The UK’s ShareAction has welcomed the revised IORP Directive’s mention of stranded assets and its broad focus on environmental, social and governance (ESG) risk, calling their acceptance a litmus test for future focus on such matters.
The NGO’s comments came as the Dutch government, which holds the rotating presidency of the Council of the EU, released the likely final text of IORP II, following calls from its parliamentarians that they debate the law.
A spokesman for the Dutch Ministry of Social Affairs told IPE the draft was the preliminary agreement between the European Parliament, the Council of the EU and the European Commission.
Camilla de Ste Croix, senior policy officer at ShareAction, said she was “delighted” the finalised IORP II text included mention of social and governance matters rather than only the Commission’s initial focus on environmental concerns.
“We saw this Directive as a key litmus test on EU policymakers’ appetite for action on building a sustainable economy and Capital Markets Union following the Paris [climate change] agreement,” she said.
ShareAction also praised the mention of stranded assets in the finalised Directive.
The version released by the Dutch government, dated 28 June, appears identical to the version dated 20 June previously seen by IPE.
It calls for the pension fund own-risk assessment to consider climate risks including the “use of resources and the environment, social risks and risks related to the depreciation of assets due to regulatory change”.
The recital – a preamble to the Directive itself – also employs the UN-backed Principles for Responsible Investment (PRI) as a benchmark for EU member states to note when transposing the law.
The wholly new paragraph argues that ESG factors contained within the PRI’s six principles are important “for the investment policy and risk management systems of IORPs”.
“The relevance and materiality of environmental, social and governance factors to a scheme’s investments and how they are taken into account should be part of the information provided by the scheme under this Directive,” the text adds.
De Ste Croix said she was pleased the Directive directly referenced the PRI’s principles and that they had become a benchmark for the industry.
She added that reference to the principles meant investors would not have to contend with conflicting responsible investment standards.
The PRI has a total of 1,515 signatories, of which 308 are asset owners.