The EU has passed a new law which says pension funds must consider environmental, social and governance factors, including climate risk, when making investment decisions.
The IORP II Directive sets out rules for the EU’s retirement funds – overseeing €3.3tn of assets.
Alice Garton, senior corporate lawyer at ClientEarth, said: “This new law is a turning point for European investment. It requires pension funds to consider risks related to climate change – such as stranded assets – to protect savers. It’s the first time a European law has regulated this kind of risk and it is symbolic of a coming transformation in the investment world.”
The law is good news for Europeans and has been widely welcomed by responsible investment campaigners, but ClientEarth has urged the UK to act decisively.
Alice added: “In the UK, the Pensions Regulator and the Law Commission have both previously recommended financial “ESG” risks be taken into account by fund managers. As other EU leaders embed this new legislation into their own national law, the UK must ensure it does not get left behind. Given the uncertainty as to the future of EU directives in the UK, it is vital that clarity is achieved in domestic law.”
At a July event on climate risk and the duties of pension fund trustees, former Law Commissioner David Hertzell warned that Brexit may distract UK investors from the pressing issue of climate risk.