Dutch pension funds set to sign up to government-backed responsible investment covenant

Dutch pension funds are expected to ramp up their commitment to ESG next week with the signing of a government-backed covenant on socially responsible investment.

It follows a year long negotiation between the country’s pension sector, government, trade unions and civil society on the agreement.

Signatories to the new voluntary covenant will commit to incorporating internationally recognised standards of responsible investment – including the OECD’s Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights – into their due diligence practices and that of their asset managers.

Despite being regarded as leaders on ESG, the country’s funds had faced the threat of legislation without such an agreement, according to Gerard Roest, Pension Fund Officer at FNV, the trade union federation involved in the negotiations.

In March 2017, the Federation of the Dutch Pensions, whose 220 pension fund members represent €1.2trn in assets, indicated its willingness to work with the government on an agreement.

That has now resulted in the Covenant on International Socially Responsible Investment in Pension Funds (or IMVB-covenant Pension Funds), which will be signed at a meeting next Thursday (20 December) in The Hague.

A spokesperson for the Ministry of Foreign Affairs described it as a “guiding principle” rather than law and told RI that 220 pension funds are expected to sign along with several government ministers and representatives from civil society.

She added that invitations to sign the covenant were sent by the Ministry to pension funds this week but said that no further details could be provided until the agreement had been signed.

Claudia Kruse, Head of Responsible Investment and Governance at APG, the investment manager of giant Dutch fund ABP, told RI that both ABP and APG were part of the “core team that designed and the negotiated the covenant”.

She said that the new covenant outlines investors’ responsibility for the potentially negative impacts they are “linked to” through investee companies.

Negotiations on the covenant, which began in January this year, were supervised by the Social and Economic Council (SER), the body that advises the Dutch Government and Parliament on social and economic policy.The country’s largest pension funds, the Federation of the Dutch Pension, the Ministry of Foreign Affairs, the Ministry of Finance, the Ministry of Social Affairs and Employment, and several Dutch NGOs and trade unions were all involved in the discussions.

The FNV’s Roest said there would be a multi-stakeholder engagement project linked to the covenant.

He said: “We are going to investigate five to six [engagement] cases in the next few years” to see if multi-stakeholder engagement can create “better results than when pension funds act alone”.

If successful, Roest said that the group would issue general guidance for others to learn from.

The pension sector covenant is the latest in several such agreements – referred to as International Responsible Business Conduct (IRBC) agreements – created between the Dutch government and different industry sectors in the country. Similar agreements have already been reached with the banking and insurance industries.

Staying in the Netherlands, the Sustainable Pension Investment Lab (SPIL) last month published its latest working paper outlining the steps Dutch pension funds need to take to address both the risks and opportunities posed by climate change and the transition to a low carbon economy.

SPIL is chaired by René van de Kieft, former CEO of MN, and includes Marcel Jeucken, PGGM’s former Director of Responsible Investing and Diane Griffioen, ABP’s Head of Investment Policy, among its members.

Its working paper ‘What to do with climate change?’ details steps each fund should consider taking, including assigning responsibility for climate change to a board member and exploring climate-related risks and opportunities in greater depth.

Pension funds, it argues, can use this knowledge to then set goals and integrate climate change into its investment policy, including the selection of external managers and services providers.

Kruse, who is also a member of SPIL, told RI: “The low-carbon transition is the investment opportunity of our time, but at the same time, if not adequately managed, the impacts of climate change can be catastrophic for economy, society and financial performance. It is therefore imperative that pension funds start to understand and address climate risks and opportunities”.