Any meaningful changes to European Union corporate sustainability reporting requirements would need to be considered in the context of the review of the bloc’s flagship sustainable disclosures regulation, the Dutch pensions sector has said.
The European Commission has a commitment to reduce corporate reporting requirements by 25% and is expected to next month, via a so-called omnibus initiative, introduce a package of amendments to EU ESG reporting rules.
The first reports under the Corporate Sustainability Reporting Directive (CSRD) are due this year, but the likes of the German government are pushing back against the “overly extensive” legislation while civil society organisations and membership bodies are calling on the Commission to resist this pressure.
The Omnibus package is in the pipeline at the same time as the Commission is reviewing the investor-focussed Sustainable Finance Disclosures Regulation (SFDR), with a legislative proposal for a revision of the regulation currently expected by the end of the first half of this year.
In June last year, the European supervisory authorities (ESAs) set out several ideas for changes to the SFDR, including the introduction of a ‘transition’ label as part of a product classification system to replace the current practice of categorisation in Article 8 and 9.
In a recent position paper responding to the ESAs’ opinion, the Dutch pensions federation, together with APG, MN and PGGM, said that financial market participants rely on corporate data to meet their reporting requirements under the SFDR.
If the Commission’s Omnibus package were to lead to a further delay or material amendments to the content of the CSRD requirements, then these changes should be considered in the review of the SFDR, the paper stated.
“The level of ambition and regulation should not start to diverge,” it added.
More generally, Pensioenfederatie and the individual pension managers said they welcomed proposals put forward for changing SFDR, such as those from the ESAs, but said that these failed to appreciate “the essential differences between pension funds and investment funds, most notably the automatic or mandatory enrolment process”.
Category design for pension funds
According to the paper, the Dutch pensions sector is concerned that replacing the current de-facto Articles 8 and 9 product classification with properly designed labels could prevent pension funds from communicating about the sustainability characteristics of their investments.
Pensioenfederatie and the investors said they welcomed the European regulators’ proposal for a category for transition finance, but warned that criteria could be drawn up for the category that are at odds with the prudent person rule in EU pension fund legislation.
“Pension funds cannot limit their investment universe to the narrow subset of the economy that is, for example, taxonomy-aligned,” according to the paper.
It included a suggestion that pension funds should be able to categorise parts of portfolios, communicating percentages based on external asset managers’ figures or pension funds’ own assessment.
It said that if Dutch pension funds would not be able to claim the transition label, “they still want to be able to communicate about their [responsible] investment policies towards their participants”.
Under SFDR currently, financial market participants are limited in their ability to communicate about the sustainability characteristics of their investments if they haven’t chosen to portray them as Article 8 or 9, which Pensioenfederatie said had led to some cases of greenhushing.
The Dutch said they agreed with the ESAs’ desire to avoid misleading marketing, but that in their view Dutch pension funds do not engage in marketing as membership of pension funds is mandatory in the Netherlands and workers cannot opt out.
Impact, stewardship, govvies
They also indicated Dutch pension funds would welcome the possibility of categorising a small subsection of total assets under management as “impact”, and urged the Commission to consider how engagement could be made relevant in the context of the SFDR.
“The ESAs opinion essentially disregards engagement as a tool for obtaining sustainability objectives,” the position paper stated.
It also called for government bonds to be removed from relevant SFDR ratios in the absence of a climate framework for them and said that assigning indicators to investment products may be “methodologically challenging for consumers and participants.”
Read the digital edition of IPE’s latest magazine
No comments yet