Although the climate and energy transition are central to this project, the sustainability transition spans various Environmental, Social, and Governance (ESG) considerations. Beyond climate, other environmental goals, such as biodiversity, social goals like working conditions and human rights, and governance goals that include improved corporate governance structures, are all relevant. ESG regulations affect financial institutions, including pension providers, requiring that sustainability goals become integral to investment policies and product development. This necessity is reflected in legal obligations across reporting, governance, transparency, and investment strategy.

For pension providers, a clear legal framework regarding their rights and obligations on sustainability within their mandate – administering pension schemes – is crucial, especially under the prudent person rule. This rule requires investments to be made in the best interest of pension beneficiaries. However, interpreting what constitutes beneficiaries’ “best interest” is challenging, especially given the diverse preferences among a collective of participants (see also WP1&2). This research examines the legal possibilities and boundaries as well as liability risks for sustainable investments and product development, exploring hard obligations, soft law (non-mandatory but encouraged actions), fiduciary duties in a sustainability-driven context, and areas of explicit restriction. Understanding the legal possibilities, limitations, and liability risks specific to this sector is essential for pension funds to fulfill their stewardship role effectively. This WorkPackage5 is an overarching research line that is relevant to all of the other work packages, as it studies the legal context and legitimacy of the pension sector’s role in the sustainability transition.

Key research question: What are the legal possibilities, limitations and liability risks for sustainable investments for pension funds?