It added that it would take environmental, social and governance concerns into consideration and not consider exposure to nuclear energy, prisons or military developments, instead focusing on energy, transport, communication and social infrastructure assets – with the aim of achieving inflation-linked returns.Managing director Markus Anliker told IPE the fund’s six-strong investment committee would be staffed by representatives of both the infrastructure industry and pension funds backing the venture.Christian Stark of MPK will chair the board, sitting alongside B Capital Partners founder Barbara Weber and Peter Voser of Aargauische Pensionskasse, who, as IST’s representative, will not have a vote.Dalmore Capital chief executive Michael Ryan, the infrastructure manager behind the UK pension association’s Pension Infrastructure Platform, will also sit on the board, as will Jeffrey Parker, formerly of Ernst & Young Infrastructure Advisors, and Martin Rey.The investment committee will seek advice on deals from two unnamed advisers, appointed following searches conducted through IPE-Quest – one for direct and one for secondary investments.Anliker said the fund would concentrate on brownfield investments but also consider the secondaries market during its growth phase.“In future, the plan is to only invest directly,” he said. “That’s the goal – either direct or co-investments.” Five of Switzerland’s largest pension funds are behind a new CHF300m (€247m) infrastructure fund, which aims to invest one-third of its capital domestically.The fund, launched by the not-for-profit IST Investment Foundation, said the first close had attracted commitments from investors including the CHF20bn Migros Pensionskasse (MPK) and Luzerner Pensionskasse, the CHF5.9bn fund for employees of the canton.The CHF4.7bn pension fund for the Swiss energy sector, PKE, and the funds for pharmaceutical giant Roche and retailer Manor also provided capital towards the initial close.IST said in a statement that IST3 Infrastruktur Global would target assets across OECD member states, with a 30% bias towards Switzerland.
Italian pension fund associations have attacked shock plans to raise the tax rate for pension fund investment income from its current level of 11.5% to 20%.The government had already increased the rate from 11% last July, officially as a “temporary” measure, but now intends to hike it up by nearly three-quarters. And pension funds for professional groups (casse di previdenza) will see their tax rate on investment gains go up from 20% to 26%.The new plans are included in the Parliamentary Bill for Italy’s 2015 fiscal Budget, the so-called Stability Law. The draft budgetary decree was agreed by the Cabinet on 15 October, and presented to Parliament on 24 October.The Bill also includes proposals to include employee severance pay – Trattamento di Fine Rapporto (TFR) – in the individual’s annual income, if part of this is paid to them before they actually leave their jobs.Last month, prime minister Matteo Renzi announced that workers could choose to receive severance benefits directly each month rather than being held back until the end of their employment.If they opt to take the cash in this way, it will be taxed at their marginal rate in the year it was received.Marco Abatecola, general secretary at Assofondipensione, the association of collective negotiation-based pension schemes said: “We are opposed to the tax increase because it will reduce future pensions, and it risks creating instability in the system, alienating workers from pension funds.”Assofondipensione has started separate talks with the government and Parliament, and has sent a position paper to the Chamber and Senate finance committee that sets out Assofondipensione’s position and the changes it would like to see in the Stability Law.It will also soon be starting a communication and information campaign to promote the advantages of complementary pension schemes to workers, urging them to enrol in these schemes.Laura Crescentini, technical coordinator at Assoprevidenza, the Italian association for supplementary pension provision, said: “We are against these measures because we have a pure defined contribution system, so the increase will directly affect future pension levels and discourage people from joining pension funds.“Moreover, it would create problems in moving towards an EET system [exempt contributions, exempt investment income and capital gains of the pension institution, taxed benefits], which is used by most countries in the European Union.”Claudio Pinna, head of consulting at Aon Hewitt in Rome, said: “We were very surprised by these changes because they go against all the reforms of the pension system that have been carried out in the recent past. This is no way to incentivise saving by employees.”He added: “They will create a lot of problems. But it is very likely these changes will happen.”Pinna warned that the proposals could lead to an exodus of pension savings out of Italy.