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PRESS RELEASE - 22 October 2019
Published today, IOPS Supervisory guidelines on the integration of ESG factors in the investment and risk management of pension funds highlight a range of challenges to be met by pension funds governing bodies, asset managers and pension supervisors.
Environmental, Social and Governance (ESG) factors are key and timely issues for the investment and risk management of pension funds, whose consideration is relatively new in the landscape of regulatory frameworks of pension funds worldwide. They are also dynamically evolving and have different impacts and risks depending on the country.
It was therefore critical for the International Organisation of Pension Supervisors (IOPS), whose mandate is to act as the standard-setting body on pension supervisory issues, to develop supervisory guidelines on the integration of ESG factors in the investment and risk management of pension funds.
The IOPS supervisory guidelines propose, inter alia, that pension supervisory authorities should:
- clarify to a pension fund governing body or the asset managers that the explicit integration of ESG factors into pension fund investment and risk management process is in line with their fiduciary duties;
- require that a governing body and the asset managers involved in the development and implementation of the pension fund’s investment policy integrate ESG factors, along with all substantial financial factors, into their investment strategies;
- require that a governing body or the asset managers involved in the development and implementation of the pension fund’s investment policy will report to supervisory authorities how they integrate ESG factors in their investment and risk management process;
- require that a governing body or the asset managers of a pension fund disclose to members and stakeholders information about the pension fund’s investment policies in relation to long-term sustainability, including ESG factors, stewardship and non-financial factors;
- require that pension funds regularly provide reports on their engagement with investees as well as request companies in which they invest to disclose their ESG-related policies
- encourage a governing body or the asset managers of a pension fund to develop appropriate scenario testing of its investment strategy.
The IOPS encourages supervisory authorities to voluntarily adopt and implement the guidelines. The guidelines are non-binding and mean to provide guidance and serve as a reference point for supervisory authorities. The guidelines do not intend to induce pension funds into ESG investment. They also introduce the principle of proportionality, i.e. taking into account the size and capacities of particular pension funds, and are flexible enough to take into consideration all local circumstances.
IOPS Acting President, Dr Olga Fuentes said today: "Pension funds should give appropriate consideration to any factor which may affect the sustainable long-term performance of funds’ assets. This necessarily implies recognising ESG factors as relevant risks to consider into the investment and risk managements of pension funds. These supervisory guidelines arise from the collaborative work of all member countries and constitute a valuable contribution of IOPS as a standard setter to supervisors worldwide."
Mr Brendan Kennedy, Chair of IOPS Technical Committee, stated that "this is a complex and rapidly developing topic, and these new IOPS guidelines will help pensions supervisors to oversee pension funds more effectively.’ He emphasised that ‘the value of these new guidelines is to give IOPS members guidance based on worldwide experience which can be adapted to local specificities."
In view of Mr André Laboul, IOPS Secretary General, "through these guidelines, the standard-setting community of the International Organisation of Pension Supervisors recognises the key importance of ESG factors for the investment and risk management of pension funds and encourages their integration in related decision processes. This is a major step which will hopefully promote the voluntary implementation of these guidelines in IOPS jurisdictions."
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