The Dutch Federation of Pension Funds (Pensioenfederatie) has warned of the categorisation risks for pension funds in the current Sustainable Finance Disclosure Regulation (SFDR) review proposal.

In its position paper, the federation welcomed the main design features of the categorisation system, which allow for its use by pension funds.

These include the treatment of government bonds, the 70 per cent threshold for the ESG Basics category and the possibility to communicate about underlying categorised products.

However, it stressed that if pension funds cannot meet the conditions of categorisation – either at the level of the pension scheme or of underlying sub-portfolios – they would be faced with strict communication restrictions.

“This would inhibit the ability of pension funds to be transparent towards their members about the responsible investment policy. It is therefore crucial that the elements that make categorisation workable for pension funds are maintained,” Pensioenfederatie warned.

It noted that Dutch pension funds are keen to make sure of categorisation because of the clear signal it sends about their responsible investment policies and the transparency it provides to members and other stakeholders.

“Categorisation, with clear minimum requirements, will give end-users better information about the sustainability characteristics of the product compared to the current self-classification system under Articles 8 and 9,” it stated.
“We also welcome the simplification of the framework by removing reporting on Principle Adverse Impact (PAI) indicators.”

The federation highlighted the key difference between pension funds and retail investment products – members are mandatorily enrolled and most often have no investment choice. Therefore, non-regulatory information plays an important role in communicating with members, as there is no pre-contractual phase.

It also pointed to the “complex and diversified portfolios” pension funds have, which means the conditions for categorisation can impact pension funds in a “fundamentally different way than retail investment funds”.

“While we applaud the move from self-classification to categorisation, it is of paramount importance to avoid a situation in which pension funds cannot practically meet the requirements for categorisation, yet are still captured by the communication restrictions,” it stated.

“Pension should be able to explain how they invest on behalf of, and according to the preferences of, their members. Ensuring that pension funds can continue to communicate clearly with their members on their (responsible) investment policies is our central priority.”

If this is not done, Pensioenfederatie believes SFDR will “create barriers” for having an ambitious responsible investment policy, disincentivise investments needed for the green transition and limit transparency.

In addition to the risks around categorisation, the federation also called for clarifications to ensure that the specific position of pension funds is safeguarded. This concerned the treatment of government bonds and the methodologies that can be used to include them under the ESG Basics Category.

It is also related to the implementation of the mandatory exclusions of the ESG Basics category in practice in relation to passive breaches, engagement and limited deviations; allowing communication on transition, sustainable and impact investments as part of an ESG Basics product, and ensuring the ability to communicate about portfolio mandates under Article 9a2.

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