4. Sustainable finance

aba position paper on the draft ECON Committee Report on the Proposal for a Disclosure Regulation

Paul Tang, Rapporteur in the responsible ECON Committee, published his Draft Report on the proposal for a regulation of the European Parliament and of the Council on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341 on 2 August 2018.

The aba very much welcomes that the delegated acts for the EU regulation of IORPs in Art. 10 of the Commission Proposal have been deleted in the ECON Draft Report. Generally, it is the right approach to make regulatory changes for IORPs by directly amending the IORP II Directive. However, since the IORP II Directive is currently being transposed into national law (deadline: 13 January 2019), no changes should be made to the Directive at the moment. In line with the “Better Regulation Agenda” of the EU, the new (ESG) rules should be implemented and, after a number of years, reviewed and evaluated (deadline stipulated for review in the IORP II Directive: 13 January 2023).

Nevertheless, our position paper comments on the changes to the IORP II Directive the ECON Draft Report proposes. Overall, we welcome the EU's support for institutional investors to include ESG factors and risks in their investment decisions and risk management, but we reject a blanket requirement to do so. Concluding, we would again like to emphasise that regulatory changes for IORPs should be made directly in the IORP II Directive. As a consequence, IORPs should be taken out of the definition of “financial market participants” as stipulated in the Commission Proposal for a Disclosure Regulation.


aba Feedback to the proposed Regulation on disclosure by the Commission

On 24 May 2018 the European Commission published proposals for three Regulations. The aba is in particular critical of the Proposal for a regulation on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341 (hereafter Draft Regulation) with the amendment of the IORP Directive. For IORPs, the content of this Draft Regulation seems to go well beyond the IORP II Directive and, above all, beyond disclosure rules. The Draft Regulation misunderstands or ignores the existing minimum EU harmonisation character of the IORP II Directive and does not reflect its content fully correct in several cases (i.a. the inclusion of ESG criteria in investment decisions). Significant changes in the IORP regulation must be made via the IORP II Directive and the ordinary legislative procedure - and not via delegated acts and technical regulatory standards.

In our Feedback, we emphasise the following points:

  • We call for an adequate period of time for the Member States and, above all, the IORPs concerned, first to implement the new rules of the IORP II Directive and then to gather experience before new rules are created. The IORP II Directive provides for 13 January 2023 as the deadline for an evaluation and review.
  • Delegated acts that regularly aim for full EU harmonisation do not fit into any directive that aims for minimum EU standards. Furthermore, delegated acts are limited to amending non-essential elements. The prudent person rule is an essential requirement for IORPs. It is neither justified nor understandable why the Draft Regulation should make such a fundamental change to the IORP II Directive, which aims at minimum EU harmonisation. The proposed Regulation should therefore be limited to the disclosure of information on sustainable investments and sustainability risks. Essential changes to the IORP II Directive should always be carried out by amending the Directive itself through the ordinary legislative procedure, because this is the only way which adequately involves the Council and Parliament.
  • The coherence the delegated acts are supposed to achieve with the UCITS, AIFM and Solvency II Directives is neither reasonable nor necessary. IORPs are not to be treated as pure financial service providers (see Recital 32 IORP II Directive). This is another argument to reject the proposed delegation of power to the EU Commission.
  • The proposal for empowering the EU Commission to issue delegated acts (Article 10 of the Draft Regulation) is based on an interpretation of the IORP II Directive which we do not understand. The IORP II Directive does not make the integration of ESG criteria in investment decisions mandatory. The prudent person rule remains at the heart of investment rules. Within the framework of risk management, various areas must be covered, one of which are ESG-related risks.
  • The European Commission classifies IORPs as financial market participants without respecting their social character or taking into account that IORPs are mostly (end-) investors in financial instruments/products in the financial market. Very few IORPs compete at all; most IORPs neither with each other nor with financial service providers. In view of the intended EU standardisation, a differentiation according to the scope of application of the Directives is therefore sensible and absolutely necessary. Transparency rules have to take into account – as for example done in the Shareholder Rights Directive - whether they are directed at (end-) investors in financial instruments/products (e.g. IORPs) or sellers (asset managers) of financial products. We disagree with the assessment of the Commission that harmonisation in this area is necessary for all financial market participants covered by the Action Plan on ‘Financing sustainable growth’ because of their regular cross-border activities – this is not the case for IORPs.

The concepts of ‘transparency’ and ‘disclosure’ should not be a tool for influencing investment decisions, nor should they be an industrial policy benefiting the fund industry. We therefore call for the objectives and rules of the Draft Regulation to be made transparent. Furthermore, it should be a matter of course that essential elements of the future Regulation are set in an ordinary legislative procedure. Finally, we call for EU minimum supervisory standards for IORPs to continue to be laid down exclusively in the IORP II Directive






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