Belsif | Europe

BELSIF vzw
Vooruitgangstraat/
Rue du Progrès
333 b/7
B-1030 Brussels
Belgium

info@belsif.be

:: EUROPE

The phenomenal growth of SRI, and the increasing interest in corporate social responsibility (CSR) throughout Europe, is reflected by the intensified focus on the area by governments and regulatory bodies throughout the continent.

In the fall of 2001, the European Commission (EC) published a green paper, entitled Promoting a European Framework for Corporate Social Responsibility, as a launch pad for debate on the subject. The green paper's purpose is to promote CSR, both within the 15 member states and internationally. The green paper states that EU member governments should "focus on putting the proper regulatory or legislative framework in place in order to define a level playing field on the basis of which socially responsible practices can be developed."

The European Commission also published in March 2006 a Communication on CSR entitled "Implementing the Partnership for Growth and Jobs: Making Europe a pole of excellence on CSR". In this Communication, the Commission announces backing for a European Alliance for CSR. The Communication acknowledges that enterprises are the primary actors in CSR, but also stresses the important contribution of non-business stakeholders. The Communication underlines the potential of CSR to contribute to sustainable development and to the European Growth and Jobs Strategy. The Commission suggests that CSR practices, while not a substitute for public policy, can nevertheless contribute to a number of public policy objectives, such as: skills development, more rational use of natural resources, better innovation performance, poverty reduction, and greater respect for human rights. In its report, the European Parliament underlines that CSR policies should be promoted on their own merits, neither as a substitute for appropriate regulation in relevant fields, nor as a covert approach to introducing such legislation. The Parliament called on the Commission to encourage dissemination of good practice resulting from voluntary CSR initiatives and that the Commission should also consider establishing a list of criteria for enterprises to respect if they claim to be responsible.

The European Parliament welcomed the Commission Communication's objective to link CSR to the economic, social and environmental aims of the Lisbon Agenda and the trend for larger companies to publish voluntary social and environmental reports in recent years. The Parliament also reminded the Commission to bring forward a proposal on the annual accounts of types of companies which includes requirements for social and environmental reporting alongside financial reporting.

It is also noteworthy that EU-based transnational companies with production facilities in third countries have to abide by core ILO standards, social and environmental agreements to achieve worldwide balance between economic growth and environmental standards. The European Parliament wants SMEs to participate in CSR, and suggests that the European Commission targets their participation by jointly working with intermediary bodies, offering specific support for the participation of cooperative/social economy businesses through their specialist associations.

In addition to demonstrated political will to promote SRI and CSR issues at the European level, several countries, both inside and outside the EU, have undertaken initiatives on this front as well. Currently, at least eight countries in Europe have specific National SRI regulations in place that cover their pension systems: United Kingdom (2000), France (2001), Germany (2001), Sweden (2001), Belgium (2004), Norway (2004), Austria (2005), Italy (2004). Initiatives also occurred in The Netherlands, Denmark and Switzerland. At the EU level, the European Parliament is currently in discussions around a possible need for further transparency from institutional investors. There are presently no mandatory transparency laws at the EU level requiring investors to disclose the ESG issues of their investments; Eurosif has been pushing for the introduction of an EU wide "Statement of Investment Principles (SIPs)" for investments funds. It would ensure that Pension Fund trustees have to report on how they are taking those ESG risks into consideration.

BELGIUM

The Belgian Parliament has revised the country's legislation on supplementary retirement schemes to give greater transparency and "democracy" to the management of pension funds. The Belgian disclosure regulation came into force the 1st of January 2004. The regulation covers exclusively the second pillar, e.g. company pension schemes. As the French and the German case, the law has been inspired by the British model. The main reasoning behind the law was the wish to strengthen a sustainable development of the Belgium economy and to enlarge SRI investments. The law requires the pension funds to write in their annual reports in how far social, environmental and ethical issues are taken into account in the investment strategy. The annual report is distributed to the organisers of the pension fund, but not to its members. Members can obtain a copy only upon request.
There are no specific control mechanisms or special sanctions attached to the SRI regulation. Rather the usual rules concerning the annual report cover this information requirement. Also, there are no specific reporting guidelines.

