PGGM one of first pension managers in the world to publish audited RI report

Dutch manager lays out 2013 RI priorities.

PGGM, the €133bn Dutch pension fund management giant, has become one of the first in the world to have its responsible investment annual report externally audited.
The fund manager said the audit, performed by KPMG, means it now gives the same transparency and accountability on sustainability reporting that it expects of the companies in which it invests. PGGM, which manages assets for five pension fund clients, said its priorities in 2013 included further development of its ESG index and the intensification of its engagement programme, partly based on the ESG index. PGGM recently developed the ESG equity index which can be used to evaluate the 2,800 FTSE All World Index companies for their ESG performance. It said it would also seek new targeted ESG investments across all investment categories. Its Responsible Equity Portfolio, which takes large stakes in companies where it believes it can drive value through improving ESG practices, declined by about €500m to reach just over €4.2bn during 2012 compared to 2011, falling short of its €5.2bn asset target for the year. PGGM said this was due to the departure of the fund’s responsible equities head Alex Van der Velden and three senior staff managing the portfolio. The four left to form the independent investment start-up Ownership Capital, which operates a similar ESG focused strategy. “This led to a temporary reduction in part of this investment portfolio pending a new appointment and an assessment of the portfolio,” said PGGM’s report. The report notes that PGGM’s 2012 sustainability initiatives in the financial sector include its backing of the high-level Enhanced Disclosure Task force aimed at improving large banks’ risk disclosures. The number of companies excluded for ethical reasons from PGGM’s portfolios increased from 40 in 2011 to 42 in 2012. While Goodridge and ITT were taken off the exclusions list, Fluor and URS of the US and India’s Walchandnagar were excluded fortheir involvement with nuclear weapons. Aeroteh of Romania was excluded because of involvement with cluster bombs. The pension fund manager also opened dialogue on its investment activities in the “high risk” Palestinian territories. It conducted engagement projects with international and Israeli companies,and is due to organise a European meeting in 2013 for investors and companies to discuss various issues and concerns in the region with external experts. In a consultation with its internal Advisory Board for Responsible Investment (ABRI), PGGM decided to base exclusion decisions linked to government bonds on relevant EU sanctions in addition to UN Security Council sanctions. This saw the addition of Zimbabwe and South Sudan to its exclusions list of 12 countries at the end of 2012. PGGM, whose main client, PFZW, represents employees in Dutch healthcare sectors, said it had also started a consultation with pension fund clients on the tobacco investment/diverstment debate, which it said would continue in 2013. A number of large pension funds, notably in Australia, have recently excluded tobacco stocks. In February, Australia’s A$82.39bn (€64.5bn) Future Fund exited 14 tobacco producers including British American Tobacco and Philip Morris. However, the Dutch manager said it erred towards keeping its tobacco exposure: “PGGM naturally recognises the negative health effects of consuming tobacco, but we see smoking as a personal choice,” said the report. Other notable RI focuses in 2012 it said included engagement with the oil and gas industry to understand risk control measures and its promotion of clean energy, dialogue with China and India about responsible use of scarce water resources, and promotion of best practices in an engagement project with 30 international mining companies. “This independent review shows that we take sustainability reporting seriously,” said Marcel Jeucken, PGGM’s Managing Director for Responsible Investments.