The proposals are designed to create more transparency about the environmentally sustainable aspects of investments and expand the amount of information available to institutional investors on environmental, social and governance (ESG) aspects of investments.

They need to be enacted in EU member state law by

The first is a proposal to establish a classification system for environmentally sustainable economic activities. This taxonomy should be used for national and EU labels and providers offering products as environmentally sustainable investments should disclose how and to what extend they use the taxonomy.

The second element is the create of deeper disclosures by investors about their sustainable investments and sustainability risks.

As part of the EU’s high-level expert group’s recommendation on ‘investor duty’, this proposal would see the introduction of pan-EU harmonised disclosures across different types of institutional investors and asset managers.

It would also allow the Commission to propose delegated acts under the activities and supervision of institutions for occupational retirement provision (IORP II) Directive to ensure that ESG risks are taken into account under the ‘prudent person rule’ and that these factors are included in investment decisions and risk management processes.

Finally, there is a proposal for a regulation amending the benchmark regulation. The proposed amendment will create a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, with the aim to provide investors with better information on the carbon footprint of their investments.

Sustainable finance, part of the Commission’s action plan on sustainable finance, includes a strong green finance component that aims to support economic growth while reducing pressures on the environment, addressing green-house gas emissions and tackling pollution, minimising waste and improving efficiency in the use of natural resources.

It is also designed to increase awareness of and transparency on the risks which may have an impact on the sustainability of the financial system, and the need for financial and corporate actors to mitigate those risks through appropriate governance.

Commenting on the proposals, Matti Leppälä, secretary general/CEO of PensionsEurope, said: ‘The measures are an important step towards creating clarity on which investments can be considered environmentally sustainable.

‘Pension funds will be able to better understand and measure how green assets and funds are, which helps to improve their communication with members and beneficiaries.

‘At the same time, the European Commission wants to grant itself the power to specify in detail the existing ESG provisions in the IORP II Directive through a so-called delegated act. Pension funds have not yet been subject to such a level of prescriptiveness.

‘We have always believed national supervisors are best equipped to oversee how pension funds manage ESG risks, in order to take account of local governance structures and sustainability preferences.

Pensions Europe represents pension member associations in 18 EU member states and three other European countries.

The consultation closes for comment on 25 July 2018.

European Commission proposals on sustainable finance

Report by Sara White