Revised European pension fund directive with ESG provisions approved

Updated IORP hailed as a breakthrough by campaign groups

The European Parliament has today approved the revised European pension fund directive, enshrining environmental, social and governance provisions into European Union law in what is being hailed as a “landmark moment” and a “breakthrough”.

The updated Institutions for Occupational Retirement Provision directive – known as IORP2, was passed at a plenary session of the Parliament in Strasbourg with 512 votes FOR and 77 AGAINST, with 40 abstentions. The directive covers the €3.2trn European occupational pensions market.

The directive contains clear requirements for European occupational pensions to consider environmental, social and governance (ESG) issues – which campaigners say are “the strongest and clearest requirements” on such issues yet seen in a European Union regulatory text.

“This is a landmark moment for responsible investment in Europe,” said Catherine Howarth, CEO of campaign group ShareAction which worked with other civil society organisations to promote the provisions. Fellow NGO WWF called it a “breakthrough”.

Sebastien Godinot, an economist in WWF’s European Policy Office, said: “It sets a precedent that must be replicated and deepened in several other relevant EU legislations like the Shareholder Rights Directive, to ensure that obstacles to mainstreaming sustainable finance are quickly removed.”

MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group, said the updated directive “anchors divestment in European law”.

“Crucially,” Giegold added, “we have secured legal certainty that an environmentally responsible investment strategy cannot be attacked in court simply because it doesn’t achieve the maximum possible return on investment.

ShareAction is now calling on the UK government to ensure the directive is transposed into UK law despite the Brexit vote. Member states have two years to transpose new directives – coincidentally the time frame imposed by the triggering of the infamous ‘Article 50’ of the Lisbon Treaty.The UK is still, for the time being, a member state and Howarth urged the government to “clarify its intentions and to transpose the parts of the text on ESG and transparency, and members’ rights to information”. Just last week, Pensions Regulator Lesley Titcomb said the directive would represent a “hard legal requirement” to take ESG issues into account.

The core of the IORP directive, which first came into force over a decade ago as a “compromise of a compromise”, relates to pan-European pension mobility. Irish MEP Brian Hayes, who steered the legislation through Parliament, said the “right balance” was reached between respecting the differences between member states’ pension systems while also encouraging pension mobility. “This is a good day for European pensioners as we have brought more protection, more transparency and more security to how occupational pension funds are managed.”

Separately, Martin Schulz has announced that he is standing down as President of the European Parliament. The German Social Democrat MEP is seeking a seat in Germany’s Bundestag.

Groups that called for inclusion of ESG in IORP:

2 Degrees Investing
Friends of the Earth Europe/UK
Finance Innovation Lab
Réseau Financité
Preventable Surprises
Frank Bold
Global Witness
Client Earth