The European Parliament has today voted on new rules on Institutions for Occupational Retirement Provision, or workplace pension schemes (IORPs) covering assets of about 3,300 billion Euros. As a result of the European Parliament’s negotiation efforts, three Green key proposals were included in the final text: Environmental, social and governance factors (so called ESG criteria) have to be considered in investment decisions and their practical implementation should be disclosed in regular reports. In addition, IORP risk assessments have to cover risks related to the depreciation of assets due to regulatory change, especially as an answer to tackle climate change (so called “stranded assets”) in their risk management. Last but not least, the text clarifies that a fund manager is still a “prudent person” and cannot be taken to court, if he takes decisions that are not purely based on financial risk returns but include ESG risks. Beneficiaries will also receive detailed information about the costs and the potential performance of their workplace pension schemes.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“The new rules for workplace pension schemes anchor divestment in European law and in the framework governing the 3.3 trillion euros in EU pension funds. This is a big success for the promotion of investments in sustainable products. Fund managers will now have to consider the social and environmental risks involved in their investments. This in turn will effectively contribute to protect beneficiaries from strong losses once the exit from fossil fuels happens. Beneficiaries will therefore also benefit from greater transparency on these risks and their investments.
Crucially, we have secured legal certainty that an environmentally responsible investment strategy cannot be attacked in court simply because it doesn’t achieve the maximum possible return on investment. Pensions are about securing our future, so it makes sense that we should be able to keep that investment away from those things that could undermine that future. Pension funds must act now and make strong efforts to exit investments in fossil fuels.”