Priips ESG plan draws questions from Investment Association

The Investment Association has raised concerns on the difficulty of establishing a common approach to responsible investing standards as the European Commission considers proposals for ESG labels under Priips regulation.

An interim report on sustainable finance within the EU proposes that sustainability factors should be incorporated into Key Information Documents.

Packaged Retail and Insurance-based Investment Products (Priips) regulation already states that a review due by the end of 2018 should assess the feasibility, costs and possible benefits of introducing a label for ESG investments.

The European Commission report, Financing a sustainable European economy, released over the summer, says ESG criteria would either have to be described in a separate regulation or included in the product specific governance rules.

The report adds that in order to cover all retail investment products, such as occupational pension products, the same ESG standards and requirements for product governance should be introduced in other relevant texts.

IA head of research and statistics Anastasia Petraki says the industry body would support the changes if it has the backing of their members.

However, she says coming up with a European-wide common approach will be difficult because “everyone has different standards”.

“I’m oversimplifying and generalising right now, but you could imagine the Scandinavians have a bigger awareness of environmental risks, it could be that in other countries it would be the social angle and in other countries it would be governance,” Petraki says.

“If we are finding it difficult to come up with a common approach in the UK, where we are already well advanced compared to other countries, I imagine it would be at least twice as hard to do it at the European-wide level.”

Royal London Asset Management head of sustainable investments Mike Fox says the industry is beginning to embed sustainability as a core part of investment processes and applying labels to specific funds would be “unhelpful”.

“Creating a distinction between ESG and non ESG funds would be unhelpful, particularly as there is no one-size fits all definition for what constitutes a sustainable investment,” Fox says.

The UN Principles for Responsible Investment, the Stewardship Code and the Impact Reporting & Investment Standards (Iris) already set standards for incorporating sustainability into investments and Petraki questions how different the proposals within Priips would be.

The IA is currently assessing how to create more consistency in the language within the industry and that extends to ESG, Petraki says.

The IA annual survey, released this week, revealed that ESG funds represent 1.2 per cent of assets within UK funds, based on the year ending December 2016.

The European Commission is accepting feedback on the sustainable finance report until the final is published in December.