‘Pension Fund’ Directive: An important step forward to integrate sustainability
All European pension funds will soon be required to include sustainability factors in their risk assessment process, a significant development greatly welcomed by WWF. This important stipulation was agreed by EU policymakers on 15 June 2016 as part of the revision of the so-called ‘Pension Fund Directive’ (Institutions for Occupational Retirement Provision Directive - IORPs), after the last Trialogue between the European Commission, Council and Parliament.
The revised Directive will contain a new requirement to assess the environmental, social and governance (ESG) risks for financial assets and to mention ‘stranded asset risk’, i.e. risks related to the depreciation of assets due to climate-related market and regulatory changes included within the own-risk assessment of pension funds.
This development shows that policymakers are starting to recognise the material impact of environmental and social risks for financial institutions and notably long-term investors like pension funds.
“This new requirement is a major step to make all of our pensions safer,” said Sebastien Godinot, Economist at WWF’s European Policy Office. “Environmental factors like climate change can represent a substantial risk to institutional investors, and it is paramount that these risks be integrated into investment decision-making processes.”
Together with other civil society organisations, WWF had actively engaged with EU institutions in the last eight months to support an ambitious outcome on the issue. The result is an important success for civil society organisations.
The final compromised text has to still be ratified by the European Parliament in October and then be transposed to into national law by Member States within two years of its publication in the Official Journal.
WWF sees this as a new step forward in setting an adequate EU regulatory framework for sustainable investments. After this move, a key forthcoming opportunity will be the mid-term review of the Capital Markets Union early 2017.
For further information:
Sébastien Godinot, Economist
WWF European Policy Office
Tel: +32 2 740 09 20