“If the changes happen,” he said, “it might be better for Italian employees to transfer their pension provision in Italy to another pension fund operating under the EU cross-border directive, assuming you get the same investment returns in all countries. At present, the obvious host country would be Belgium.”Pinna said there was also a need to clarify when the changes would be implemented, and warned the changes could be enforced retroactively, from 1 January 2014.The government has said the proposals could be reversed if it can find an equivalent source of revenue.But Pinna considers this unlikely.Meanwhile, the same Budget package also includes a tax increase on investment returns of Italian foundations, including foundations of banking origin, whose net assets amounted to €40.9bn as at 31 December 2013.The draft Stability Law 2015 would reduce the amount of exemption on dividends received from 95% to 22.26%, while in contrast, it remains unchanged at 95% for profit-making private entities.It means the tax base on dividends received by foundations rises from 5% to 77.74%.Consequently, the taxation increases by 20 percentage points, with retroactive effect from 1 January 2014.Acri, the Italian association representing foundations of banking origin and savings banks, said the Stability Law would tax foundations of banking origin far more than for-profit private entities and was “incomprehensible to those who want to enhance the role of the voluntary sector”.It said the move could have a grave impact on support for activities already planned.The European Foundation Centre has calculated that the tax burden on foundations of banking origin alone has risen nearly four-fold since the €100m that was levied in 2011, to reach €360m in 2015.
For innovation and big ideas, the US is clearly leading, but it is Asia – particularly China – that is coming second, not Europe. China has many things going for it. For VC, it is very helpful to have a market that is huge and easy to scale. That has always been one big advantage of the US over Europe, and it remains so. It is much easier to scale a company in the US, which is one homogeneous market, than in Europe.China has the largest market in terms of people and economic potential, and that is a big plus. If you look at technologies like mobile phones – the number of users, for example – China is leading and will always be leading. The US only has 400m people and won’t be able to catch up, Rode feels.What is coming out of China so far is predominantly on the hardware side. Most of the smart devices and some of the e-players come out of China. In future, we will see much more activity on the software side and in other areas such as life sciences. What is required is strong government support with government-funded research and strong educational institutions. All of these things are in place in China, plus it is a big market and already very strong in technology.The other Asian giant, India, is at a different stage of development, still 10 years behind China. Yet India also has many things that are very positive. Rode also sees huge long-term potential for India. It is currently the fastest-growing large economy, with great demographics and many well-educated, English-speaking people. Its strength in software shows India will play a huge role in VC in 10-20 years.Where does that leave Europe? It certainly has the potential to produce disruptive technologies, but it hasn’t converted them into many large-scale businesses as yet. The culture within universities has certainly changed from my days doing research in physics at Oxford 30 years ago, when trying to generate commercial applications from research was actually frowned upon. But what has not developed is the risk-taking culture present in the US, where it is seen as acceptable to start something, fail and start again.If you look at Europe, says Rode, there are some things that work – all types of locally focused companies, e-commerce and services including fintech. Life sciences are also strong. One area that is niche but works well in Europe is medical devices. This is helped by the regulatory environment, as it is easier to get approval for medical devices in Europe than in the US.Venture funds are driven by the biggest hits. Historically, 7% of VC deals represent 50% of exits. Being in the biggest hits is very important, and, in the US, the biggest hits are much bigger companies than elsewhere – a $1bn or more.In Europe, exit values tend to be lower. That is related to the fact there are more breakthrough technologies in the US that have the potential to create mega companies in the multi-billion valuation range. But European companies also tend to be exited earlier than US ones, Rode finds. That, he says, has to do with attitudes, ambitions and cultural elements. European founders and investors are happy with smaller outcomes, so the bar of what is considered to be a big success is higher in the