efforts to improve waste management and increase recycling.
Bans and taxes on single-use plastics exist in more than 120 countries but are not doing enough to reduce overall pollution. Most regulations are limited to items like plastic bags, which make up a tiny share of plastic waste, and are more effective at reducing littering than curbing plastics consumption. Landfill and incineration taxes that incentivise recycling only exist in a minority of countries. The Outlook calls for greater use of instruments such as Extended Producer Responsibility schemes for packaging and durables, landfill taxes, deposit-refund and Pay-as-You-Throw systems.
Most plastics in use today are virgin – or primary – plastics, made from crude oil or gas. Global production of plastics from recycled – or secondary – plastics has more than quadrupled from 6.8 million tonnes (Mt) in 2000 to 29.1 Mt in 2019, but this is still only 6% of the size of total plastics production. More needs to be done to create a separate and well-functioning market for recycled plastics, which are still viewed as substitutes for virgin plastic. Setting recycled content targets and investing in improved recycling technologies could help to make secondary markets more competitive and profitable.
Some key findings from the Outlook:

Plastic consumption has quadrupled over the past 30 years, driven by growth in emerging markets. Global plastics production doubled from 2000 to 2019 to reach 460 million tonnes. Plastics account for 3.4% of global greenhouse gas emissions.

Global plastic waste generation more than doubled from 2000 to 2019 to 353 million tonnes. Nearly two-thirds of plastic waste comes from plastics with lifetimes of under five years, with 40% coming from packaging, 12% from consumer goods and 11% from clothing and textiles.

Only 9% of plastic waste is recycled (15% is collected for recycling but 40% of that is disposed of as residues). Another 19% is incinerated, 50% ends up in landfill and 22% evades waste management systems and goes into uncontrolled dumpsites, is burned in open pits or ends up in terrestrial or aquatic environments, especially in poorer countries.

In 2019, 6.1 million tonnes (Mt) of plastic waste leaked into aquatic environments and 1.7 Mt flowed into oceans. There is now an estimated 30 Mt of plastic waste in seas and oceans, and a further 109 Mt has accumulated in rivers. The build-up of plastics in rivers implies that leakage into the ocean will continue for decades to come, even if mismanaged plastic waste could be significantly reduced.

Considering global value chains and trade in plastics, aligning design approaches and the regulation of chemicals will be key to improving the circularity of plastics. An international approach to waste management should lead to all available sources of financing, including development aid, being mobilised to help low and middle-income countries meet estimated costs of EUR 25 billion a year to improve waste management infrastructure.

