Most Dutch pension funds still missing out on responsible investment
VBDO has reviewed thoroughly the responsible investment (RI) practices of the 50 largest Dutch pension funds for the full year 2019, rating them from zero to five as it does since 2006. These pension funds had combined assets under management of over €1.43trn, accounting for 92% of the assets in the Dutch pension fund sector at the end of 2019. VBDO's scores rely on four pillars: governance, policy and accountability (accounting each for 16.6% of the rating) and implementation (50% of the rating).
“This year, however, after raising the bar via a thorough overhaul of our survey, there has been a sharp drop in the total average score to 2.1. Although pension funds apply RI approaches on at least a basic level, we find that performances on responsible investment still varies widely. Several steps could be taken to further integrate responsible investment in the overall strategy of pension funds,” said VBDO. The association stressed a major shift. The implementation category, which had scored the lowest among the four categories for eight years in a row, does not have the lowest average score in the 2020 benchmark. The policy category now has the lowest score (1.7), implementation follows with an average score of 2 while governance and accountability have respective average scores of 2.2 and 2.5 over 5.
ABP, the pension fund for employees of the Dutch government and educational sector and the biggest one in the country, still tops the rankings with an overall score of 4.3 over 5. It is followed by the pension fund for the local construction sector bpfBouw (4) and that of the metal/electro-manufacturing industry PME (3.9). Completing the top five are the pension schemes for the Dutch care and welfare sector PFZW (3.6) and for metal and technical workers PMT (3.4).
Four pension schemes scored under one in VBDO’s benchmark, including PMA (Dutch pharmacists, 0.9); SPIM (employees of IBM Nederland, 0.8); the pension fund of the airline company KLM’s staff (0.8) and Pensioenfonds Hoogovens (Tata Steel Netherlands employees, 0.7). The best progression year-on-year has been that of Dutch general practitioners, Stichting Pensioenfonds Huisartsen, scoring 2.1 and jumping 22 ranks to the 24th position in this year’s VBDO benchmark from the 46th rank last year. Conversely, the pension fund of Heineken (score of 1.1) dropped 15 ranks from 30th in 2019 to 45th in 2020.
Lack of RI knowledge on boards
Looking at governance of pension funds, the authors of VBDO’s 2020 benchmark report found out that Dutch pension fund boards lack specific responsible investment knowledge. “While most (70%) pension funds are advised by experts (consultants and/or asset managers), only 16% of the pension fund boards have demonstrable RI knowledge. In the light of the ongoing development to embed complex RI risks in investment policies, board members need to have some understanding of the different approaches and methodologies,” they said. In only 14% of the 50 largest Dutch pension funds, there is a board member with demonstrable RI knowledge appointed to lead and implement ESG investments.
On the policy side, VBDO pinpointed “little proof of a steady, aligned and ambitious course of action.” “Although there are many standards and guidelines available, pension funds hardly make use of such guidelines to set short, medium and long-term goals and sciencebased targets,” it added. According to the association’s benchmark, a majority of the 50 largest Dutch pension funds (72%) have formulated goals that demonstrably increase the ambition of their RI strategies. However, solely 10% of them include short, medium, and long-term time-bound targets relating to the ambitious goals they have set. Besides, VBDO castigated the lack of roadmap for the achievement of goals sets out in the Paris Agreement.
Another finding suggests that more than three in four (76%) of the 50 largest Dutch pension funds have implemented sustainable development goals in their responsible investment policy (against 24% that have not) but at various degrees. Solely 14% measure and report on the positive impact of the UN SDG’s investments whereas 42% have implemented the UN SDGs in an investment fund/product or in one or more RI instruments and 20% did not go beyond adopting SDGs in their RI policy.
‘General lack of alignment between portfolio and RI policy’
Regarding implementation of the RI policy, VBDO fingered “a general lack of alignment between the investment portfolio and the RI policy.” “Almost half (44%) of the pension funds’ investment portfolios are not aligned with their RI policy. Only a few pension funds require asset managers to operate in line with the goals of the pension fund. For example, while almost 80% of the pension funds have an ESG integration policy, just over 50% apply it to the full public equity portfolio,” the authors of the report penned.
Lastly, for the accountability segment, VBDO sieved the ESG reporting practices of the 50 largest pension funds in the Netherlands. It stressed that only 14% of them implement (inter)national standards and guidelines to disclose relevant ESG information. In addition, 36% of them incorporate RI strategic objectives and performance against these objectives and future ambitions in the annual (RI) report. The remaining half settles for a substantial explanation about RI in the annual (RI) report.
The full VBDO's report is available here.