The EU should convene an expert group to prepare voluntary guidance about how pension providers can “better understand and model environmental, social and governance-related (ESG) risks and their relation to ‘traditional’ financial risks in their portfolios”, according to a high-level group of pension experts established by the European Commission.

The recommendation is one of many set out in the group’s final report, which provides analysis and policy advice about the role of supplementary pensions in contributing to adequate income in old age, and how the market for them could be developed.

Dated December 2019 but published this week, the report addresses challenges affecting the concept and design of supplementary pensions and their role in relation to sustainable finance and sustainability.

Key recommendations include that:

  • member states provide incentives for social partners – trade unions and employer bodies – to set up collective pension plans that ensure risk-sharing between members;
  • member states and providers ensure that occupational pensions provide pension credits for career breaks linked to childcare or other caring responsibilities; and
  • the EU, member states and social partners develop tools and methodologies to assess EU pension providers’ vulnerability to long-term environmental and social sustainability risks.

With regard to the topic of sustainable finance, the expert group’s recommendations included that the EU:

  • clarify how pension providers can take into account the impact of ESG factors on investment decisions; and
  • “ensure that sustainable investment rules are compatible and consistent with other regulatory requirements and avoid duplication, in particular as regards transparency and information disclosure”.

‘Appropriate follow-up actions’

In a statement welcoming the final report, PensionsEurope said the recommendations, which were addressed to EU institutions, national policy makers, social partners and other stakeholders, “must be carefully assessed with appropriate follow-up actions”.

It said it valued the holistic approach suggested by the high-level expert group, “which considers both the interplay between labour markets and pensions and between public social security and supplementary pensions”.

Matti Leppälä, who is secretary general of the umbrella body for national pension fund associations, was one of the members of the expert group.

“I am confident [the final report] contains useful analysis and reflections for policy makers, social partners and other stakeholders,” he said. “I hope that the new European Commission can benefit from this work and takes forward measures that enhance the role of supplementary pensions in Europe.”

PensionsEurope said it would be discussing the contents of the report with its members over the coming weeks.

The report can be found here.