Denmark’s financial watchdog has taken labour-market pension fund P+ to task over several failures in its sustainability-related work,and handed the DKK200bn (€27bn) pension fund for academics three official orders to set things right.
The Financial Supervisory Authority (Finanstilsynet) said in a report on its inspection of sustainability matters at P+, that the pension fund had internal methods and processes in several areas that contributed to ensuring regulatory compliance.
“However, in specific areas, the Danish FSA finds that these methods, processes, or documentation are insufficient,” the watchdog said on Tuesday, in relation to the probe it had carried out in April.
The FSA said it had been scrutinising P+’s compliance with the requirements of the Sustainable Finance Disclosure Regulation (SFDR) and the SFDR Delegated Regulation, and had based its assessment on the pension fund’s product “P+ Bæredygtig Høj” (P+ Sustainable, high-risk profile).
The supervisor said neither P+’s pre-contractual document nor its policy on the integration of sustainability risks stated clearly enough how the pension fund integrated sustainability risks into investment decisions — and that it also failed to disclose the likely impact of sustainability risks on the product’s return.
“This may make it difficult for members to understand how the pension fund manages sustainability risks in investment decisions and how such risks might affect their investments,” the FSA said, adding that it had therefore ordered the pension fund to correct this.
Regarding sustainable investments, the FSA said the pension fund considered companies that had merely set a CO2 reduction target to meet the requirement of contributing to an environmental objective.
“The method is therefore based on the companies’ intentions to reduce their CO2 emissions rather than on actual reductions achieved by the companies,” it said, adding: “This entails a risk that the investments do not genuinely contribute to an environmental objective.”
In addition, the FSA reprimanded P+ for the fact that its established thresholds and exclusion criteria did not cover all sectors across asset classes.
“There is therefore a risk that the investments cause significant harm to environmental or social objectives,” the authority said, adding that a second official order had been handed to P+ to correct these sustainable investment failings.
The FSA also said the pension fund had not established clear criteria for determining when an investment violated good governance practices, and so could not be included in the product, with the watchdog issuing a third official order in relation to this.
P+ has responded to the criticism by saying on its website: “We acknowledge the Danish Financial Supervisory Authority’s order and are in the process of implementing it.”
