ESG Country Profile: The Netherlands

The Dutch government is increasing its focus on responsible investment as it looks to unite financial services through non-financial reporting.

The Netherlands is known for ‘the Polder Model’ of politics, an approach of ‘consultation, consensus and cooperation’, named after the low-lying land (polders) reclaimed from the sea.  

It’s been credited for the country’s standing in scientific research compared to larger countries and means Dutch governments often take a long time to form – a record-breaking 208 days for the current administration. It is also reflected in the approach of the Dutch finance sector to responsible finance. 

There has been the SDG Investment Initiative (profiled on RI here) and the IMVB-covenant Pensions Fund – a Dutch pension sector agreement with government and NGOs to prevent abuses in company holdings under OECD guidelines for CSR and the UN Global Compact (there are also banking and insurance covenants).

Shell Pension this year is the latest Dutch pension fund to sign up to the IMVB covenant, which has 90% of the pension sector participating.

 Financial sector agreement on climate

In July, the Dutch finance sector signed a climate agreement with the government committing to follow its goal to reduce greenhouse gas emissions.

Originally, the ‘climate agreements’ involved five sectors: electricity, agriculture, building, environment, and transport, mobility and industry.

The Dutch finance sector had to go to Wopke Hoekstra, Minister of Finance, to ask to be involved, says Kees Vendrik, chief economist at Triodos Bank, the country’s well-known sustainable bank.Kees Vendrik, Triodos Bank

Vendrik, who chaired the electricity sector climate agreement stream, says: “The CEO of [Dutch asset manager] APG [Ronald Wuijster] was really essential in aligning the financial sector on this. So, not just the asset managers, but banks, pension funds and insurance companies too. There was some initial resistance but in the end it was a great collaboration. 

 “The government didn’t expect an advance from the financial sector. Now they see private finance can make a difference and be helpful in steering the economy in the right direction. So they are really supportive.”

Dutch pension fund scandal

The Dutch financial sector, especially its pension funds, are well known for being advanced in responsible investment. This was largely ignited by public pressure. 

In 2007, Dutch current affairs programme Zembla did an exposé on Dutch pension funds, finding investments of nearly €230m in US firms producing cluster bombs and landmines, and firms that used child labour. 

Dutch current affairs programme 'Zembla', "had a huge impact not only on the Dutch pension sector, but worldwide." – Jan Willem van Gelder

Faryda Lindeman, Senior Responsible Investing specialist at Dutch investment manager NN IP, says: “The Netherlands is one of the first countries that started looking at responsible investment, and it developed quite rapidly because of Zembla. Everybody started thinking about the impact of investments, and whether it is actually positive or negative. That’s the power of stakeholders who can really push the agenda quite forward.”

 Dutch sustainability research consultancy Profundo collaborated with Zembla on the programme. Jan Willem van Gelder, Director, Profundo, says: “It had a huge impact not only on the Dutch pension sector, but also worldwide. It led ultimately to a prohibition on investments in cluster munitions in the Netherlands, and other countries since.”

 Profundo also helped develop a 13-year initiative with VBDO, the Dutch association of sustainable investors, to benchmark the biggest 50 pension funds in the Netherlands on responsible investment. The latest benchmark report, which had a 100% response rate, ranked ABP on top.

Impact Investment 

 The Netherlands is a country where the financial system is systemically important. Its asset value is nearly eight times the GDP of the country, according to the most recent figures from the International Monetary Fund. This leads to strict regulation for the sector. Recently Dutch ministers were forced to reduce the minimum funding requirements for pension funds to avoid pension cuts. 

 Queen Máxima of the Netherlands has also served as the UN Secretary-General’s Special Advocate for Inclusive Finance for Development since 2009. And its companies are considered among the world’s sustainability leaders, according to Morningstar.  But while, the country’s financial sector is considered a leader on responsible investment, its early foray into impact investment is mixed so far. 