A similar also exists for SICAV's. Please find the extracts hereunder (in French):

Section III. — Prospectus d'offre publique de titres et documents relatifs à l'offre publique de titres

Art. 52. § 1er. Une offre publique de titres d'un organisme de placement collectif ne peut être effectuée qu'après qu'un prospectus a été rendu public.
En cas d'offre publique de parts d'un organisme de placement collectif à nombre variable de parts, un prospectus simplifié doit également être rendu public.
§ 2. Le prospectus, ainsi que le prospectus simplifié, contiennent les renseignements qui sont nécessaires pour que le public puisse porter un jugement fondé sur le placement qui lui est proposé et, notamment, sur les risques inhérents à ce placement et sur les droits attachés aux titres. Le prospectus simplifié contient, sous une forme résumée, les renseignements fondamentaux sur le placement qui est proposé au public et sur les risques qui y sont inhérents. Le prospectus précise dans quelle mesure sont pris en compte les aspects sociaux, étiques et environnementaux, dans la mise en oeuvre de la politque d'investissement.

Section IV. — Informations périodiques et règles comptables

Art. 76. § 1er. Tout organisme de placement collectif publie un rapport annuel par exercice et un rapport semestriel couvrant les six premiers mois de l'exercice. Ces rapports contiennent un inventaire circonstancié du patrimoine, un relevé des résultats ainsi qu'une information sur la manière dont ont été pris en considération des critères sociaux, environnmentaux et éthiques dans la gestion des ressources financières ainsi que dans l'exercice des droits liés aux titres du portefeuille. Cette obligation s'applique, le cas échéant, par compartiment.

A law prohibiting the direct and indirect financing of the manufacture, use and possession of anti-personnel mines and submunitions was approved by the Belgian Parliament in March 2007. However, the government has not yet issued a decree applying the law with a specific list of prohibited companies. Therefore it appears that negative screening on weapons is not yet technically a legal requirement.

A similar law on depleted uranium weapons has been voted on June 21st 2009. Belgium is the first country to ban the financing of the manufacture, use and possession of depleted uranium weapons.

A minimum norm definition study was asked to Réseau Financement Alternatif. Basically, the proposition is to take all the international conventions signed by our government as basis for SRI products and to have a blacklist of companies and countries. A law proposition will (maybe) be built on that study.

DENMARK

The understanding of CSR in Denmark has evolved from emphasising the promotion of 'the inclusive labour market' to the current emphasis on an "international approach to CSR" and "strategic CSR" which are key concepts in the Government Strategy to Promote Corporate Social Responsibility as launched in May 2008.

Hundreds of the largest private and state-owned companies and institutional investors in Denmark must include corporate social responsibility information in their annual financial reports beginning in 2010.

The Danish Parliament voted in mid-December to force the 1,100 largest enterprises to describe their corporate CSR or socially responsible investment policies, the ways in which they've been implemented and the results they've produced.

Auditors must verify the CSR/SRI information. To incentivize companies to join the U.N. Global Compact or U.N. Principles for Responsible Investment, the Danish government will allow members to refer in the annual reports to their Communication on Progress in lieu of reporting under the new rules.

FRANCE

Two laws concerning SRI and pension systems have been introduced, one shortly after the other in France in 2001. Both have been inspired by the British example. Consumer protection as well as the desire to strengthen SRI-investments were the
main reasons for the legislation.

In a law from February 2001 the French Parliament relates SRI issues to Employee Saving Plans. The French Employee Saving Plans are partly a substitute for voluntary company pensions schemes.
The new legislation has changed many features of these plans and introduced at the same time an obligation that the fund's internal rules specify (if need be) the social, environmental or ethical considerations the fund management company must take into account. Also, the regulation requires that the fund's annual report make known how these considerations have been taken into account.

The second law voted in 2001 requires the executive board of the Fonds de Réserve des Retraites (Retirement Reserve Fund, FRR) to report to the supervisory board on the investment policy guidelines and how these take into account social, environmental and ethical issues. The Retirement Reserve Fund has a total volume of about €16 billion and has been set up to support the first pillar of the French pension system.

Also, as of May 2001, French firms are required to report on social and environmental issues in their annual financial reports. The new law states "publicly chartered and regulated companies must take stock of the social and environmental consequences of these activities."

The actual legal situation can be read here.

GERMANY

From 2002 onwards the German government enacted disclosure regulations for pensions to encourage SRI: in January 2000, the German Parliament (Deutsche Bundestag) decided to establish an ethical, environmental, and social disclosure regulation in the new German pensions law. Newly-conceived private pension schemes will have to fulfil an number of criteria, including the disclosure of SRI policies, in order to be certified and qualify for tax deductions.

