A group of civil society organisations has written to MEPs calling on them to vote in favour of measures on Responsible Investment and transparency in the revision of the IORPs (Institutions for Occupational Retirement) Directive.
IORPs manage assets of over €2.5 trillion on behalf of 75 million European citizens; the revision of this Directive therefore represents a unique and crucial opportunity to clarify the law on the duties required on pension funds when investing on behalf of savers. The duty pension funds have under this Directive ‘to invest in beneficiaries’ best interests’ is often misinterpreted by pension funds as a duty to maximise short-term returns and barrier to considering ESG factors, as the UK Law Commission’s 2014 report into fiduciary duties of investors showed.
On the contrary, the letter points out, failing to consider ESG factors could be putting beneficiaries’ money at risk. It cites the Bank of England and the World Bank as two organisations that have identified climate change as an urgent economic risk to investors.
“The European Parliament has an opportunity to take a leadership role in seeking to protect pensioners’ financial futures through promoting a culture of responsible investment”, the letter claims.
The letter calls on European Parliamentarians to vote in favour of measures that would require pension funds to consider environmental, social and governance (ESG) factors and be more transparent about their investment policies and practices. The letter was coordinated by responsible investment charity ShareAction, and signed by Unison, Friends of the Earth and WWF among others.
The European Commission’s original proposal did state that risk evaluations by funds should include ‘new and emerging risks’ like those posed by climate change. The Economic and Monetary Affairs Committee (ECON)’s revision removed this reference in a move described as “disappointing” by signatories to the letter.
“We are concerned that the revised Directive will fail to address some of the key reasons given by the Commission for its review”, they write; namely higher governance standards that protect scheme members, and the ability of pension funds to invest for the long term in a way that supports a sustainable economy.