PGGM won the GSG Impact Honors Award last week for Impact Institutional Investor, but its €20bn commitment to impact investment has been a struggle in terms of investment

MN, the Dutch pension fund asset manager has also had difficulties allocating capital in impact.  MN, which counts the massive Dutch pension plan for metal workers, PMT, (€86bn) among its main clients, won the first PRI award for active ownership this year for a living wage initiative

 On behalf of PMT, MN is building a €2bn impact portfolio by 2025. Karlijn van Lierop, MN

 Karlijn van Lierop, Director for Responsible Investment and member of Management Fiduciary Advice at MN, says: “Our risk/return objectives are clearly set to ensure a high coverage ratio, so we cannot have any propositions with less return. Moreover, some impact products don’t have sufficient track record, their size is too small to match the scale of our clients, or the fees are too high.” 

 Van Lierop, who this year was elected to the board of the Institutional Investors Group on Climate Change (IIGCC), continues: “When referring to regions, MN cannot invest in private equity in emerging markets. This further narrows down the amount of viable impact propositions we can choose from. Facing such restrictions is a challenge, but we manage to be successful in finding impact investments with market-rated returns.”

 Another pension fund, speaking off the record about the DNB in its role as the pensions regulator, said it had been obligated to divest $300m in forestry impact investment for liquidity reasons.

“Dutch pension funds have been frontrunners in responsible investment, but less so in impact investing" – Yvonne Bakkum, FMO

Yvonne Bakkum, managing director at Dutch development bank FMO, which this year issued its first green bond, thinks the country’s financial sector needs to take more leadership on the issue: 

“Dutch pension funds have been frontrunners in responsible investment, but less so in impact investing. Only a few pension funds have an impact strategy and even those that do tend to focus on green bonds and listed equities, and in some cases climate related infrastructure investments, in OECD countries. Illiquid investments in emerging markets are largely absent, notwithstanding their huge impact potential” 

She says institutional investors from Sweden, Germany and France have committed significant amounts to the private debt funds of FMO the country’s development finance bank, but not Dutch pension funds: “Restrictive mandate setting by pension fund boards and stifling governance between the funds and their asset managers seem part of the problem,” she says.

Bakkum says regulations put extremely high capital charges on illiquid investments in emerging markets, but says regulators like the DNB have expressed willingness to talk about capital charges: “In my view it all boils down to leadership. Dutch pension funds should make less announcements and more real impact.” 

Government, regulation and international action 

 The Dutch government is seen as “light-touch” on sustainable finance by many market participants. But there are signs this could change.

 In May, it issued its inaugural green bond, the first triple-A rated sovereign green bond. It attracted €20bn in orders and the Dutch debt agency explicitly prioritised investors with green credentials, according to reports.

 The Dutch cabinet is negotiating on Invest-NL, a €2.5bn risk capital fund, that observers say could have blended finance as part of its remit. And the coalition government is in talks on a €50bn Dutch Investment Fund to support economic growth.

 Herman Mulder, former Director-General and Head of Group Risk at Dutch bank ABN AMRO and co-founder of the True Price/Impact Institute, says: “It is in the early drafting stages and here is an opportunity for us financial institutions to steer the funds in a direction that not only creates fiscal infrastructure for the earning capacity of the Netherlands in total, but also social infrastructure.

 “We’ll know by January or February whether it will be SDG/sustainability proof.”

Dutch central bank DNB "became the first central bank to join the PRI earlier this year… and is one of the first regulators to stress test it's country's financial sector."

 In contrast, the Dutch central bank DNB has taken a leadership position on sustainable finance, not only in the Netherlands but internationally. It became the first central bank to join the PRI earlier this year, alongside producing an 8-page responsible investment charter for its reserves. And it is one of the first regulators to climate stress test its country’s financial sector.

 It is also one of the first central banks to explore the relationship between environmental and social issues with financial risks with its “Values at Risk” report.

 And the DNB is a founding member of the central bank Network for Greening the Financial System (NGFS), with executive board member Frank Elderson chairing the body and regularly speaking internationally on the issue.  

 The Dutch finance sector has also had an integral role in the EU’s Sustainable Finance Action Plan.

