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ESG

Europe moving ahead on standardizing sustainable investing

PensionsEurope conference panelists discuss best paths to move forward

Disclosure of sustainability and low-carbon attributes of investment strategies will soon be standardized, a European Commission executive told delegates at PensionsEurope's annual conference in Brussels.

Speaking on a panel Thursday, Nathalie Berger, head of unit insurance and pensions at directorate general for financial stability, financial services and capital markets union of the EC, said the commission is working on introducing better transparency when it comes to strategies aimed at fostering a low-carbon economy.

The work follows a proposal by the commission on May 24 calling for investors and money managers to integrate sustainable finance considerations into their investment processes.

The commission is kicking off the work with an action plan that will amend benchmark regulation to standardize and ensure proper disclosure of how investment policies and funds offered by money managers take into consideration climate change. "We are prioritizing the work on a harmonization of methodologies for carbon benchmarks disclosure," Ms. Berger said.

Other proposals include a standardized taxonomy for sustainable finance across the EU, which will aim to define green investments.

Fellow panelists agreed that a standardization of definitions is not sufficient to see the regulation have the desired impact. "It is not enough to set a taxonomy. There has to be a comparison to a benchmark," said Josina Kamerling, head of regulatory outreach Europe, Middle East and Africa at the CFA Institute, adding that for efficient disclosure, "there needs to be a level of independent verification."

Daniel Summerfield, co-head of responsible investment at the 60 billion ($80 billion) Universities Superannuation Scheme, London, speaking on the same panel, called on fellow pension funds to mobilize all players in the investment chain to start thinking about non-financial and non-quantifiable factors that contribute to sustainable finance. "Money managers want to see models, (but) we think (sustainable investing) is about causation and not about correlation. We can do the modeling but what we need to do is get all parts of the investment chain to think about this."

However, Ms. Berger assured delegates that Europe's regulator is not going to modify the investment objectives and duties asset owners have in relation to plan participants. "We are not able to press pension funds to invest in a way that will not be in the interest of their customers financially. We are only modifying the disclosure" aspects of these investment, she said.

Delegates also heard that in order to get closer to meeting the objectives of the United Nations' Paris agreement — a climate change pact agreed to in 2015 — pension funds could be the providers of additional investment that is still needed in Europe to provide the infrastructure to foster a sustainable system. Ms. Berger said that "€180 billion per year is still needed in the course of the next decade to deliver these objectives."