March 8, 2018 / 3:59 PM / 10 days ago

EU and asset managers clash over 'sustainable' investing plan

LONDON (Reuters) - The European Union has proposed making it a formal requirement for asset managers to consider “sustainability” when picking investments, a move the EU’s 23 trillion euro ($28.5 trillion) funds industry swiftly dismissed as a “tick-the-box” exercise.

European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, March 8, 2018. REUTERS/Yves Herman

The EU wants more money going into sustainable and “green” projects that help cut greenhouse gas emissions, as part of a wider “capital markets union” project to expand funding from financial markets for companies and growth.

In an “action plan” published on Thursday, the European Commission said it would “clarify” the duty of asset managers and big investors to ensure they take sustainability into account in the “process” of investing.

The European Fund and Asset Management Association said it did not believe such legislation was needed because investment in sustainable projects had to be driven by the owners of the assets being invested.

“Any mandatory sustainability requirement, especially regarding investments, would turn environmental, social and governance into a ‘tick the box’ compliance exercise,” EFAMA said.

PensionsEurope, which represents national pensions trade bodies, said the EU’s proposals needed to be flexible so as to avoid upsetting the role of trustees or social partners.

“Pension funds’ main purpose will continue to be serving the best interests of their members and to delivering adequate pensions at low costs,” it said.

The EU’s proposal also includes plans for a checklist of what qualifies as a climate friendly and sustainable activities, definitions which could be used for creating EU labels for “green” financial products.

The Commission will also look at how banks and insurers could benefit from lower capital charges if they invested in green projects. The Commission has retreated from an initial plan to go ahead with implementing these reductions after opposition from an advisory panel and central bankers who were worried about a green “bubble” being created.

Markus Ferber, a member of the European Parliament, which will have final say on the proposals, said the EU should focus on keeping alive the bloc’s capital markets project, given that Britain, the EU’s biggest market, is leaving.

“What we need is bold initiatives tackling obstacles in tax and insolvency law and measures that facilitate capital market financing by smaller companies,” Ferber said.

“Sustainable finance, however, is only a diversion from the fact that one of the Commission’s flagship projects is about to tank,” he said, referring to slow progress with efforts to create a EU-wide capital market that can provide financing for businesses.

($1 = 0.8061 euros)

Reporting by Huw Jones. Editing by Jane Merriman

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