Danish statutory pension fund ATP this morning criticised the EU’s Sustainable Finance Disclosure Regulation (SFDR), saying the structure of the new regulation risked undermining its own ambition.

In a commentary and analysis article published today, the DKK686.7bn (€92bn) labour-market supplementary pension fund took aim at article 4 of the EU-wide sustainability disclosure rules which European investors larger than a certain size must report under for the first time by the end of June 2023.

Article 4 – under which entities have to report on a set of principal adverse impact indicators (PAIs) – only requires investors to report these impacts in the form of total portfolio figures, according to ATP.

The Copenhagen-based pensions giant said this limited how useful the rules could be in achieving real societal effects.

“At the same time, it creates incentives which can lead to investors, for example, selling individual investments, which optimises their portfolio figures, but has no positive effect in the real world,” ATP added.

One of the main ambitions behind the EU’s new disclosure regulation’s requirements for investors’ annual reporting on the negative sustainability impacts of their investments was to make it possible to measure, track and create a basis for improving European investors’ social impacts through their investments, it said.

“But the structure of the regulation risks undermining the ambition,” ATP said.

To understand and ultimately improve their sustainability effects, investors had to look through their overall portfolio figures and focus on the individual company and its development, ATP said, adding that this meant it was key that the EU focused on that in the future, in its revision of the regulation.

ATP called it a “central inadequacy” of the disclosure regulation that there was no requirement from the EU for investors to decompose their portfolio figures and scrutinise individual firms.

Martin Præstegaard, chief executive officer of ATP, said: “If we as investors are to support the EU’s ambitions, then it is important that we have an eye for real changes in companies.

“Otherwise, work on sustainable investments just becomes a paper exercise for investors that benefits neither society nor the return,” he said.

“We hope that the EU will have that in mind when the rules are to be revised,” the CEO said.

While most pension funds are not required to report on PAIs within article 4 of the SFDR because they have fewer than 500 employees, they can voluntarily opt in, which the largest five Dutch pension funds have chosen to do.

However ATP, which carries out government-mandated benefits administration as well as managing the ATP pension fund, has around 3,000 staff.

Read the digital edition of IPE’s latest magazine