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Insurance, ESG groups set out IORP II trialogue wishlist

Insurance Europe and a group of civil society organisations have set out their hopes for upcoming trialogue discussions on revisions to the IORP Directive, respectively calling for full funding of cross-border activities and support for the integration of ESG factors in investment risk management.

The negotiations between the European Commission, European Parliament and the European Council will start on Monday, 29 February.

Insurance Europe, the European insurance and reinsurance federation, stressed the importance of the revised directive on Institutions for Occupational Retirement Provision (IORP II) ensuring “appropriate safeguards” for IORPs’ members and beneficiaries.

It said that neither the current directive nor the proposal for IORP II addresses “significant” differences in the regulatory treatment of occupational pension funds across Europe, which is why “it is important IORPs’ cross-border activities be fully funded at all times”.

Nicolas Jeanmart, head of personal insurance, general insurance and macroeconomics at Insurance Europe, said: “This will guarantee a high level of protection for members and beneficiaries, even when a foreign IORP – which is subject to the prudential rules of another member state – manages their pension promise.

“It will also prevent the transfer of risks to other countries and limit the risk of regulatory arbitrage between the different prudential rules applicable to IORPs.”

The federation also called for a longer period for the transition to Solvency II for those markets where insurers manage occupational pension schemes according to IORP rules.

The current deadline for the move to Solvency II is 2022.

ESG support solicited

Meanwhile, UK responsible investment (RI) charity ShareAction and 11* other organisations have written to the European Council to ask for its support for IORP Directive amendments recently passed by the European Parliament on transparency and consideration of environmental, social and governance factors (ESG) in the investment process of pension funds.

The letter is being sent to the financial attachés at each member state’s Permanent Representation.

It noted that the common position adopted by the Council in September 2014 deleted an article, included in the European Commission’s text, that specified IORPs should carry out regulatory risk evaluations covering environmental risks.

The Council’s position did not contain any provisions to strengthen IORP II in relation to management of ESG investment risks or transparency, added the civil society organisations.

Wording on the inclusion of ESG risks and improving transparency was, however, included in the version of IORP II recently approved by the European Parliament via a vote from its Economic and Monetary Affairs Committee (ECON) in late January.

Camille de Ste Croix, senior policy officer at ShareAction, said: “We now wish to make sure these measures are not diluted by the Council during the trialogue negotiations.”

The letter lists 11 amendments that the civil society organisations want the Council to support.

One of these relates to the prudent person principle, with the letter noting that “there is confusion amongst IORPs” as to whether this principle, encompassing what is called fiduciary duty in some jurisdictions, allows them to consider ESG factors.

As a result, said the campaign organisations, “an IORP II Directive that overly relies on the prudent person principle will not be effective at promoting long-term, sustainable investment”.

*The other signatory organisations are ActionAid, Friends of the Earth, The Finance Innovation Lab, Preventable Surprises, Urgewald, Global Witness, Client Earth, E3G, Frank Bold, CORE Coalition and WWF

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