IPE ESG Briefing: European Commission’s SFDR overhaul

There’s been plenty going on in the field of sustainable investment recently, much of which has been regulatory-driven.

Last month, the European Commission presented its proposed overhaul of the Sustainable Finance Disclosures Regulation (SFDR) as well as its “supplementary pensions package”, which includes some surprise sustainability-related elements in the proposal for changes to IORP II, the pension fund law.

And in the early hours of this morning, EU lawmakers reached a provisional agreement on the future of the bloc’s sustainability reporting and due diligence laws, which will see their coverage slashed and transition plan requirements removed.

In the UK, the Financial Conduct Authority has published its proposed regulatory regime for ESG ratings, which includes minimum public transparency requirements and additional disclosure requirements for direct users such as asset managers and asset owners.

And last week was a big week for pension funds’ fiduciary duty in the UK, with the pensions minister announcing a plan to introduce new statutory guidance. His comments came in response to a proposal tabled by an MP that seeks to amend the Pension Schemes Bill to make “system-level considerations” part of pension funds’ investment duties.

Indeed, the idea of needing to carry out systemic stewardship is gaining traction among some institutional investors. In an interview with IPE for our recent responsible investment special report, Jake Barnett, managing director, sustainable investment strategies at Wespath Benefits and Investments in the US, set out his thinking about how this could be an area for asset owner leadership.

The topic also came up in the sustainability-focused panel at IPE’s annual conference in Seville last week. Kiran Aziz, head of responsible investments at KLP Asset Management, said most asset owners increasingly accept that systemic change requires political engagement, but many are still figuring out how.

At the same time, however, there are signs that policymakers are beginning to hear investor requests relating to the need for a pipeline of investable climate finance assets, although improvements are still needed.

Items to note:

• IPE’s latest ESG supplement, Net Zero – Front Line Dispatches,  is out now.

Susanna Rust

ESG Editor