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.


The obstacles with the withholding tax (WHT) procedures pose a major barrier to cross-border investments in the EU and to build the Capital Markets Union. In order to boost the economic growth in the EU, PensionsEurope calls on the European Commission to remove all the WHT barriers to cross-border investments. This means that the EU Member States shall respect the case-law of the Court of Justice of the European Union, reciprocally and automatically recognize pension funds, and simplify their WHT processes.

A large number of practical problems with the WHT refund processes still exist in spite of the EFTA judgment “Fokus Bank” (2004) and the case law of the Court of Justice of the European Union i.e. “Denkavit” (2006), “Amurta” (2007), “Aberdeen” (2009), and “Santander” (2012). The above-mentioned cases have shown that the WHT practices in many EU Member States are discriminatory with respect to dividends earned by foreign funds, and therefore, contradicting the European law.

The WHT refund processes are complex, expensive, and long-lasting. Often they can last even 10 years and cost half of the expected refunds, as costly tax advice in foreign languages is needed. Since the legal outcomes are uncertain, given that the legal recourse involves several levels of jurisdiction, often pension funds do not assert their justified reclaims. Therefore, PensionsEurope calls on the EU Member States to ensure simple, transparent, and inexpensive WHT refund processes.

PensionsEurope has proposed to the European Commission to establish an EU tax register of recognised pension institutions in order that Member States can reciprocally and automatically recognise pension institutions. Furthermore, in many countries pension institutions invest cross border via specialised investments funds and/or vehicles to increase the economies of scale, and it is important to ensure a tax-neutral treatment of these investment structures as well.

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.


CMU Sub Expert Group on pension funds

PensionsEurope provided comments to the CMU Sub Expert Group on pension funds, and you can find the minutes of its 1st meeting here (24 October 2017). In February 2018, the Sub-Group gave its proposals and recommendations to the Expert Group on barriers to free movement of capital in the context of the CMU.

In the summer 2018, PensionsEurope conducted a survey on drivers of equity investments by pension funds, and PensionsEurope will publish the results of this survey in the autumn 2018. We hope and believe our survey report is relevant to the upcoming “study on the drivers of investments in equity by insurers and pension funds” which Deloitte and CEPS have been commissioned by DG FISMA to carry out a by the end of 2018.

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.


PensionsEurope published a report on drivers of equity investments by pension funds on 25 September 2018. It is based on a survey which PensionsEurope conducted amongst our Members in the summer 2018.

The survey report supplements our comments to the CMU Sub Expert Group on pension funds on the main drivers in cross-border investment by pension funds and our Pension Fund Statistics. We hope and believe our comments are relevant to the upcoming “study on the drivers of investments in equity by insurers and pension funds” which DG FISMA has commissioned to Deloitte and CEPS to carry out by the end of 2018.

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