The revised Sustainable Finance Disclosure Regulation (SFDR) proposal from the European Commission still “insufficiently” reflects the specific characteristics of IORPs, PensionsEurope has warned in its position paper on the regulation.

“The SFDR framework remains designed around retail investment products and financial market participants operating in a commercial distribution environment. Occupational pension funds operate within a fundamentally different environment,” PensionsEurope stated.

The association stressed that pension scheme members are part of a collective process and cannot execute personal investment preferences on a level that is comparable with private retail products.

Therefore, it argued that applying horizontal categorisation logic to IORPs risks “creating misleading outcomes, increasing compliance costs without corresponding benefits… and undermining the prudent person principle that underpins occupational pension provision”.

Indeed, PensionsEurope warned that increasing complexity through categorisation, thresholds and indicators could reduce the usefulness of the information provided.

“This difference in the end user of disclosures also reinforces the need for an user adequate information regime. Disclosure requirements for pension funds should reflect the reality that pension scheme members are information recipients, not product selectors, and that the marginal benefit of increasingly complex sustainability classifications is therefore limited,” it stated.

The association recommended that member states be given the option to exclude IORPs completely from the SFDR and/or pension schemes from any mandatory SFDR categorisation system, which it said is the “most proportionate and adequate solution”.

“Where pension funds choose, on a voluntary basis, to reference sustainability or transition objectives, any such approach must remain flexible, workable and specifically tailored to the realities of occupational pensions.

“Finally, the revised SFDR framework must remain complementary to, and consistent with, the IORP II Directive. This is essential to ensure that pension funds can continue to communicate transparently with their members about sustainability matters, without unnecessary duplication, misclassification or reputational risk,” the position paper stated.

In addition to these concerns, PensionsEurope called for a “coherent and predictable implementation timeline” so that the uncertainty and costs experienced under SFDR 1.0 are not repeated.

“The framework should only take effect once all Level 2 measures and related legislation are finalised and aligned,” the association argued.

Despite its concerns, PensionsEurope did support the commission’s objectives of simplifying SFDR to reduce any unnecessary administrative burden and improve the clarity and comparability of sustainability-related disclosures.

Specifically, it welcomed the intention to move away from extensive entity-level reporting requirements and towards a more product-focused approach.

“These objectives are consistent with PensionsEurope’s long-standing calls for simplification, and better alignment across the EU sustainable finance framework, including the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS), the EU Taxonomy Regulation and the Omnibus simplification initiative,” it said.

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