Sustainable Finance

In January 2018, the High-Level Expert Group (HLEG) on Sustainable Finance delivered a set of recommendations on how to align the financial system with the broader values of society. The European Commission (EC) followed up with an Action Plan in March 2018.

By nature, pension funds are long-term investors that have as their main objective the delivery of adequate pensions to their members and beneficiaries. This means they should naturally take the long-term view and are required to consider the long-term risks that may affect their portfolios. ESG risks, and climate change risks, in particular, play an increasingly significant role in risk-management. Additionally, there is a long tradition of pension funds aligning investment practices with the values of their members and beneficiaries and the needs of the society at large. Members are increasingly vocal about their sustainability preferences and pension funds are responding by increasing the level of ambition of their responsible investment policies.

In July 2021, the EC published the new Sustainable Finance strategy. The new strategy is calling for the publication of a brown taxonomy and a social taxonomy. While a brown taxonomy would provide further indications concerning environmental risks, its development might produce negative consequences, especially if not complemented by consistent indicators promoting the greening of enterprises. In addition to respecting human rights businesses, social taxonomy can promote the right to an adequate standard of living through related goods and services.

In June 2023, the EC then published the Sustainable Finance Package, which included additional activities to the EU Taxonomy and new rules for ESG rating providers. The overall goal of the package is to ensure that the EU sustainable finance framework continues to support companies and the financial sector and encourage private funding of transition projects and technologies.

PensionsEurope has been actively working on legislation in sustainable finance, which given their horizontal nature, also impact pension funds. We advocate for a framework that is suitable to IORPs and their specificities. IORPs are social institutions active in financial markets and have diverse characteristics – some of them are large but many of them are small, and thereby they are different from other financial market institutions that have been mainly the focus of EU legislators. 

We worked on the Corporate Sustainability Due Diligence Directive (CSDDD) published in February 2022, which initially would have had lot of implications for pension funds in their role as institutional investors. In September 2023 during the trilogues phase, we published a revised position paper highlighting our concerns.

The Sustainable Finance Disclosure Regulation (SFDR) both at level 1 and 2 is also an important priority of PensionsEurope. We answered the ESA’s consultation on the level 2 review which was held in 2023 (review of PAI and financial product disclosures in the SFDR Delegated Regulation). We are closely following the Level 1 review, which was initiated by the EC over the summer 2023 and answered the EC’s consultation in December 2023. Overall, we are advocating for sub-sectoral RTS tailored to IORPs and their specificities as part of the SFDR framework.

We were also active on the ESG ratings regulation. We published our position paper following the EC’s proposal in June 2023. We indicated among other issues that the regulation should extend to ESG data itself.

Coming into the 2024-2029 mandate of the new European Commission, President Ursula von der Leyen has expressed her intentions to continue advancing the EU Green Deal and upholding the Paris Agreement. For sustainable finance, the focus is on refining and streamlining the legislation passed in the previous mandate. Key priorities include tackling greenwashing, integrating transition finance into existing regulations and making the overall framework more fit for purpose by reducing overlap between the different pieces of legislation.

An expected central initiative will be the European Commission’s review of the Sustainable Finance Disclosure Regulation framework, expected in 2025. This review will address the use of Articles 8 and 9 as labels, although they are not fit for purpose. The ESAs have already initiated their thinking on the SFDR review through the publication of their Joint Opinion on the SFDR in June 2024. In response to the ESAs joint opinion, we published our position paper.

We will continue working on any files in sustainable finance impacting pension funds.