US than Europe.There is a lot of support in helping VC funds in Europe. The EIF is an active investor in many funds, and that is a factor that has increased the number of funds in Europe. But, as Rode argues, the area where the biggest change is necessary and difficult to achieve (it may take 20 years) is with regard to breakthrough innovation.It’s a pity Europe is lagging so much. Any improvement in venture activity in any region will take a long time to put into place. Any measure from a government and regulatory point of view requires a 10-20 year time horizon. You cannot change the ecosystem, the cultural set-up, the educational system and the government funding of research in a few years. Indeed, any changes that shift things radically in just a few years may be unsustainable. For Europe’s long-term future, it needs to find a sustainable solution.Joseph Mariathasan is a contributing editor at IPE European VC may be on the rise, but it still lacks the big ideas, writes Joseph MariathasanVenture capital (VC) should be a key driving force in revitalising the European economies, and, to some extent, that is happening. Exit activity, globally and in Europe, has been good, which gives investors confidence that VC works.Performance has been good, Adveq’s Nils Rode tells me, but he also raises an issue worth exploring. While venture activity in Europe may be increasing dramatically, Europe appears to be falling behind in one key area – investing in big ideas, the breakthrough innovations and highly disruptive companies that are the areas most talked about in the media, and rightly so. That part of VC is mostly taking place in the US.As Rode explains, in new areas such as machine learning or artificial intelligence, the US is clearly in the lead. On the life sciences side, about 40% of investments are about treating and curing cancer, and there have been some recent breakthroughs in fully curing cancers. A large part of that is taking place in the US, with some in Europe. Quantum computing, where Google announced a recent breakthrough in December showing it works, is all taking place in the US. Advances in robotics are all taking place in the US. Investments in space technology such as Space X is all US, along with electric cars such as Tesla.
The European Commission is to consider prolonging or making permanent pension funds’ exemption from a clearing obligation under EMIR, the EU derivatives regulation.It announced the plan in connection with its response to the results of a consultation – “call for evidence” – it carried out on the cumulative effect of regulation put in place in the wake of the financial crisis.Valdis Dombrovskis, the commissioner for financial stability, financial services and the Capital Markets Union, said: “The Call for Evidence responses show that the rules put in place after the crisis are sound but could be made more proportionate. “We will make adjustments to get the balance right and increase funding for the wider economy. We want legislation that commands respect and underpins a safe but dynamic financial services sector.” The Commission said it would consider “adjusting the scope of EMIR clearing and margin requirements to address the diverse challenges faced by non-financial corporations, pension funds and small financial counterparties”.Pension funds benefit from a temporary exemption from the EMIR clearing obligation until the middle of August 2017, with a one-year extension possible through a delegated act by the Commission.The Commission said “an assessment should be made as to whether the current exemption could be prolonged or made permanent without compromising on EMIR’s objective of reducing systemic risk, as pension scheme arrangements would still be subject to bilateral margin requirements for OTC transactions that are not centrally cleared that mitigate systemic risks”.The exemption for pension scheme arrangements reflects difficulties that central clearing counterparties (CCPs) have in accepting collateral besides cash as margin, and the fact pension funds typically have minimal cash holdings.In a report on its review of EMIR, the Commission referred to progress made in developing solutions to allow pension schemes to post non-cash collateral but said “clearing solutions for pension scheme arrangements to post non-cash assets as variation margin are, however, unlikely to be available in the foreseeable future”.The options likely to be available to pension schemes once the temporary exemption expires – relying on repo markets for collateral transformation or increasing cash holdings – would not really work and/or would have negative impacts, according to the Commission. It said its “REFIT” (regulatory fitness and performance) revision of EMIR was planned for early 2017, as a result of which the Commission may make “targeted amendments”.The Commission also said the EMIR review would look at ways to reduce reporting requirements for pension funds, non-financial corporations