Brenda Kramer, Senior Advisor, Responsible Investment, at asset manager PGGM, sits on the European Commission’s Technical Expert Group, a group of industry experts helping the Commission develop its Sustainable Finance Action plan: “I am not there on behalf of PGGM. I was nominated on behalf of the Dutch finance sector who have provided input throughout the whole process,” she says. 

 Claudia Kruse, managing director responsible investment and governance at APG, also represented the Dutch finance sector on the High Level Expert Group on Sustainable Finance, which predated the TEG. 

 Recently, APG and the UN Secretary General’s Taskforce on Digital financing of the Sustainable Development Goals (SDGs) hosted an event together with the DNB, HollandFintech and Sustainable Digital Finance Alliance (SDFA) to launch Dutch Sustainable FinTech, a research programme that is looking at the state of the industry regarding green finance. 

Another Dutch initiative, the Platform for Carbon Accounting Financials (PCAF) launched internationally this year. Link to the RI article on PCAF

Dutch Stewardship Code

The 2019 Dutch Stewardship Code, drawing upon existing investor guidelines, and overseen by Eumedion, the corporate governance and sustainability platform, is considered one of the most progressive codes I the world.

Rients Abma, Eumedion Rients Abma, Executive Director at Eumedion, says: “We wanted to align our stewardship principles with the revised Dutch Corporate Governance Code, which says the ultimate objective of a company is long-term value creation instead of long-term shareholder value creation. Our objective was also to make the stewardship principles more stakeholder-oriented.”

 The Dutch Stewardship Code expects investors to engage during large company mergers and acquisitions with employee representatives and customers, alongside fellow shareholders and the company itself.

 It also has provisions around short positions and share borrowings: “There is a principle that if your short position in a specific company is larger than your long position you may have the incentive to vote in favour of proposals that will destroy value at the company level. And that is not in the long-term interests of the stakeholders and the company, so you should refrain from voting at the AGM,” explains Abma.

"In general, the Dutch finance sector is keen on the standardization of so-called non-financial reporting"

All of Eumedion 65 members are expected to follow the code, including big Dutch investment names such as PGGM, APG, MN and Robeco, but also large international investors such as BlackRock.

Eumedion is also calling on the IFRS Foundation to create an independent and authoritative international non-financial reporting standards board or “INSB”. It has written a green paper on the issue.

In general, the Dutch finance sector is keen on the standardization of so-called non-financial reporting. APG and PGGM, for example, are working together to harmonize their reporting on the SDGs, and hope peers will join them. 

 ABN AMRO, the Dutch bank is also leading on non-financial reporting, being one of the first financial institutions to publish an 'Integrated Profit and Loss’ as part of their 2018 disclosures. Working with the Impact Institute, ABN AMRO seeks to reflect “hidden impacts”, both positive and negative, in its reporting on externalities such as carbon emissions, low wages or child labour.

Tjeerd Krumpelman, Global Head of Advisory, Reporting and Engagement at ABN AMRO, says the process, which has been iterative since 2014, will see it develop into monetizing impacts. 

Similar to Dutch finance peers, Krumpelman also says the end-game is standardization: “My top priority is to encourage other banks to start the journey, and also companies as it will improve the model, and also increase comparability.”

ABN AMRO has also been pioneering social finance in the Netherlands – launching the first social impact bond. This year, Social Finance NL, a branch of the international Social Finance network, launched, founded by ex-ABN AMRO employees with the support of ABN AMRO.   

There have been 15 social impact bonds launched in the country so far, primarily focusing on the issues of workforce development and unemployment. 

Bjorn Vennema, co-founder of Social Finance NL says there is appetite from institutional investors, such as health and insurance companies, but the product isn’t yet at scale (the average size of a Dutch social impact bond is €1.5m).

“We are trying to look at different possibilities to scale it up,” says Vennema. 

He says the example of the South of Netherlands province which created a social outcomes fund of a €1m for multiple social impact bond projects (investors are paid returns through outcomes) could be a blueprint for other provinces and help scaling. “The fund was very small,” he says. “But it has created an example for other provinces and central government.”