Sweden’s financial regulator has published a set of new draft regulations for occupational pension providers which includes a discount to normal capital requirements for pension funds’ infrastructure equity investments when those assets are classified as environmentally sustainable.
The proposed new regulation implements changes to the pensions legislation passed at the end of last year – which was based largely on the EU’s IORP II directive – which have recently been approved by the Swedish parliament.
Preferential treatment, in terms of capital requirements, for sustainable infrastructure is being added to the new set of rules in the draft legislation entitled “A review of the regulation for occupational pension companies 2020/21:82” (En översyn av regleringen för tjänstepensionsföretag 2020/21:82).
The Swedish FSA (Finansinspektionen) said of the new draft regulation published on Thursday: “For occupational pension companies, the proposal entails, among other things, reduced capital requirements and basic requirements for environmental sustainability for what is known as approved infrastructure investments.”
The regulator said it was proposing a reduction of the stress level for equity-related “approved” infrastructure investments to 20% from 25%.
Capital requirements for interest-bearing approved infrastructure investments were already lower than corresponding non-approved assets, it said.
“The aim of the amendments is partly to increase the incentives for companies to invest in infrastructure, and partly that environmentally harmful investments should not be covered by the lower capital requirement,” the FSA said in the draft.
In June 2020, after the Swedish government had put forward the idea of lowering capital requirements for such green investments by pension funds, the FSA opposed the idea.
It declared at the time that it was inappropriate to further reduce the capital requirement for such investments until it had been shown that they routinely implied a lower financial risk.
In its new publication, the FSA now says it will keep a close eye on the effects of the new rules when they come into force.
“If they lead to unexpectedly large increases in infrastructure investments and thus unexpectedly large reductions in the risk-sensitive capital requirement, the inspectorate will consider whether the reduction should continue as the protection for current and future pensions must not be eroded,” it said.
Other new regulations included in the FSA’s draft concern security reserves within occupational pension and life insurance companies, and rules on reporting and insurance distribution for occupational pension companies are also being altered.
The FSA’s proposal is out for consultation until 26 April, and the new regulations scheduled to enter into force on 6 July.