and small financial corporations “given their lower systemic risk”.It also said it was addressing unintended consequences of some of the EU’s post-crisis regulatory framework, giving as an example “the interaction between the bank leverage ratio and EMIR clearing obligation”.Best solution unclearPensionsEurope has previously warned of unintended negative consequences for pension schemes from EU bank capital rules, saying they incentive banks to accept only cash as collateral for non-cleared OTC derivative trades.Matti Leppälä, secretary general at PensionsEurope, said the association “welcomes the European Commission’s initiative to look for good solutions for pension funds in EMIR clearing obligations and margin requirements”.He added: “We call on the European Commission to keep this clearing exemption in place until a suitable clearing obligation has been found.“We need to develop together a feasible long-term solution. It isn’t clear at the moment what the best solution could be and whether or not, [for example], a permanent exemption for pension would be it, but it is essential that right incentives are identified and implemented for different market participants.”A “robust solution” needs to be found for the cash variation margin issue in cleared and non-cleared markets.“Otherwise,” Leppälä said, “applying EMIR for pensions will not increase the stability of the financial system but will affect their long-term investments and increase the costs of pensions.”The UK’s Pensions and Lifetime Savings Association (PLSA) has previously called for pension funds to be granted an indefinite exemption from the EMIR clearing obligation.James Walsh, EU and international policy lead at the PLSA, said the Commission’s fresh statements were encouraging. “They recognise that pension funds pose only a low systemic risk to the economy, and they acknowledge the difficulties caused for pension funds by banks’ increasing insistence on cash as variation margin.“Action on this front would be very helpful.”The Commission’s review of European financial-services regulation is also leading it to propose steps to lower barriers to long-term investment, mainly via changes to bank capital and insurance solvency rules.
We agree with the general top-down thesis that traditional assets are elevated by historical standards and that future returns are likely to be low relative to history – and the implication that a quasi-passive multi-asset investment approach will generate low returns.Not all [DGFs] involve heavy reliance on market betas and a general critique of the average strategy is not valid for every individual strategy.Colin DryburghHowever, there are still many attractive bottom-up investment opportunities in both traditional asset classes, equities and fixed income. Investing in customised, benchmark-agnostic portfolios of securities that possess attractive pre-defined characteristics ensures that a fund has maximum exposure to securities with positive attributes, rather than securities that are heavily represented in market indices.Several alternative asset classes offer both high risk-adjusted returns and attractive diversification benefits. This combination is highly attractive for a DGF strategy. However, we would caution against a blanket approach to investing in alternative assets because not all of these offer attractive levels of diversification.For example, the term ‘infrastructure’ spans a wide range of investment opportunities. Private partnerships, which involve private investors funding public infrastructure projects such as schools and hospitals, are a relatively low risk and stable investment sector. On the other hand, toll road investments may be highly sensitive to levels of economic activity and, despite the ‘infrastructure’ label, may behave very similarly to traditional equity.Opportunities in financial markets constantly evolve – not just in traditional asset classes but also in alternative asset classes. An approach that is active and has the flexibility to allocate according to opportunity and circumstance maximises the likelihood of investors achieving their long-term objectives. Recent criticism of diversified growth funds (DGFs) has suggested that their returns have been highly correlated to a passive benchmark of 50% equity and 50% bonds.In other words, much of the returns can be explained by beta, and annual returns have generally fallen short of this passive benchmark.The criticism has also suggested that prices of traditional assets – the passive benchmark – are elevated by historical standards so future returns are likely to be disappointing.Different DGF managers employ a wide range of investment approaches. Not all of these approaches involve heavy reliance on market betas and a general critique of the average strategy is not valid for every individual strategy. Not all DGFs simply offer market betas.Colin Dryburgh is an investment manager at Kames Capital, a UK-based asset management company.
