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Pension funds fear ‘Trojan horse’ in EU sustainability measures

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German and Austrian retirement providers are concerned that the European Commission’s (EC) efforts to promote sustainability in the capital markets will end in additional regulation and costs for pension funds, delegates at a conference in Vienna heard yesterday.

Discussing the Commission’s proposals for sustainable finance, industry representatives warned of efforts that “might mean well but turn out not so good”.

“What is happening at the moment is an attempt to shift some of this responsibility to institutional investors who will get the blame if a goal is not achieved,” said Christian Böhm, managing director of the Austrian €4.4bn APK pension fund. 

“When ESMA and EIOPA tell us what should be considered sustainable, I begin to shake with fear,” he added.

Böhm warned of applying “superficial key figures” to identify sustainable companies without taking a closer look at the underlying operational business, for example.

Speaking at the Institutional Autumn Summit, organised by Barbara Bertolini in Vienna, Böhm called on politicians to improve sustainability through good environmental, social and corporate governance legislation.

The Commission is pursuing several sustainable finance measures as part of its efforts to deliver on climate change commitments.

One of them is the development of a “taxonomy” to define what types of economic activity should be considered environmentally sustainable. EU regulators ESMA and EIOPA have separately been charged with delivering technical advice in relation to potential rules requiring sustainability risks to be integrated in investment decision-making. 

Christian Wolf, head of asset management at BVV, the €28bn pension fund for the German banking sector, was also critical of the EU’s approach.

“What we do not need is legislation overtaking itself,” he said.

Wolf pointed out that pension funds had to implement IORP II, the new EU pension fund directive, by mid-January 2019. Schemes had until 2023 before a full assessment of implementation could be carried out. 

However, the Commission’s proposals on sustainable finance brought additional pressure and less time, according to Wolf.

“What pension funds need is long-term reliability of a regulatory framework and time to implement existing legislation,” he said.

Local laws and delegated acts

The Commission has sought to amend the IORP II directive to allow for so-called ‘delegated acts’ legislation. The German pensions association, aba, has rejected this and questioned the Commission’s understanding of aspects of IORP II.

Markus Zeilinger, founder and CEO of the Austrian €380m Fair-Finance provident fund, argued that some existing Austrian laws actually hindered sustainable investments.

“Sustainability is not part of the regulatory framework and some of the investment decisions we are making could be questioned by the supervisor,” he said.

And while he welcomed some of the EU’s proposals, he predicted that implementation would be flawed: “I am afraid of the Trojan horse that only brings additional costs and a need for more resources.”

He called on the EU to create more transparency and access to databases for investors to make informed decisions.

Defending the Commission’s efforts, Martin Koch, policy officer in its financial services department, told delegates that the EU was “only trying to create a system of reference” with the planned taxonomy.

“We do not want to tell anyone what is supposed to be green and what is not,” he said.

The taxonomy has been described as intended to be an “enabling tool” for investors. 

Koch added that creating more transparency in sustainability reporting and ratings, as well as checking existing regulatory frameworks for impediments to sustainable investing, were also high on the Commission’s list of priorities.

Volker Weber, chairman of the board at the sustainable finance lobby group Forum Nachhaltige Geldanlagen, was sceptical about the taxonomy framework.

“You have to judge products according to their own benchmarks and promises to check for greenwashing,” he said. 

Weber also called on the EU to better coordinate its efforts between the different sectors so as to avoid different regulatory frameworks clashing.

In general, the panel said the Commission’s efforts pointed “in the right direction”, but all industry representatives were wary of how various EU bodies and authorities might implement the proposals or translate them into additional regulations.

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  • St. Francis of Assisi Church in Vienna, Austria

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