Guest essay by Eric Worrall
The cash strapped European Union has usurped greater control over three trillion Euros of private pension funds, by issuing a directive which requires EU based funds to consider “Climate Risk” as part of the basis of their investment decisions.
EU requires pension funds to assess climate change risks
EU pension funds will have to include environmental risks in their investment strategies, under a law passed on Thursday, that ecologists hope will encourage money to flow out of fossil fuels and into greener sectors.
A large majority in the European Parliament backed the law that requires managers of retirement funds to take into account the “environmental, social and governance risks” of their investments.
Under the new law, the potential negative effects of climate change or political factors on retirement funds will get the same level of attention as liquidity, operational or asset risks.
“This is a big success for the promotion of investments in sustainable products,” German Greens lawmaker Sven Giegold said, adding that the law “paves the way for the introduction of fossil divestment by European pension funds”.
The pensions industry holds in Europe assets for a value of about 3 trillion euros ($3.17 trillion) on behalf of around 75 million people.
Given the disastrous track record of renewables giants like Solyndra and the giant Spanish renewables business Abengoa, I would say banks and pension fund managers have good reasons to steer clear of renewables.
Coercing banks and pension funds into tossing depositors cash into subprime green energy projects in my opinion is unlikely to improve European pension fund performance.
It is also worth noting that until Britain invokes Article 50 and leaves the European Union, the City of London is subject to this new European climate directive, as are any EU based pension funds managed by US banks.