Occupational Pension Funds (IORPs) & Sustainability: What Does the Prudent Person Principle Say?
By Alexandra Horvathova, Rasmus Kristian Feldthusen & Vibe Ulfbeck (University of Copenhagen)
The European Union encourages individuals to save in private and occupational pension funds to complement their state saving-plans. Throughout their lives, employers directly sponsor occupational retirement saving plans, so individual employees may top up their future pensions. While the European Union clearly supports the formation and cross-border participation in these financial vehicles by adopting regulatory framework, the EU has also decided to determine a common investment decision standard to be used in all Member States, called the Prudent Person Principle. According to this principle, the fund – the future retirement for many – shall be managed with care, the skill of an expert, prudence and due diligence. Under this principle, the pension fund’s governing body is given a broad authority to invest the pension assets in a prudent fashion in light of the particular investment plan of a fund. At the same time, the EU is also moving towards more Responsible Investment and inclusion of the ESG – principles (Environment, Social and Governance). The question we aim to answer in this paper is how these principles co-exist and whether, due to the new Directive in 2016, all funds are obliged to make only responsible, environmentally and socially beneficial investments.