European pensions directive with ‘stranded assets’ provision set for EU Parliament vote

Revision to €3trn IORP directive to be voted on next week

A revision to the European pension fund directive containing a provision about stranded assets is going to its final vote at a plenary session at the European Parliament next week.

An update to the ‘Activities and supervision of institutions for occupational retirement provision’ directive – known as the IORP directive – is scheduled for a vote at the main session of the Parliament in Strasbourg on November 22.

The directive came into force in 2003 and its focus was on cross-border pension provision. But it is being revised, in part as a component of a wider plan to promote long-term investment by the European Commission, the EU’s executive arm. The revision, known as IORP2, feeds into the broader long-term investment agenda, specifically the Commission’s Green Paper on long-term financing of the European economy. There are 125,000 IORPs operating in the EU with combined assets of over €3trn.

The vote on the IORP2 comes ahead of a statement on the Syrian crisis and a vote on long-term cod stocks at the session on Tuesday.

The text that emerged out of the ‘trilogue’ negotiations between the Parliament, the European Commission executive and country-level Council in June says it is “essential” for IORPs to improve their risk management and make a risk assessment.“That risk assessment,” the text states, “should also be made available to the competent authorities and should, where relevant, include, inter alia, risks related to climate change, use of resources, the environment, social risks, and risks related to the depreciation of assets due to regulatory change (‘stranded assets’). But a final text hasn’t as yet been submitted ahead of the vote and amendments are being accepted until November 16, so the final text may differ.

The draft goes on to say that ESG factors as referred to in the UN Principles for Responsible Investment are “important for the investment policy and risk management systems of IORPs”.

“Member States should require IORPs to explicitly disclose where these factors are considered in investment decisions and how they are part of their risk management system. The relevance and materiality of environmental, social and governance factors to a scheme’s investments and how they are taken into account should be part of the information provided by the scheme under this Directive.”

The text has been shepherded through the committee stage by ‘rapporteur’ Brian Hayes, the Irish MEP.