Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | Sustainability and ESG 28 Further rule changes will be consulted on in the first quarter of 2019 requiring IGCs to report on its firm’s policies on: • Evaluating ESG considerations, including climate change • Taking account of members’ ethical concerns • And stewardship. At the same time, there will also be a consultation on introducing related guidance for providers of workplace personal pension schemes on considering financial factors (such as ESG risks and climate change) and non-financial factors (such as responding to members’ ethical concerns) when making investment decisions. Some insurance groups are now allowing pension customers to switch to sustainable offerings from their fund arms, with no extra charge. 35 Insurance supervisory body joins the sustainability club On 8 August, the European Insurance and Occupational Pensions Authority (EIOPA) announced that it joined the Sustainable Insurance Forum (SIF), a network of global insurance supervisors working together on sustainability challenges facing the insurance sector. 36 EIOPA will be considering transition and physical risk, and providing input from a European perspective on taxonomy, fiduciary duty, governance, Own Risk and Solvency Assessment and disclosure in EIOPA’s Sustainable Action Plan planned to be released in autumn 2018. Global sustainability frameworks The global framework around sustainable investing ranges between legislation and self-regulation. Governance frameworks and voluntary industry practices for example are applied on a comply-or-explain basis. These fall under three broad categories: • Disclosure regulations including a definition of fiduciary duty encompassing ESG Factors (directed at asset owners). • Stewardship codes (for asset owners and investment managers). • And regulation on corporate disclosure (for investee companies). Green Finance Institute (GFI), through funding from both the UK government and the City of London Corporation. The initiative aims to help the UK reach its climate targets under the Paris Agreement by developing and promoting investment in the green finance market. 27 In the Netherlands, Eumedion, a corporate governance and sustainability forum for institutional investors, has recently said that short-sellers could abuse their voting rights to vote against the interests of a Dutch- listed company and, as a consequence, its shareholders. A new code, due to come into force on 1 January 2019, looks to address this. 28 Also operating in the Netherlands is the Association of Investors for Sustainable Development (VBDO). 29 It is an association of investors who stand up for the interests of institutional and private investors that want to contribute to sustainable development. One of its functions is to focus on corporate reporting on the UN SDGs. In Ireland, sustainable and green finance forms a strategic priority in its International Financial Services strategy (IFS). The IFS 2020 Sustainable Nation Ireland is tasked with implementation of the IFS action plan across a range of areas, including co-hosting the European Climate Innovation Summit in Dublin in November 2018 and developing a training program in climate risk and opportunity supported by Sustainability Skillnets. 30, 31, 32 Recent UK pension proposals The UK is currently the largest pension market in Europe. Trustees of UK workplace retirement plans will be required to incorporate into investment policies material risks stemming from both traditional and non-traditional financial reporting of companies they invest in, according to proposals from the UK Department for Work and Pensions. 33 These will include ESG risks, although not ESG risks exclusively, as in time environmental risks change and could generate future systemic risks that may not be readily compartmentalised into one or more aspects of ESG. Further in June, the Financial Conduct Authority and HM Government both responded to earlier Law Commission recommendations on pension funds and social investment. 34 The Law Commission made several recommendations for the UK government in relation to Independent Governance Committees (IGCs), which have now been considered.