Alice-Mary Higgins (Independent)
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I thank the Cathaoirleach for selecting the matter and the Minister of State for attending. It has been reported, as the Minister will be aware, that in the negotiations on the long and eagerly-awaited new EU corporate sustainability due diligence directive Ireland has taken a position to seek the exclusion of asset managers and institutional investors and certain products associated with asset managers and institutional investors from the provisions of the proposed directive. The Minister of State will be aware that more than 50 civil society organisations, including the Irish Coalition for Business and Human Rights, the Irish Congress of Trade Unions, ICTU, Friends of the Earth, Christian Aid, Action Aid, Oxfam and many others have written to the Minister of State to express their concern that the directive has been weakened over the course of the Council negotiations.

The exclusion of asset managers and institutional investors would severely weaken the directive. It effectively takes the money out of it. Capital is not an abstract thing. It is movement through our economy and society. It has real impacts. From 2010 to 2021 private equity firms alone in their investments were responsible for approximately €1.1 trillion into the energy sector, overwhelmingly directed into fossil fuels. Ireland, given its own recent past, should in fact be a champion for the need for responsible regulation of the financial sector.By seeking and supporting an exemption of this kind, Ireland risks severely limiting the effectiveness of this important EU directive in respect of climate targets, environmental protection, ethics and human rights. It also risks undermining Ireland's international credibility on finance and human rights. At a time we are a member of the UN Security Council, the reputational risk should not be underestimated.

I urge the Minister of State to do the right thing at the Competitiveness Council meeting this week. I would like him to update the House on the position that Ireland will take on the question of the value chain and ensuring that we examine downstream as well as upstream impacts. For example, when assessing environmental damage, the impact of manufacturing pesticides as well as the impact of their use should be examined. There must also be a gender-proofing of the directive, as the issue of gender is key. Let us ensure that we are not contributing to a weakening.

Paul Gavan (Sinn Fein)
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I welcome the Minister of State. The aim of the directive is to foster sustainable and responsible corporate behaviour throughout global value chains, but it is a weak directive as it stands and, therefore, the reports that Ireland is looking to prevent the inclusion of asset managers and institutional investors from the corporate sustainability reporting directive are concerning.

I will quote Ms Marie Donnelly, chair of the Climate Change Advisory Council, CCAC, who has openly called out the financial sector. She stated:

If I had my way, the first, the middle and the last item on the agenda would be to stop all funding of fossil fuel exploration. We've found enough. We don't need any more. My message to Irish banks is "come clean on what you invest in and then be able to stand over it".

The Minister of State will be aware that the world's top banks provided $742 billion in financing to the fossil fuel industry in 2021, little changed on the year prior. This was shown in a report on Wednesday, despite growing calls to rein in lending to help tackle global warming.

The types of human rights abuses that the Government is potentially seeking to exclude asset managers and institutional investors from doing due diligence to identify and mitigate in their value chains include child labour, slave labour, forced displacement, land grabbing, violence and human trafficking. Considering upstream risks but excluding downstream ones means that, for example, Bank of Ireland would need to do due diligence on the paper it uses in its photocopiers but not on the €100 million it gives to fund a wind energy project on biodiverse lands. Will the Minister of State clarify definitively that Ireland's position is that financial institutions, including their downstream activities, must be included in the directive?

Dara Calleary (Mayo, Fianna Fail)
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I thank the Senators for raising this matter. Senator Gavan has been in touch with me on it as it relates to a number of issues.

A proposal for a directive on corporate sustainability due diligence, CSDD, was published by the European Commission on 23 February and addresses corporate behaviour and due diligence processes for the companies within its scope. The proposal focuses on establishing a system within company law and corporate governance to address adverse human rights and environmental impacts arising from companies' own operations, their subsidiaries' operations and their chain of activities. The proposal will apply to companies across all sectors of the economy, including regulated financial undertakings in the financial sector.

I am aware of some media reports, and the concerns that have been expressed in this debate, that suggested that Ireland wanted the financial sector to be excluded. Ireland did not seek the exclusion of the financial sector from the proposal. However, during the discussions at EU working party meetings, a number of practical issues were raised about the inclusion within the directive's scope of financial products, namely, alternative investment funds and undertakings for collective investment in transferable securities. This contrasts with the approach taken in the sustainable finance disclosures regulation, SFDR, which covers financial market participants rather than financial products. In the interests of policy coherence and effective implementation, a similar approach has been sought in respect of the CSDD. These financial products are no longer within scope. However, a key point is that financial market participants remain within scope.

An issue was also raised regarding the applicability of the proposal to pension institutions operating national social security schemes, as their purpose in this instance is to carry out a primary social function rather than investment. The proposal now provides discretion to member states in this regard.

There has been a great deal of discussion of this proposal at EU working party level. While there were areas within the proposal where we would have welcomed more ambition, including value chains, in light of the negotiations that took place and in the spirit of compromise, I will participate in tomorrow's meeting to strengthen Ireland's position further and will table my concerns about the value chain proposals.

Alice-Mary Higgins (Independent)
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This effectively includes the actors but not their products. The products are where the money is. I noted from one of the reports on Ireland's submission to the early negotiation process – I appreciate that the process has moved on since – that Ireland raised concerns about the significant administrative and cost burdens on, for example, pension schemes. This is where the money is. How an asset manager runs his or her office is included in the directive, but the products he or she sells are not even though those products may present the opportunity to invest in ways that are not checked for child labour, slave labour, the use of violence and land appropriation. These are essential issues.

The CCAC and the Intergovernmental Panel on Climate Change, IPCC, have identified that the irresponsible actions of investors are a key driver of climate change. To take these products out of the mix and say that what happens with those large amounts will not be made accountable will undermine overall confidence in the directive. Even if it is only to think of our own reputation, I urge the Government to ensure that Ireland is not championing this issue.

I welcome the position on the value chain, but will the Minister of State comment on gender proofing, which is another key concern?

I was part of the Conference on the Future of Europe process. One of the strongest recommendations made by multiple citizens from multiple parts of Europe was for ethical and environmental responsibility and accountability by business. I am worried that they will be disappointed with the final directive.

Paul Gavan (Sinn Fein)
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I will take just ten seconds to emphasise one point.

Mary Seery Kearney (Fine Gael)
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The Senator was very efficient previously.

Paul Gavan (Sinn Fein)
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The Acting Chairperson is kind. It appears to me that the due diligence obligations will only apply to financial players before they provide a service, for example, insurance. Investments will not be covered and EU countries can exempt pension funds. This is glaringly a missed opportunity to strengthen the directive. Perhaps the Minister of State will comment on this point.

Dara Calleary (Mayo, Fianna Fail)
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The position was based on being consistent with the SFDR. There were proposals, which we did not support, to remove the entire financial sector. We will not support such proposals; they have not gone away.

The concern around pensions was that the cost would not be passed on to pensioners. That issue has been resolved. I met the coalition involved in this space a number of weeks ago. It was a good meeting that I found useful for my information purposes. I have met Mr. Barry Andrews, MEP, and will meet him again in Brussels this evening. He has led on this issue in the European Parliament.

I have consistently raised the gender issue and will continue to do so. As Senator Higgins knows, tomorrow is only about agreeing the general approach. The proposal will then go to the European Parliament as part of the trilogue process. My Department and I will continue to work with Senators and our MEPs to ensure that we get as strong a directive as possible. However, we must also be real about this. We are just one member state. We now have a path towards progress that was not even anticipated a number of weeks ago. We will continue to keep progressing and strengthening the proposal.