Compliments of the OECD.
The post OECD | Plastic pollution is growing relentlessly as waste management and recycling fall short first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Keynote speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, Industry outreach on the thematic review on climate-related and environmental risks| Frankfurt am Main, 18 February 2022 |
Welcome to this industry outreach event organised by ECB Banking Supervision on the management and supervision of climate-related and environmental risks, or C&E risks for short. Our focus today is the current state of C&E risk management practices in the banking sector, and the ECB’s upcoming thematic review of these risks.
Over the last couple of years, we have launched several targeted actions in this direction. In 2020 we issued the ECB guide on C&E risks and in 2021 we conducted a supervisory review of banks’ approaches to managing these risks based on their own assessments. The ECB has progressively taken C&E risks into greater account in its supervision, as have banks in their business.
2022 will be the year that C&E risks become integrated in the day-to-day activities of our joint supervisory teams, who are in constant contact with banks. These risks will come to form an integral part of our ongoing dialogue with supervised entities and the supervisory review and evaluation process, the SREP. This will ultimately influence banks’ minimum capital requirements. The encompassing and integrated approach – which supervisors and banks are already very familiar with for traditional risk categories – is what I call the immersive supervisory approach to C&E risks.
Along with the 2022 ECB supervisory stress test, the thematic review forms part of the ECB Banking Supervision roadmap to ensure that banks adequately incorporate C&E risk management. These supervisory activities complement the ECB’s broader C&E agenda, which includes publishing the results of an economy-wide climate change stress test, and our 2021 action plan to include climate change considerations in our monetary policy.
The state of C&E risk management
Climate and environmental risks are impossible to avoid. The public knows it and the ECB knows it. The banks themselves now know it, as reflected in the outcome of their internal assessments. All banks that thoroughly assessed their exposure to C&E risks concluded that these risks are material. By contrast, not a single materiality assessment submitted by banks that reported no material risk exposure was deemed adequate.
In the overwhelming majority of cases, the banks that acknowledged the materiality of the C&E risks they faced did so for both transition and physical risks. And they acknowledged that these risks are material in both the short and the long term. Despite this broad acknowledgement of the materiality of these risks, and thus the need to adequately manage them, we see that most banks still have a considerable way to go in developing their risk management capabilities. As the findings we published last year show, banks reported that 90% of their practices are only partially or not at all in line with ECB supervisory expectations. Let me repeat: 90%.
This is both bad news and good news. Bad news because, at the time of their assessment, banks were a long way away from where they needed to be. But good news because half the banks we supervise already acknowledge that climate risks are an inevitable part of their day-to-day business. We therefore expect banks to analyse how C&E risks can or will affect their portfolios and products over the short, medium and long term, and under various scenarios, too. This type of forward-looking analysis of C&E risk should be basic practice, just as it would be for any other type of risk.
Moreover, beyond merely formally attributing responsibilities, we still see banks making little progress towards more actively managing the C&E risks they face. Even certain banks that recognise the materiality of C&E risks have not reported any practices to either reduce or manage their level of risk.
This year we want to see firm progress in how banks incorporate C&E risks in their risk management. In doing so, banks should adopt a strategic approach to managing these risks, using the full array of the risk management instruments at their disposal. This includes strategically realigning portfolios, setting clear risk appetites, developing mitigation strategies, adjusting qualitative credit criteria and quantifying and holding capital. Another key area in which banks can make progress is by actively supporting their clients in mitigating and adapting to the different types of climate and environmental risks. Moreover, banks can draw on the industry’s good practices that we shared last year in our report. In the face of data challenges and methodological uncertainties, banks have an even stronger imperative to get moving.
To be clear, banks should not misconstrue the ECB’s actions as an outright call for divesting from carbon-intensive activities or from geographical regions vulnerable to physical risk. Rather, we are asking banks to fully grasp the physical and transition risks and to actively start managing them, with the aim of making their portfolios more resilient to C&E risks. Not all sectors will decarbonise overnight. For example, the International Energy Agency (IEA) scenarios show that certain sectors will continue to rely on carbon-intensive technologies for some time. We as prudential supervisors merely need banks to understand what the transition entails for their risk exposures to those sectors, and to reflect it in their overall risk management strategy.
What we do not expect is an outright withdrawal from carbon-intensive industries, nor do we expect it to happen for every single sector or counterparty – but we do expect banks to harbour the capacity to manage the risks emerging from climate change. To draw a comparison with traditional risk exposures, we, as supervisors, would of course not expect banks to divest from all assets that entail credit risks, but we do insist that these risks are managed appropriately. C&E risks are to be managed just like any other risk; and their sound management requires sound risk controls. This is precisely one of our focus areas in the upcoming thematic review on C&E risks.
Supervisory roadmap for C&E risks
For several years, the ECB has identified banks’ exposure to C&E risks as one of the main vulnerabilities in the European banking sector. Assessing and helping banks address risks stemming from climate change and environmental degradation will be one of our supervisory priorities from now until 2024, albeit these risks have been on our minds for far longer. I remember giving my first speeches on this topic in late 2015 when still an executive board member of De Nederlandsche Bank.
So, we have already come a long way and our supervision of C&E risks will now take more concrete form. The 2022 SREP cycle will be marked by several key initiatives, which represent the next level of maturity for our supervision of C&E risks.
