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Dutch pension funds taking ESG beyond developed markets equity

Findings of new wide-ranging study by the VBDO

Dutch pension funds are increasingly looking to integrate environmental, social and governance (ESG) factors beyond the developed market equity asset class, according to a new study from the VBDO, the Dutch Association of Investors for Sustainable Development.
The study Benchmark Responsible Investment by Pension Funds in the Netherlands 2010 found that the investors are looking at ESG factors in the corporate and government bond class, real estate and alternatives.
While 39 of the funds reviewed – 65% of the sample – have an exclusion policy for public equity, the VBDO found that 32 have a similar stance for corporate bonds, and six have exclusion criteria for government debt.
As for ESG integration, the VBDO found that 20 funds “demonstrably” integrate ESG into their public equity investment selections. This compares to 11 who integrate, five systematically, in corporate bonds. Two funds, Pensioenfonds SNS REALL, and Rabobank Pensioenfonds, integrate ESG into their government bond portfolios.
As for real estate, 13 of the funds surveyed consider ESG in their direct investments, with 16 funds considering ESG in their selection of real estate managers. Of these, 10 also seek a dialogue with their fund managers on sustainability issues.

Fourteen schemes – a quarter of the sample – include ESG criteria in their alternative investment decisions; 20 funds invest some of their alternatives allocations in impact investing areas such as microfinance, cleantech and renewable energy.“Acknowledging the fact that non-equity investments just as well provide financing to companies and governments as equity investments, pension funds and their asset managers are looking for ways to develop responsible investment policies for all asset classes in their portfolios,” the VBDO stated.

Thirty-four funds conduct engagement with companies based on ESG criteria in their public equity portfolios. Forty-eight vote on their public equity holdings, with 25 of them do so “while paying explicit attention to ESG issues”.
“These results show that voting is the most commonly used instrument, followed by exclusions, engagement, ESG-integration, positive selection and impact investing,” the VBDO said.
There were 12 funds rated highly for their overall ESG performance: PFZW, SNS REAAL, ABP, PNO Media, Spoorwegpensioenfonds, Pensioenfonds Openbaar Vervoer (SPOV), BPF Landbouw, BPF Schoonmaak- en Glazenwassersbedrijf, BPF Bouw, Pensioenfonds Architectenbureaus, BPF voor het Levensmiddelenbedrijf and Pensioenfonds Metaal en Techniek. The VBDO is calling on funds to formulate responsible investment policies based on the UN Global Compact. And, where applicable, new asset management contracts should include agreements on how the fund’s responsible investment policy will be implemented.
The report includes cases studies prepared by consulting firm Sustainalytics looking at some of the ways Dutch pension funds have made responsible investing initiatives.