Launched in 2012, NEST now has assets of £2bn (€2.2bn) under management, but is expected to grow to become one of UK’s largest asset owners over the next few years.NEST said it was considering investing in commodities to diversify members’ portfolios, while it was looking at infrastructure investments to benefit from the illiquidity premium.The scheme also said it was considering an allocation to impact investing strategies, and was examining how the market for specific impact funds developed. In particular, it said it wanted to “find out whether they’ll give pension schemes like ours more opportunities for improving the risk and return profile of our members’ portfolios”.In addition, regarding its stewardship strategy, NEST said it had broadened the subset of companies it monitored closely to include more energy companies, tobacco companies, listed asset management companies and companies in emerging markets.The scheme said it was also researching how institutional investors that are invested in global equity index funds could manage the risks of investing in the tobacco sector. Some major asset owners, such as the California Public Employees’ Retirement System and Norway’s Government Pension Fund Global, have reported that banning equity sectors such as tobacco on ethical grounds had caused them to miss out on significant investment returns over several years.NEST has also excluded companies involved in manufacturing controversial weapons from its portfolios. The scheme said that it closely scrutinised managers’ approaches to managing ESG factors in their investment processes as part of its procurement process.“By only selecting fund managers with strong ESG credentials or those who show a strong commitment to working with us to improve their approach, we can ensure that these risks are being taken seriously across our funds,” the scheme’s report said.NEST was also actively involved in shareholder action against excessive pay, voting against executive pay proposals at Barclays and Shell. The scheme said it remained concerned about some elements of corporate pay, an issue it has been vocal about since it opened for contributions in 2013.NEST CIO Mark Fawcett said: “Executive pay can’t be set in a vacuum. If pay is disproportionate, incentives are opaque or in some cases pay policies are being structured to get around the rules, these pose clear risks to long-term investors like our members.” The UK’s leading auto-enrolment pension fund is considering investing in a range of new asset classes, including commodities, infrastructure, global credit and private debt.In its annual responsible investment report released yesterday, the National Employment Savings Trust (NEST) said it was researching the environmental, social and governance (ESG) risks for these asset classes before investment.“We’re currently researching a range of new asset classes… Our goal is to improve our understanding of the types of issues prevalent in alternative asset classes such as commodities and infrastructure,” NEST said in the report.“The more investors ask questions about ESG issues in alternative areas, the more fund managers will start to identify and address them as a routine part of their investment process,” it added.
Just over half of the young people surveyed trusted pension plans that were set up jointly by employers and employee representatives, known as the Tarifparteien.Under the BRSG, the Tarifparteien of each industry can now set up pension plans without guarantees but with a “defined ambition” goal. It is the first time German law has supported pension funds without guaranteed retirement incomes.Heribert Karch, managing director at MetallRente and chairman of the pension fund association aba, said the results of the survey were a good omen for the start of the new legal framework.“The wish for a better retirement provision and the trust in the Tarifparteien is considerable,” he said in a press release.“It is their task to intervene if necessary and provide a high as possible ‘target pension’ through collective investments providing generational equality,” Karch said.He hoped that opt-out provisions would help to increase the number of participants in occupational pension plans.Companies setting up the new plans will no longer have to provide guarantees but they have to reimburse the pension plan for any tax advantages they get from paying parts of salaries into pension plans. However, it is yet not fully clear when and to what extent these legal provisions will have to be applied.For these and other reasons Karch noted at a conference last autumn that it would be some time before the first pension plans under the BRSG appeared on the German pension stage. Meanwhile, MetallRente is preparing itself to be among the first providers of these new pension plans – along with the BVV.“Entities like MetallRente clearly confirm the advantages of occupational retirement saving in large collectives,” Karch noted.The pension plan has announced it will continue to pay a 3.65% interest on its savers’ assets in 2018 “despite the low income environment”. Only a third (34%) of Germans aged between 14 and 29 trust that the state pension will provide enough for them in retirement, according to a survey multi-employer scheme MetallRente.Instead, 61% preferred to put their trust in occupational pension plans, according to the poll conducted in late November.Among the 1,000 surveyed individuals of all age groups, 48% trusted the state pension and 56% trusted occupational pensions.The survey also provided a boost for Germany’s new pension law, the Betriebsrentenstärkungsgesetz (BRSG), which came into effect on 1 January.
