Institutions that manage pensions in Europe could be forced to evaluate climate change and environmental risks to their investments under new European Commission proposals.
Article 29 of the commission’s newly published proposal for a directive on the activities and supervision of institutions for occupational retirement provision (IORPs) suggests they should be required by European law to produce regular risk evaluations for pensions that must include consideration of ‘new or emerging risks relating to climate change, use of resources and the environment’.
A further article, No26, suggests they should also have in place an ‘effective risk management system’ that is able to identify, monitor, manage and continually report upon all such risks.
The 101-page document says such measures would improve governance and risk management and would reduce the chances that pension scheme members may suffer in the future due to poor investment decisions and supervision. ‘The introduction of a forward-looking self-risk assessment would strengthen consumer protection,’ it argues.
The document adds that under the EC proposals any IORP would be required ‘at all times’ to allocate its risk management function to a person or organisational unit that is separate from its internal audit function.
The suggestions on risk management are among a number of suggested measures in the document, which also sets out ideas on improving internal audit as well as proposals for the introduction of a standardised pension benefit statement for scheme members across Europe that would inform them, among other things, of any social and environmental risks facing their fund’s investments.
The commission has estimated that its proposals, if accepted, would involve a one-off cost to schemes and employers of around €22 per member, with recurrent additional costs of between €0.27 and €0.80 per member per year.
Recently, Helene Winch, Director of Policy & Research, and Will Martindale, Policy & Research Manager at the PRI, met with the European Commission policy team (DG MARKT) responsible for drafting the IORP directives.
This was the first of several meetings with policy makers as part of the PRI’s new policy and research work-stream. Over the coming months, the PRI will work with signatories to engage policy makers on the creation of policy environments that encourage long-term responsible investment.