The first of these initiatives was the climate risk stress test, launched in January and currently being conducted by a dedicated supervisory team. This stress test was designed, first and foremost, as a learning exercise – for supervisors, for banks, and for the financial industry as whole. We are adamant about the importance of raising awareness of C&E risks. And this stress test constitutes an unprecedented effort, also on our part, to understand more fully how far the banks we supervise are exposed to these risks. It will also give us a clearer picture of their resilience on this front.
The second of these initiatives is a comprehensive review of banks’ practices related to strategy, governance and risk management – the thematic review on C&E risks, which is a key topic of the session today. Two years after we launched the supervisory guide on C&E risks, we are conducting this thematic review to follow up on the self-assessment exercise conducted last year. Our main goal will be to assess the evolution of the soundness, effectiveness and comprehensiveness of banks’ C&E risk management practices, as well as their ability to steer their C&E risk strategies and risk profiles. Do all banks’ processes and analyses have visible consequences? Does the way in which banks actually steer their balance sheets and risk profiles reflect the materiality of C&E risks? These will be some of the core questions of this review.
As part of this exercise, we will monitor banks’ alignment with the supervisory expectations set out in the guide, and encourage banks’ progress towards the industry’s best practices. Fortunately, those practices were identified across different European banks over the last two years. They show that some banks are already doing what we are asking. The ECB is doing its part by guiding banks in their climate journey, setting forth supervisory expectations and sharing updates on good practices in the industry. In light of the efforts banks have already made in devising their action plans, as well as all the information on this topic published to date – by both the ECB and several other public and private organisations we expect to see material progress in banks’ implementation deadlines and concrete actions.
As part of the thematic review, we will also be looking more closely at the risk management practices for environmental risks such as risks to biodiversity, water stress and pollution. All have similar features and warrant a coordinated approach. Banks can make significant savings if, taking advantage of the momentum, they extend the range of their preparations to cover all these risks, and are thus ready for a new, more concrete, supervisory and regulatory environment. Our benchmark from last year shows that, as of early 2021, very few banks were looking into environmental risks beyond climate. We have highlighted this gap to banks. This year, we will assess how banks are managing their exposures to environmental risks beyond climate and follow up accordingly.
As we build our joint supervisory teams’ capacity to help banks understand and incorporate C&E risks, our supervisors will treat these risks just like any other. Last year’s review was conducted by a central team of experts, with the joint supervisory teams conducting the follow-up dialogue with the bank. By contrast, this thematic review will be fully embedded in the work of every joint supervisory team. While still backed by a central team of experts, the review will be driven from the engine room of supervision. And this is where the supervision of C&E risks will stay.
Following up on the thematic review, all banks under our direct supervision will receive comprehensive feedback setting out any shortcomings identified. Combined with the observations from the climate stress test, this will also be qualitatively integrated in the SREP scores, which may have an indirect impact on minimum capital requirements. Targeted qualitative requirements may also be imposed. As part of the review, we will also carefully check whether banks have followed up on any requirements we issued last year. The thematic review is a full-on supervisory review. As such, we also have the full set of supervisory measures at our disposal to address shortcomings. Those banks that continue to fail to conduct a materiality assessment of C&E risks or have not followed-up on earlier requirements will start noticing just that.
Regulatory and supervisory framework
The ECB is taking action under its mandate and under the current prudential framework to get banks to where they need to be in terms of incorporating C&E risks into their business. Our supervisory activities are thus keeping in line with the rapidly evolving regulatory and supervisory framework.
For example, the revisions to the Capital Requirements Regulation and Directive proposed by the European Commission will further articulate the integration of C&E risks in the legal framework and will require banks to develop transition plans and supervisors to scrutinise them. This is the next important step in risk management, which I have mentioned on previous occasions, and which will require banks to look thirty years ahead and devise intermediate targets for their risk exposures that can render their risk management practices fit for an economy that will transition to net zero emissions by 2050 at the latest.
And finally, disclosure frameworks and taxonomies are also developing rapidly to create an information architecture to enable banks to manage the risks and scale up green finance. Both the Basel Committee on Banking Supervision and the European Banking Authority (EBA) have intensive work programmes to ensure that the regulatory and supervisory framework can better cater for climate-related risks. One concrete example is the EBA’s recently published implementing technical standards for the disclosure of Environmental Social and Governance risks, which also require large banks to start disclosing their alignment with the IEA pathways by June 2024 at the latest for all relevant portfolios. Banks are running out of time to complete their preparations.
On all these fronts, the sooner banks act, the smoother the transition will be for them, and for the economy they help support.
Conclusion
For ECB Banking Supervision, 2022 marks the third year of dedicated C&E risk activities. First, we issued our guide with supervisory expectations. Next, we asked banks to share with us their self-assessments on how their practices match our expectations. And they have indeed been very open and candid in these self-assessments, for which I am truly grateful.
Together we have learnt that there is a lot of room for improvement. Considering the importance, urgency and long-lasting nature of climate change, we are asking banks to intensify their efforts in measuring and managing C&E risks in line with our expectations. With the exercises that we are conducting this year, the prudential supervision of climate-related risks is moving closer to maturity. The thematic review is the next step in fully immersing C&E risks in the work of the joint supervisory teams and marks key progress towards their integration in the SREP. It crystalises our commitment to ensuring that the prudential supervision of C&E risks is here to stay.
Compliments of the European Central Bank.
The post ECB | Frank Elderson: Towards an immersive supervisory approach to the management of climate-related and environmental risks in the banking sector first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.