Dutch workers should be offered more choice about their pensions, including the option of taking out a lump sum and using the savings to pay off a mortgage, researchers of Tilburg University and the Netherlands Bureau for Economic Policy Analysis (CPB) argue.In a report to be published today, they claim that the benefits of freedom of choice would outweigh the risks and would generate additional prosperity for Dutch pension savers, according to financial daily Het Financieele Dagblad (FD).“Increased freedom of choice is desirable, as the fear that people would squander their money is not justified,” the FD quoted CPB’s Ed Westerhout as saying.“The experience in other countries shows that most people used a lump sum to pay off debt and for buying or renovating a home.” Ed Lever, also of the CPB, emphasised that most other countries offered more freedom of choice than the Netherlands.He cited the UK, where people can now take out their entire pensions as a lump sum, as the most extreme example.However, the researchers made clear that they did not advocate such an option for the Netherlands.There was strong demand for more freedom, they said, with surveys at the civil service scheme ABP suggesting more than half of participants favoured taking a lump sum.Greater freedom of choice is also preferred by the Dutch cabinet and is often cited as a reason to overhaul the current pensions system, according to the report.However, no agreement has yet been reached within the government, which is awaiting proposals from the Social and Economic Council (SER).The researchers said the current collective pensions system already offers certain options for increased choice, such as the introduction of a lump sum, or the extension of the new drawdown option for workers who want to retire ahead of the official retirement age for the state pension.Other possibilities, such as deciding how much and where people save for their pension, or taking out pension assets while still working, are not possible under the current system.According to the FD, the researchers stressed that freedom of choice must be limited and, for example, not include the option of benefits being for a fixed period.“The chances are that people will make an appeal to society during their final years for, for example, rent and care costs,” the report says.Earlier research has suggested that freedom of choice would reduce prosperity among Dutch pension savers.Westerhout said: “This came with the assumption that people wouldn’t have any brake on spending their money, but we think that this only applies to a small group.”To further limit the risks of freedom of choice, the researchers suggested giving pension funds an advisory role.However, this is currently not possible under the law, since pension funds would then enter the realm of commercial providers of financial products.Dutch pension funds are not allowed to compete with commercial players as they benefit from mandatory participation.
Europe’s largest investor recorded a €76bn profit in the first quarter of 2019, its highest ever quarterly return.The Government Pension Fund Global (GPFG), Norway’s sovereign wealth fund, made NOK738bn (€76bn) on its investments in the first three months of the year, even though the fund’s manager said a stronger domestic currency had a dampening effect.Yngve Slyngstad, chief executive of Norges Bank Investment Management (NBIM), said: “This is the fund’s best quarterly return measured in kroner ever.“As a major equity investor we must be prepared for large fluctuations in the fund’s market value in line with developments in global stock markets.” The quarterly return was 9.1%, and followed the fund’s 6.1% loss recorded for the full year 2018 – equivalent to roughly €50bn.During the quarter, the Norwegian krone rose against several major currencies, which NBIM said contributed to lowering the fund’s value by NOK60bn. The fund received state oil revenue inflows of NOK8bn in the period.Of its three asset classes, equity investments returned 12.2% in the first quarter, with technology companies generating returns of 17.6%.Unlisted real estate produced 1.7% and fixed income investments made 2.9%, NBIM said. Overall, this meant the fund beat its benchmark index by 20 basis points.The fund’s value rose to NOK8.9trn by the end of March, from NOK8.3trn at the end of December.The equities allocation approached the fund’s strategic allocation of 70% set in 2017, reaching 69.2% on 31 March, up from 66.3% at the end of last year.The unlisted real estate allocation slipped to 2.8%, from 3% at the end of last year, while fixed income made up 28% of assets, down from 30.7% three months before.
