(Bloomberg) -- Markets have yet to digest the potential fallout of what looks to be the European Union’s most far-reaching ESG plan to date, according to analysts at Barclays Plc.

As the EU moves ahead with the Corporate Sustainability Due Diligence Directive, companies based inside and outside the bloc would be well advised to pay close attention to its passage, according to a report by Barclays analysts led by Maggie O’Neal.

“As one of the EU’s most wide-ranging” pieces of environmental, social and governance legislation, CSDDD “continues to be under-appreciated, in our view, both for EU companies and those international companies with a significant presence within the bloc,” the analysts said. 

The directive, which the EU plans to use as a tool to force companies to pay more attention to their value chains, has the potential to expose firms to unprecedented legal risk. If links in a company’s value chain are tied to human rights abuses, environmental destruction or similar acts, Brussels wants to hold EU-based businesses accountable.

EU lawmakers and member states are scheduled to meet Wednesday to continue discussions on the final wording of the directive. A key point of contention has been whether CSDDD should include the finance industry. Banks, asset managers and insurers have lobbied hard to be excluded from the directive, and there are signs that those efforts are paying off, at least in the short term.

To break an impasse among member states, Spain, which holds the rotating EU presidency, recommended that CSDDD exclude banks for now, according to proposals seen by Bloomberg. Meanwhile, EU lawmakers voted in June to include banks, insurers and asset managers. 

“As policymakers finalize their positions, we await to see whether it gets passed and where lines on its scope will be drawn before the EU parliamentary elections in June,” O’Neal and her team said in the note.

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