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European pension funds failing to engage on sustainable finance

© Shutterstock / Alexandros MichailidisPost Thumbnail

InfluenceMap warns European pension funds sector are not engaging EU and UK policymakers on sustainable finance regulations. Funds and associations with large corporate members are found to be resisting more ambitious regulation.

  • Only four of the 25 funds, and half of the 10 national associations reviewed by InfluenceMap had meaningfully engaged with sustainable finance policy.
  • Many pension funds are active in stewardship with the companies they invest in, but are cautious about policies that would require greater disclosure from them.
  • Pension funds and associations are under increasing pressure to act on global climate objectives, being the single largest institutional investor group with influence over economic investment flows.

While most pensions associations and funds have not meaningfully engaged with policy makers on sustainable finance regulation, the UK appears to be ahead of its EU counterparts in practical terms. There appears to be more of a pushback in Europe, against the complexity of EU rules.

European associations seem to be arguing for fewer disclosure requirements under the EU’s Sustainable Finance Disclosure Requirements (SFDR), and concerned about potential inflexibility in the EU taxonomy failing to allow for transition investments.

UK pensions are marginally better than their EU counterparts

While no funds or associations appear to meaningfully engage with policy, research from InfluenceMap, an independent think tank, found that the UK pensions sector was ahead of the EU in implementing sustainable finance policies.

This was largely thanks to legislation like the Pension Schemes Act of 2021 requiring pensions schemes to set climate-related targets and provide TCFD-aligned disclosures, highlighting the emphasis on disclosure requirements, and addressing fiduciary duty. 

The department for works and pensions (DWP) also launched the Occupational Pensions Stewardship Council in 2021 to promote stewardship of pension assets, viewing the role of trustees and asset managers as vital in delivering global net-zero commitments over the next decade.

The UK’s Pensions and Lifetime Savings Association’s (PLSA) engagement with the DWP is viewed as more positive than that of its EU counterparts, although it has pushed back on some of the department’s disclosure regulations and called for a less stringent policy. 

In addition, UK-based pension funds, Universities Superannuation Scheme (USS) and BT Pension Scheme (BTPS), stood out as the more positive advocates for ambitious sustainable finance policies.

Complex EU rules may contribute to pushback by European pensions

Pension fund regulation in the EU is governed by national jurisdictions, with overall compliance with bloc-level goals set by the European Insurance and Occupational Pensions Authority (EIOPA).

EIOPA regulates institutions for occupational retirement provision (IORPs), which manage collective retirement schemes. It has issued various risk measurement and disclosure measures to align insurer and pension fund risk frameworks with the sustainable finance strategy.

EIOPA is set to conduct climate stress tests of European IORPs in 2022, and publish a new IORP II directive in 2023, to improve pension transparency for pension savers, enhance fund governance, and ensure long-term sustainability of the pension sector.

National regulations divide EU pensions on sustainable policy engagement

Of the ten national industry associations reviewed by InfluenceMap, nine were European, with PensionsEurope being the main representative of the pensions industry. It represents 24 member associations in 18 EU states, and three other European countries, including the UK.

Overall, the research found low to moderate engagement on policy by national associations, with only four in Europe having any engagement at all, including aba (German national association), PensioPlus (Belgium), Pensiofederatie (Netherlands) and Insurance and Pension Denmark (IPD).

PensioPlus and aba have been negative on EU sustainable finance regulations, with the latter coming out against the EU taxonomy, calling for phased-in requirements and reduced SFDR disclosures. It was also against the ESG risk disclosures, which is part of IORP.

IPD, similar to PensioPlus, has shown cautious support for SFDR and the EU taxonomy, in particular its inflexibility that may exclude potentially green investments, calling for allowing transition investments, which appear to be against the EC’s proposals.

While Penisoenfederatie does support the EU taxonomy, and including social aspects, its concerns were around the volume of information being generated. While it supports IORP II, it was cautious about mandating the consideration of impacts, or of considering fund member ESG preferences.

The board compositions of the five national associations that have some level of engagement with policy makers, those with negative positions also seemed to have larger numbers of board members from industrial corporations.

Corporate board members for aba included BASF (GER:BAS), Bayer (GER:BAYN), Bosch and Volkswagen (GER:VOW), while ExxonMobil, Unilever (AMS:UNA), Nokia (HEL:NOKIA) and Shell’s (AMS:SHELL) pension fund were on the board of PensioPlus. The boards of IPD and Pensiofederatie were largely made up of financial and pension fund groups.

By contracts PLSA’s board included mostly asset managers, like Legal and General (LON:LSE) Investment Management and HSBC Global Asset Management (LON:HSBA), and national and regional pension funds.


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