Sources: Top image Steve Buissinne ; bottom image © Dana Smillie/World Bank2°II wants investment to be reorientated from unsustainable to sustainable assetsA positive environmental impact should be understood as the “reorientation” of investments in “unsustainable” activities, such as coal-fired power production, towards to sustainable activities such as renewable energy.However, 2°II argued that, while many sustainability-related investment strategies and products – such as targeted divestment or thematic investing – might contribute to such a reorientation, none were explicitly designed to deliver this outcome and did not “provide a measurement of their effectiveness” in doing so.Also, there was no scientific evidence or methodological framework to determine which technique was most effective and under which conditions, or to measure environmental impacts. The Commission “should therefore avoid making assumptions and prescribing certain approaches without any evidence”, it said.A copy of the think tank’s report can be found here .‘Not a popular idea’2°II said it had submitted a draft of its report for feedback to about 50 stakeholders, including the “relevant contacts” at the European Commission such as the directorate general leading the sustainable finance work and the Joint Research Centre (JRC). The JRC is the Commission’s in-house science service and earlier this year produced a report on proposals for EU Ecolabel criteria for financial products.2°II said the organisations were offered the opportunity to provide formal feedback but “either did not respond, declined, or only provided informal verbal comments”.The think tank also discussed its paper with leading asset managers, policymakers and NGOs, and said no challenge was mounted to the analysis. Flaws in the European Commission’s approach to sustainable finance could lead to member states and even the EU being sued, according to a think tank.The 2° Investing Initiative (2°II) made the argument in a hard-hitting report on plans for an EU label for “green” financial products, entitled ‘Impact Washing gets a Free Ride’.According to 2°II, legal action would most likely be brought against the Commission’s proposed legislative or regulatory acts relating to the sustainable finance action plan, but there was also significant risk “for the EU to face myriad legal actions of the nature currently promoted by diverse civil society stakeholders to bring policymakers to justice for their failure to fix climate and environmental degradation through rational actions”.2°II’s assessment centred on its view that policymakers and retail investors had a confused understanding of sustainable investment. It argued that buying a financial asset was often equated with a direct investment in the activity in which the issuing entity was involved, when the relationship was far more complex in reality. It argued that, for most mature businesses, equity issuance played a minor role in financing capital expenditure, which was instead primarily “self-financed” with re-invested profits, bank loans and bonds.In relation to the Commission’s sustainable finance action plan, this confusion was “the rotten apple [that] has spoiled the barrel”, 2°II said. It had “spread across all key regulations of the package: the taxonomy , the regulation on disclosures, and, more critically, the reform of financial advisers’ obligations”, said the think tank. Valdis Dombrovskis (centre), EU financial services commissioner, presents the technical expert group’s taxonomy report on 18 June“None of the individuals consulted pointed to a flaw in 2°II’s reasoning, found an inaccuracy, or presented new facts that were not yet reflected in this paper,” it said. “Should a gap be identified in the future, the paper will be updated accordingly.”Overall, however, the consultation showed that the think tank’s agenda – that impact-related marketing claims and the Ecolabel should be grounded in scientific evidence – was “not popular in the sustainable finance community”. It was seen to be “targeting a problem that is currently not a priority”, 2°II said.“More specifically,” it added, “some stakeholders argued that setting the bar ‘too high’ may slow down the EU’s legislative pace on sustainable finance, and lead to a decline in green product sales.”According to 2°II, some people were intimidated by the methodological challenges associated with measuring impact. There was a paradox, it said, in that none of those consulted suggested that an exception should be made for financial products under existing regulations on green marketing claims.2°II plans to plough ahead with developing a new scientific field, which it says is needed to meet the Commission’s goal of reorienting capital flows towards sustainable investment. Its work includes a paper exploring consumers’ interpretations of impact-related claims on financial products, and more research on “the broader issues associated with the Commission’s flawed definition of ‘sustainable investment’”.