The European Commission Action Plan: An assessment of the reform areas for PRI signatories provides an overview of the main areas of reforms. Action 7 focuses on clarifying institutional investors’ and asset managers’ duties.

Key points

  • The Commission has published a proposal for a regulation on disclosures relating to sustainable investments and sustainability risks, amending Directive (EU) 2016/2341 (IORP 2 - Pensions).
  • The regulation, followed by delegated acts containing more precise obligations, will clarify that institutional investors and asset managers must integrate ESG factors into their decision-making processes. Institutional investors and asset managers will also have to show how their investments relate to their ESG targets and explain how they comply with these.
  • The Commission is proposing a harmonised EU approach to the integration of ESG risks and opportunities in the procedures of institutional investors, asset managers, insurance distributors and investment advisors, as part of their duty to act in the best interest of clients. It would also set uniform rules on how those financial market participants should disclose to investors regarding compliance with the integration of ESG risks and opportunities.
  • These investors will have to describe how they integrate sustainability risks, what impact sustainability risks might have on the return of the investment or financial product, and whether their remuneration policy is consistent with integrating sustainability risks.
  • To incorporate the disclosure obligation, the European Commission proposal requires the amendment of various pieces of EU legislation that regulate different types of institutional investors and asset managers, e.g. insurance companies (Solvency II) and hedge funds (AIFMD), and those who issue investment products.


Action on investor duties was recommended by the HLEG, with the Commission already having consulted on the subject in 2017. Clarifying investor duties is a major priority for the PRI as part of our Fiduciary Duty in the 21st Century project with UNEP FI and The Generation Foundation.

The proposal includes asset managers and institutional investors – that is, anyone that manages investments on behalf of others. Institutional investors already have a duty to act in the best interest of their clients, and this duty is incorporated into various pieces of EU legislation. The Commission notes that, for many market participants, sustainability risks are not systematically integrated into their decision-making processes. This is why the Commission is proposing to clarify through delegated acts that this is indeed part of their fiduciary duty. The details will be clarified in upcoming level 2 legislation.

In addition, the Commission wants to increase transparency regarding how managers comply with this duty. It believes that there is still a lack of disclosure that means endinvestors do not have the information they need regarding sustainability. To remedy this, the Commission has proposed that institutional investors should disclose how they take sustainability risks into account, and what impact those risks may have on returns.

For investment products that actively pursue sustainable objectives, the way these objectives are incorporated into investment decisions would also need to be disclosed. The information disclosure and reporting requirements would be more stringent for those financial products that claim to be sustainable investments than for conventional products.

 Sufficient information is to be given for each financial product beforehand, and up-to-date information needs to be available online concerning the sustainability targets used and the methods applied to measure the sustainability impact. A periodic report would also need to be published for each investment product on its sustainable impact. The details of these sustainability disclosure requirements will have to be worked out through delegated acts, i.e. through Regulatory Technical Standards (RTS)14, that will need to be applied and supervised.

An important subsection of this proposal concerns pensions and the IORP 2 Directive. This has been a major area of interest to the PRI, which has supported moves to ensure that ESG concerns are explicitly recognised in the directive (setting a precedent for additional work on the Pan-European Pension Product, or PEPP). However, there has been a lack of coherence in the interpretation of the extent to which ESG factors are required in the duties owed by investors to their beneficiaries. IORP 2 explicitly states only that occupational pension funds should consider ESG factors in their investment decisions, governance and risk management systems. Further analysis indicates that this has not gone far enough and the proposed regulation also introduces a delegated act by which the European Commission will strengthen the requirements to IORPs to integrate ESG risks and factors into their investment decision-making and risk management processes as a way to implement the “prudent person” rule.

The initiatives on investors’ duties and disclosure are linked: investors’ duties would make it mandatory for asset managers and institutional investors to integrate ESG factors in their investment decision processes, and disclosure requirements would make it mandatory to disclose how this is done.

The initiatives on taxonomy and disclosures are also linked: financial market participants labelling financial products/ services as environmentally sustainable shall disclose how and to what extent the criteria developed in the taxonomy to define environmentally sustainable economic activities are used to determine the environmental sustainability of the investments selected for the financial product.


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    The European Commission Action Plan: An assessment of the reform areas for PRI signatories

    August 2018