The German Federal Ministry for Education and Research has launched a platform for climate change and investments in order to better inform financial service providers on this topic. Nevertheless, there are no legal or regulatory implications attached to this.

Germany has introduced transparency regulations based on the British model for certain segments of the second and third pillar of its pension system. The regulation was driven by the desire to steer private investment into sustainable investment pportunities and by the request for enhanced consumer protection. The regulation was part of a general overhaul of the German pension system. With respect to the second pillar, the regulation which came into force the 1st of August 2001 introduced pensions funds (Pensionsfonds) as a new element of the pension system. These pension funds have to report annually to their members on the application of SRI policies. As in the British case, the funds are not obliged to invest in SRI, but they have to report if they do so or not and what activities they undertake.

In the case of private pensions the law applies to a new government subsidised private pension scheme (Riester-Rente). The law uses the same wording as in the case of pension funds. However, the financial authorities implemented it differently.
Private pension schemes do not have to report if they already state in the contractual agreements with their customers that they will not take into account any social, environmental, or ethical considerations.
There are no rules as to how the reporting will have to take place. Customers or members usually will know only after signing the contract about the SRI policies of their fund or scheme. Authorities sporadically control the application of the regulation. However, failure to comply has little consequences.

Since 2004, companies have been required to report within annual reports on key non-financial indicators that materially affect their performance.

The Federal Ministries for Environment and for Economic Cooperation and Development launched guidelines and initiatives, such as

Corporate Social Responsibility – an orientation from an environmental perspective (2006), Sustainable Development in Enterprises, Management Tools for the Implementation of Corporate Social Responsibility and Corporate Sustainability (2007),
Round table for a Code of Conduct for German enterprises doing business in developing countries, in particular, regarding standards for local suppliers.

ITALY

A recent regulation jointly issued by Banca d'Italia and Consob (the market authority) encourages asset managers to define and implement consistent voting policies and strategies in the interests of investors.

The disclosure regulation (introduced after the Parmalat scandal) that makes SRI funds even more transparent than "ordinary" ones has not produced positive effects on the market yet. The disclosure regulation that requires pension funds to communicate whether and to what extent social, environmental and ethical considerations are taken into account in the investment policy, has stimulated pension funds' boards to address the issue and eventually begin testing integration methods.

NORWAY

Responsible investment in Norway can be traced back to the late 1980s with the introduction of the country's first environmental fund. The size of the market increased dramatically in 2004 with the introduction of ethical guidelines on the Norwegian Pension Fund. Norway's premier fund, the Norwegian Government Pension Fund-Global, defines the Norwegian responsible investment market in terms of its guidelines and investment approaches. The fund's guidelines are based on a combination of engagement, negative screening, and exclusion. With overall assets of approximately €270 billion (as of December 31, 2007), it is the largest pension fund in Europe and the second largest pension fund in the world.

In the early 2000s, the Norwegian NGO community began to question the social responsibility of asset managers that offered only a few responsible investment products and institutional investors that only applied responsible investment policies to a small fraction of their assets. Managers and investors responded by applying a "minimum ethical standard" to all of their products and assets.

Since 1 January 2001 the five largest state-controlled pension funds in Sweden have been forced by new legislation to include environment and ethics in their investment policy and report to the government annually with respect to how they are fulfilling this policy.

The Norwegian Government is currently evaluating the Norwegian Government Pension Fund-Global's Ethical Guidelines. The objectives are to review its guidelines, maintain "broad political support", and collect feedback as to the ways in which it could strengthen its profile as a responsible investor. The results of this evaluation will be presented to the Norwegian Parliament in a white paper in spring 2009.

Revisions in the Norwegian Government's Ethical Guidelines will undoubtedly shape other asset manager and investors' responsible investment policies both in Norway and abroad. At the same time, the Sustainable Value Creation initiative will also promote responsible investment in Norwegian companies.

SPAIN

Spain is in the process of introducing such disclosure regulations.

The motion of 4 February 2003, urging the Government to take the necessary measures to introduce an obligation to inform that is directed at mutual investment institutions and pension funds about their use of ethical or social responsibility and environmental criteria in the selection of its investments.

Ministry of Employment and Social Affairs: A Technical Committee of Experts has been created with the remit of preparing a report on corporate social responsibility. The group met for the first time in July 2003.

