CMU and sustainable finance

Capital Markets Union

Increasing long term investments in the real European economy is the core policy of the Capital Markets Union (CMU), and this means it is vital that the CMU works for pension funds.

Many pension funds currently encounter barriers in the form of a mismatch between their own long-term investment horizons and the short-term focus of much of the regulatory framework. 

Furthermore, political and regulatory risks are a key source of uncertainty for investors and can undermine pension funds’ willingness to invest.

 

PensionsEurope supports the Commission’s initiative to develop an EU framework for simple, transparent and standardized securitization.

First and foremost, we believe that a new EU securitization framework should be internationally consistent. Hence, we suggest to align any future EU legislative measure with the Basel Committee/IOSCO recommendations and to harmonize the regulatory definitions of securitizations typologies existing across the EU.

The standardization of definitions, of information disclosure and of performance metrics across the EU could have a positive impact on the development of EU securitization markets, help ease investors’ analysis and increase the comparability of securitization instruments across the EU. The development of high quality securitization should not prevent however the development of other, non-standardized, securitized products.

 

In January 2018,  the High-Level Expert Group (HLEG) on Sustainable Finance deliver a set of recommendations on how to align the financial system with the broader values of society. The European Commission followed up with an Action Plan in March 2018.

Over the last years there has been a clear trend in the pensions sector towards responsible investments. PensionsEurope therefore welcomes the Action Plan, as it contains many recommendations that will improve the scope of sustainable investments and expand the amount of information available to institutional investors on environmental, social and governance (ESG) aspects of investments. For example, the EU will establish a classification system for environmentally sustainable economic activities. This ‘taxonomy’ should be used for national and EU labels and providers offering products as environmentally sustainable investments should disclose how and to what extend they use the taxonomy.

At the same time, the European Commission has decided to review the IORPII Directive to implement the HLEG’s recommendation to clarify the fiduciary duty of institutional investors in relation to ESG investments. The proposal seeks to introduce harmonised disclosures across different types of institutional investors and asset managers. It would also allow the Commission to propose delegated acts under the IOPR2 Directive to ensure that ESG risk are taken into account under the ‘prudent person rule’ and that ESG factors are included in investment decisions and risk management processes.

 

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