The European Insurance and Occupational Pensions Authority (Eiopa) found in its most recent stress tests of European pension funds that sustainable investments would help them to withstand an adverse scenario.

The 2019 occupational pensions stress test assessed the resilience of the European pension sector to identify areas of weakness and discuss possible preventive measures.

Eiopa is part of the European System of Financial Supervision and supports the stability of the financial system, the transparency of markets and financial products as well as the protection of beneficiaries.

A sample showed that, in an adverse scenario, almost one quarter of assets by Institutions for Occupational Retirement Provision (Iorps), totalling €270bn, would be wiped out. While the long-term obligations and horizons of Iorps mean that they are able to sustain short-term volatility and downturns for longer periods than other financial institutions, adverse trends can have long-term negative implications, it said.

Adverse scenario Eiopa’s adverse market scenario entails a sudden reassessment of risk premia and shocks to interest rates on short maturities. It was applied to the end-2018 ‘baseline’ balance sheet of a sample of 176 Iorps of 19 European Economic Area countries.

For the first time, the stress test included an assessment of environmental, social and governance (ESG) exposures and found that, to future-proof pensions, “sustainable finance and the consideration of ESG risks are core”. Expert Investor reached out to Eiopa to find out how it defines ‘core’, but no response was received ahead of publication.

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