Sustainability-related disclosure rules proposed by EU supervisors have a focus on retail investors and are not yet appropriate for pension funds, which in some cases should be considered as end-investors rather than their members and beneficiaries, according to PensionsEurope.
Responding to the supervisors’ joint consultation on so-called
regulatory technical standards (RTS) for the EU sustainable finance
disclosure regulation (SFDR), the lobby group said the draft rules
raised concerns because of a lack of flexibility that “does not always
reflect market realities and would not fit the information needs of
pension funds’ members and beneficiaries”.
In many countries, it noted, members and beneficiaries did not have
any investment choice and could be automatically or mandatorily
enrolled.
Where pension fund members and beneficiaries did not have an
investment choice – Belgium, the Netherlands and most plans in Germany,
for example – the pension fund itself should be considered the
end-investor and the SFDR’s greenwashing objective was irrelevant “as
ESG is never used as a selling point”, PensionsEurope said.
The final environmental, social and governance (ESG) disclosure rules
that the European supervisory authorities (ESAs) come up with needed to
avoid “stifling IORPs with inappropriate and burdensome rules with very
little added value in improving members’ and beneficiaries’ ESG
awareness,” it argued.
“We urge the ESAs to take into account [members’ and beneficiaries’]
perspective on the disclosures, which differs significantly from that of
retail clients proactively seeking to buy a responsible or sustainable
financial product,” PensionsEurope said.
On principal adverse impacts
A key feature of the SFDR is the introduction of a requirement to
make disclosures about “principal adverse impacts” (PAIs), with the ESAs
having proposed mandatory reporting against 32 indicators.
PensionsEurope said it welcomed the proportionality considerations
adopted in the application of the PAI disclosure requirements, but that
below the threshold of 500 employees, any due diligence pursued
voluntarily should not imply mandatory disclosure against the full set
of indicators.
“Otherwise,” the association said, “financial market participants
with less than 500 employees would be strongly disincentivised to do any
due diligence, as it would imply immediately full reporting against the
indicators.”
For entities with more than 500 employees, the lobby group suggested
that the ESAs allow financial market participants – a broad range of
organisations covered by the SFDR – to prioritise the adverse impacts
and select the relevant indicators based on their materiality.
It noted that the SFDR did not provide a definition of adverse impact
and questioned “filling in a central, but undefined, concept through a
regulatory standard”.
“The best effort approach to obtain data from companies does not reflect the operational realities of pension funds”
Another issue raised by PensionsEurope is the often cited one of ESG
data availability – the association said it is currently insufficient to
enable compliance with the new disclosure requirements “with the level
of precision required by the draft RTS”.
The best effort approach to obtain data from companies “does not reflect the operational realities of pension funds”.
The point was echoed by Pensioenfederatie, with the Dutch pension
fund association saying that Article 7(2)a of the draft RTS implied that
entities should first aim to obtain any missing data on the adverse
impact indicators from investee companies.
“If this interpretation of the proposed text does not correspond to
the way the provision was intended, we still ask for a clarification as
most other stakeholders seem to share this interpretation,”
Pensioenfederatie said.
‘Extremely tight’ timeline
Another issue of concern to both PensionsEurope and Pensioenfederatie
– as well as other investor groups such as Efama, the European asset
management association – is the timeline for implementation of the new
rules.
Both the pension bodies said they appreciated the ESAs’ highlighting
to the European Commission the extremely tight implementation timeline,
and urged the supervisors to “continue to put forward this message” as
no action had yet been taken to mitigate the problem. In
Pensioenfederatie’s case, it said it was urging for this despite
acknowledging the limited role the ESAs could play in this regard.
“We are very concerned that our members will not be able to achieve
compliance with the SFDR within the timespan between the adoption of the
RTS and the 11th of March 2021,” the Dutch group said.
The ESAs have suggested to the Commission to revisit the application
date of the SFDR, and, backing this, Efama has called for its
postponement until at least 1 January 2022. It said this was still a
challenging, yet manageable timeline, coherent with the application date
for the requirements under the EU taxonomy regulation.
PensionsEurope said the RTS are due to be finalised by the end of January 2021.
IPE
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