The European Parliament’s Economic and Monetary Affairs (ECON) committee recently adopted its position for the legislation for new rules on Institutions for Occupational Retirement Provision, or workplace pension schemes (IORPs) covering assets of about 3,200 billion Euros. This position is the mandate and basis for the European Parliament´s future negotiations with the Council. As a result of Green negotiation efforts, two key demands could be anchored in the voted text going now straight to trialogue: environmental, social and governance factors (so called ESG critieria) should be considered in investment decisions and their practical implementation should be disclosed in regular reports. In addition, IORP risk assessments should 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.
Financial spokespersons Bas Eickhout and Sven Giegold of the Greens/EFA group commented:
“The European Parliament endorsed a Green key amendment to oblige pension funds to move towards divesting from fossil fuels. Pension funds are asked to assess the risks of big losses on carbon related assets that will becoming unsellable due to the necessary efforts to combat climate change. The Paris Agreement has shown that the age of fossil fuels is over. The financial risk for pension funds resulting from the shift from fossil fuels to renewable energy sources should be addressed by divesting from fossil assets. If pension funds do not scan their portfolios for these “stranded assets”, future generations will suffer pension losses. Indeed, as the heads of the ECB and Bank of England amongst others have warned, such losses could undermine the stability of the entire financial system. It is the first time, Parliament votes this into its version of a legal text. Pension funds should regard this vote as a timely wake up call and get to work now.
Furthermore, the European Parliament has built a basis towards the inclusion of environmental, social and governance (ESG) criteria in financial investments. The Greens gained the support of a broad majority for this new compass. This will contribute to prevent pension fund managers to focus on short term gains at any social and environmental costs. The new rules will enhance long-term oriented investment strategies, bringing together profits and compliance with social and environmental criteria. Regular mandatory reporting on how the fund management puts this orientation on ESG criteria into practice could provide helpful information for investors and cititzens, thereby contributing to avoid that these provisions become just a paper tiger.
The European Parliament should now use its leverage in the upcoming negotiatons with the finance ministers in the Council to anchor these provisions firmly into European law. This should set a precedent for all financial sectors.”
Please find a list of the adopted key amdendments on in the inclusion of ESG criteria and the assessment of risks related to stranded assets here: http://www.sven-giegold.de/wp-content/uploads/2016/01/IORPS-key-Green-gains-in-ECON-vote.docx