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Dutch transport funds lay SRI tracks

SPF Beheer outlines move from best-in-class to engagement.

Dutch superfunds ABP and PGGM may make the headlines in the Netherlands terms of responsible investment, but amongst their smaller and medium-sized peers the trend to SRI is equally important and idiosyncratic. SPF Beheer, investment manager for the assets of Spoorwegpensioenfonds, the Dutch railways pension fund, and SPOV, the Dutch public transport scheme, has had an SRI policy for four years now, covering both funds. Henk Hermsen, head of portfolio management at SPF, says it began with a relatively straightforward underweighting and overweighting of stocks on a best-in-class basis. However, he says the fund found the approach unsatisfying after a year of implementation. “At the time, we also thought about adopting an overall exclusion policy, but weren’t sure that this really helped the underlying issue of how to improve companies.” Just over a year ago, he says, SPF started to introduce some major changes to the approach; one of which was to introduce a strategic equity portfolio with a much longer-term investment horizon that did not follow a traditional benchmark. This strategic equity portfolio, run for both client funds, will grow to 8% of total assets during this year for SPF and 7% for SPOV: “Our decision was based on the fact that looking longer term means necessarily focusing to someextent on sustainability issues. “The horizon of the investment in the strategic portfolio is for several years performance rather than the next quarter. We actively seek out undervalued companies where we think value might be added over a long period. The strategy is run by SPF’s in-house investment team, as are two-thirds of its total investments.

“Looking longer term means necessarily focusing to some extent on sustainability issues.”

Martijn Huijnen, assistant portfolio manager for socially responsible investing, says the fund does exclude some companies from its portfolio: “We have a controversial weapons blacklist that includes six companies and we will announce some more exclusions shortly. Our ethical guidelines are quite clearly laid out on our web site. We define controversial weapons as those that cause a high level of civilian damage outside the areas of combat. These include cluster bombs, anti-personnel landmines, biological, chemical and nuclear weapons and those using depleted uranium. The difficulty is to identify those companies that supply key components for such weapons because that is our category for divestment.”

However, Huijnen is keen to point out that SPF does not consider exclusions as the lynchpin of its SRI policy: “We believe the work we do in engaging with companies over things like the UN Global Compact is more important because we believe that companies should actively promote sustainability and human rights as encouraged by the Compact.
We also believe that engagement must be thorough: contact is made with the company via all means, letters, e-mail, telephone and we actively vote at companies’ annual general meetings. Because we want to see results from engagement, we ask the companies we talk with to make explicit and quantifiable changes.”
For its extra financial research on companies, the company first takes data from an independent research company before complementing this with its own additional research and then applying it where necessary to engagement initiatives or stock selection. Huijnen says: “For 2008 we also have a number of priority issues that we are engaging on. For the railways pensionscheme this includes child labour, the environment and human rights. For the public transport pension fund moreover remuneration is a key issue. “In terms of specific SRI investment strategies, SPF has invested €15m in microfinance and also mandated for managers to run a commitment to biofuel investment in Africa. It also recently signed up to the Carbon Disclosure Project. Hermsen says: “We believe that transparency on carbon disclosure is valuable for our investments because of the financial implications of forthcoming legislation. It’s also, of course, an environmental question.
He says SPF is also looking at the question of sustainability in relation to emerging markets equity investments and private and public real estate allocations: “It’s a little more complicated than what we have done to date and we are in the process of evaluating what we can do in terms of sustainability. Our goal is to make it part of the way we make every investment decision.