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Fossil Funds

EU Commissioner says auto-enrol pensions should be 'transparent' about climate sustainability

Pre-legislative scrutiny of Ireland’s auto-enrolment pension scheme called for funds to be prohibited from investing in fossil fuels.

AN IRISH EU Commissioner has said automatic-enrolment pension schemes should provide “transparency” to pension holders about whether their money is being invested sustainably.

EU Commissioner for Financial Services Mairéad McGuinness has told The Journal that schemes should allow pension holders to be aware about the details of their investment choices.

The Irish government is currently working on legislation to introduce an auto-enrolment pension scheme that would involve employees’ contributions to their pension being matched by their employer as a percentage of the employee’s gross income and further topped up by the State.

The scheme would apply to around 750,000 workers between the ages of 23 and 60 who are employed but not signed up to an occupational pension scheme, though workers would have the choice to opt out.

The Oireachtas Committee on Social Protection, comprised of TDs and senators, recently published a report scrutinising the plan, offering 21 recommendations to Government.

One such recommendation was that investment funds in the scheme should be prohibited from investing in fossil fuels or the arms industry.

It further recommended that a minimum percentage of the funds should be invested in Irish renewable energy developments and called for the bill to explicitly state that investment ‘good practice’ should include consideration of sustainability and environmental, social and governance (ESG) factors.

In a statement to The Journal, McGuinness said that “in some countries, auto-enrolment schemes allow citizens to choose among different investment strategies, suitable to their investment needs”.

“ESG strategies can be part of the options offered to citizens and I would encourage transparency in this regards – so that citizens are at least aware of investment choices.”

The Commissioner said that auto-enrolment schemes “can be useful to foster citizen participation in financial markets”.

“Our goal in this area is to foster transparency and support best practice. We do not envisage proposing any legislation requiring Member States to set up auto-enrolment schemes but rather work with member states interested in auto-enrolment to apply best practice, to encourage them to take a considered approach if implementing such a policy,” she said.

“Auto-enrolment schemes can help EU capital markets expand and help EU companies to find the financing they need. This can also help finance the move to digital and the transition to a sustainable economy and society.” 

Ireland’s 2019 Climate Action Plan included a measure to consider how a new requirement could be placed on pension providers to give holders more information about whether their money was invested in fossil fuels and alternative options.

However, a working group tasked with examining the action concluded it should be considered in “broader terms” than a “strict requirement” on pension providers, and the proposal was not progressed further in subsequent climate action plans, Noteworthy investigation found.

Diverting finance away from fossil fuel companies – a strategy known as divesting – is seen as one way of pushing the industry to turn instead to renewable energy development and reducing its capacity to contribute to the climate crisis, which is already causing substantial impacts for humans and nature.

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