Towards a framework for Sustainable Finance

The European Action Plan on Sustainable Finance is part of the EU’s initiatives to mobilise private capital around the Paris climate objectives. In combination with strong policy measures, institutional investors can clearly play a role in meeting these objectives by the way they manage the pension savings of millions.

The Action Plan is looking to create standards and incentives for sustainable investing. Dutch pension funds have broad experience in this area and are actively contributing to the debate. As a recently appointed member of the European Commission Expert Group on Sustainable Finance I see a unique opportunity to share our knowledge and represent the interests of 5.5 million Dutch pension participants with assets worth 1,340 billion euro.

The interests of the Dutch pension sector

Many of our pension fund clients and beneficiaries have financial as well as social objectives. We believe that a common understanding of sustainability and a taxonomy will contribute to a growing market and increased liquidity of products that create market-based financial returns with positive impact. This can consequently contribute to the realization of our and our clients’ social objectives. In addition reliable, transparent and simple information can improve the management of environmental and climate-related risks and opportunities within our portfolio.

Our Ambition

With the interests of our clients in mind, we want to contribute to a pragmatic and stimulating legal context that supports sustainable investing at low cost.1) Four elements in this ambition are especially important:

• Pragmatic: Every proposal needs a “why”. We will ask on every proposal what its contribution to a better world will be. Labels and standards should eventually lead to changes in the real economy. A taxonomy should clearly specify investable products and services. In our own practice we combine this with specific impact indicators in order to convey our positive contribution in tangible terms.
• Stimulating: We will ask how a proposal can stimulate more sustainable investments. To this effect, we believe that the regulatory framework should not force investors in any way or lead to “tick-the-box exercises”. Ideally a framework encourages new financing opportunities for sustainable investments. To this end, the market would benefit from long term policy objectives, in particular on sustainable infrastructure and - energy.
• Goals for sustainable investing: We note that the European Commission has decided to focus on climate-related goals that are in line with the Paris Climate Agreement. We understand the rationale to start with climate-related goals for pragmatic reason. For the final taxonomy we find the Sustainable Development Goals (SDGs) a more suitable framework as they cover a broader spectrum of sustainability. We also believe that a clear link the to the SDGs will strengthen international profile of the framework.
• Low cost: More transparency and better reporting will lead to improved market efficiency, but only when there is sufficient standardisation. Additional reporting requirements are more likely to hinder than stimulate the market as it will increase costs and possibly even reduce appetite for sustainable investing. Preferably reporting and accounting standards should be harmonised on a global scale based on existing frameworks like the standard developed by the Taskforce for Climate-related Financial Disclosures (TCFD).

A valuable pension

There is a natural link between the work of this Expert Group on Sustainable Finance and the participants in Dutch pension schemes. These people and their children need a livable world in the decades to come and with their pension money and the way it is invested, they all have a stake in this future world. Their pension capital can grow when it is invested responsibly and have a positive impact on society at the same time. The expert group has the very exciting task to help to lay the groundwork in Europe for pension investors to take up this responsibility on behalf of millions of people.

1) See also: Sustainable finance is gaining momentum