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European Parliament committee votes to include environmental factors into pension directive

Potential €2.5trn of assets affected by revision to IORP directive

The European Parliament’s Economic and Monetary Affairs Committee has voted to include provisions for the consideration of environmental risks in occupational pension schemes’ investment processes in a revised version of the pan-European pension fund directive.

The changes could eventually feed through to trillions of euros of assets covered by the directive – officially known as Institutions for Occupational Retirement Provision (IORP).

The IORP legislation was first enacted in 2003 to promote cross-border pension fund investment and is currently being recast by the European authorities hoping to improve the funds’ governance and transparency and help long-term investment.

The European Commission, which kicked off the revision almost two years ago, says there are some 125,000 so-called “second-pillar” schemes in the EU, holding assets of €2.5trn for 75m people – 20% of the EU’s working-age population.

In the latest development, a compromise draft text went to the vote at the relevant parliamentary committee in Brussels last night and was adopted by 47 votes to three. “Will go straight to trilogue phase,” committee officials tweeted, referring to the informal process of wrangling between the Parliament, the executiveCommission and the member state-level Council. The text was shepherded through the committee by ‘rapporteur’ Brian Hayes, the MEP for Dublin, Ireland.

The vote was welcomed by campaign group ShareAction, which said it showed the “debate on Responsible Investment in the EU is shifting in the right direction”.

“By voting in favour of measures to mandate the consideration of environmental risks in pension schemes’ investment processes, MEPs have shown they recognise the very real risks that environmental issues can pose to investment portfolios,” said Senior Policy Officer Camilla de Ste Croix.

A former assistant to Richard Howitt, the parliament’s spokesperson on Corporate Social Responsibility, de Ste Croix heads up ShareAction’s EU policy work.

She added it was critical that the text is not watered down as it passes through the final stages of the legislative process. She said: “We hope that once the directive comes into force it will finally put an end to the misconception that fiduciary duty is a barrier to the consideration of ESG factors.”

The now-approved text is tentatively scheduled for debate at the Parliament’s main plenary sitting on April 12 this year.