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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.
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