The Danish Financial Supervisory Authority (DFSA) has put four pension and insurance firms on notice over the lack of detail regarding sustainability risks within their remuneration policies.
The DFSA investigated whether the firms had included sufficient information in their remuneration policies, whether the information had been published on their websites, and whether they were able to prove that they complied with the information provided in the remuneration policy.
Following the investigation, four of the six pension and insurance firms that were looked into have received orders for “insufficient disclosures”.
Orders are a supervisory action or an enforcement tool that are issued over ongoing regulatory breaches. The firms have two months to address the DFSA’s concerns.
This is the first time the regulator has issued orders related to the EU’s anti-greenwashing legislation, the Sustainable Finance Disclosure Regulation (SFDR).
Under the SFDR, firms must disclose how the remuneration structure of portfolio companies ensures appropriate management of sustainability risks and does not promote excessive risk taking.
According to the DFSA, the “SFDR does not require financial undertakings to establish a connection between the undertakings’ remuneration and their integration of sustainability risks. However, it requires the undertakings to disclose whether there is a connection, and if so, describe this connection.”
The order was issued by an anti-greenwash unit set up by the Danish regulator to monitor investor sustainability disclosures under the new EU rules. The unit has now grown to a team of nine, with seven additional people across the DFSA looking at ESG.
In November, the DFSA published its second thematic review, which investigated the information in the remuneration policy of six unnamed pension companies and life insurance firms – which are covered by SFDR – on the relation between remuneration and the integration of sustainability risks. The four singled out for censure were a part of this initial group.
According to the head of the unit, Henrik Brarup Damgaard, the reason for any of the four being contacted could be related to omissions in their policies or where the remuneration policy isn’t reflecting the actual procedures at the firm.
Damgaard said the escalation actions taken by the Danish FSA are assessed on a case by case basis, depending on the severity of the violations and the specific provisions that are subject to the order. “That being said, it is in general our experience that the companies seek to address any orders issued by the Danish FSA.”
Another finding of the review that Damgaard pointed to was that “financial institutions are struggling to distinguish clearly between sustainability risk and sustainability impact”.
This also came out of a 2021 thematic review on financial market participants and financial advisers’ policies on the integration of sustainability risks in their investment decision-making processes and investment or insurance advice.
Alongside the review, the Danish FSA has been exchanging views and experiences with its EU colleagues both bilaterally and through the EU financial markets regulatory trio (ESMA, EBA and EIOPA) regarding ESG.
Looking ahead, Damgaard said the unit will continue to do thematic reviews on the SFDR and the Taxonomy regulation. Future priority areas include retail investment products, as well as those products that present themselves with the most ambitious claims on sustainability.
On the rationale for looking at the latter, Damgaard said: “Products that make more ambitious claims on sustainability have a greater focus, as it will have a wider impact on the trust in the financial sector in relation to ESG should these products turn out to be making claims that are not consistent with the content and investment profile of the product.”
The unit is also collecting data disclosed under SFDR and the Taxonomy with the aim of developing a database to support their supervisory activities.
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