Moreover, the externalisation of the management of the Social Security Reserve Fund could become a reality in the coming years. A law proposal presented by the Spanish government in the last legislature is pending for approval in the Spanish Parliament. The proposal includes the allocation of 10% of this fund (worth €47 billion4) in equities under the principles of socially responsible investment.

SWEDEN

Sweden introduced SRI-related investment legislation on its approximately € 65 billion Swedish National Pension Funds (AP Fund) system on January 1, 2001. This legislation covers the buffer funds, AP:1, AP:2, AP:3 and AP:4, as well as the premium reserve fund, AP:7. These funds "must take ethical and environmental considerations into account without relinquishing the overall goal of a high return on capital."
The AP Funds have adapted different strategies to meet their SRI legislative obligations-one size does not fit all in Sweden.

AP:1 has implemented a norms-based approach. An engagement strategy is applied; exclusion is used as a last resort. While historically focusing on traditional CG issues,
AP:2 has expanded its CG policy. It also uses a best-in-class approach on € 76 million of its assets.
AP:3 has also incorporated SRI issues into its CG policy. While this policy covers all of its assets, it emphasises its engagement with Swedish corporations. That is, with companies that AP:3 can best assert its influence as a large, respected Swedish investor.
AP:4, the least active AP Fund, uses a CG approach. AP:7, one of the pioneers in norms-based screening, has a policy similar to AP:1's policy.

Of great importance to the future development of the market will be the findings of the committee appointed by the Swedish Parliament to evaluate the implementation of ethical and environmental criteria in the investment process at the Swedish state pension buffer funds, AP-Funds. The committee is due to report its findings in the second half of 2008.

2009:

Sweden's AP government pensions buffer funds have taken one of the world's most transparent steps in corporate engagement by publishing a list of the companies they are in talks with as well as outlining progress on the discussions.

The Swedish AP funds (AP-1, AP-2, AP-3, AP-4, and AP-6 – AP-5 no longer exists) were created in 2001 and their initial legal framework obliged them only to take into account ESG factors with scant further reference as to what that might entail.
The new report, titled: 'Ethics, environment and pensions', said that the ESG remit needed to be more closely defined and working methods improved, including co-operation on ESG research and engagement, notably with Swedish companies. It said: "In future, the funds should work more proactively and seek to integrate sustainability aspects into the investment management process."
Other proposals include an annual evaluation of the AP funds' ESG work by the government and the building up of internal ESG analytical skills by the funds.
Separately, the Ethical Council for the AP funds, which advises the first four AP funds on engagements and exclusions, has issued its annual report for 2008, which lists 13 companies that the Council is currently engaging with on issues of concern.

SWITZERLAND

The Swiss government's social security system invests a small part of its assets using ethical, social, and environmental criteria.

On the regulatory front, there are no immediate legislative steps planned that are designed to affect the SRI market positively. In any case, investors currently benefit from a positive regulatory environment for different themes in SRI like renewable energies. Therefore, this regulation has an indirect positive effect on SRI assets.

THE NETHERLANDS

Finally in early 2007, pension funds experienced media attention and public pressure following the broadcasting of the Zembla documentary called 'the cluster bomb feeling'. For several SRI frontrunners, it acted as an accelerator to implement SRI policies, and for followers, it meant a wake-up call to finally act.

UNITED KINGDOM

The UK has become a world centre for sustainable and responsible finance, with a growing reputation for developing and hosting catalytic initiatives. The Carbon Disclosure Project (CDP) and the Institutional Investors Group on Climate Change (IIGCC) are both based in

London. They have been joined recently by the core secretariat of the UN Principles for Responsible Investment (UN PRI). United Kingdom companies have been required to report on social and environmental conditions since late 2007.

British SRI-disclosure regulation came into force on July 3rd, 2000. This regulation was pushed both by the desire to enhance consumer protection and the intention to clarify the legality of SRI-oriented pensions investment policies. The regulation covers both private and public occupational pension schemes and stakeholder pensions schemes (part of the third pillar of the British pension system).

The regulation states:
"(other matters on which trustees must state their policy in their statement of investment principles) are (a) the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments; and (b) their policy (if any) in relation to the exercise of the rights (including voting rights) attached to investments."
(Statutory Instrument 1999 No. 1849; Amendment Regulations 1999)

Both the transparency effect and the enforcement of the regulation are rather weak.