Pension Funds Invest Responsibly

Jun 11, 2018 10:30 AM ET

Pension Funds Invest Responsibly

Increasingly, employees with pensions think about how environmental, social and governance (ESG) factors affect their investments. BNY Mellon’s Marvin Vervaart, Asset Owner Segment Head for Europe, Middle East, Africa, and pension fund manager Gert-Jan Sikking, Senior Advisor Responsible Investment for PGGM, a Dutch cooperative pension fund manager, discuss the trend and how it benefits society, our business and our stakeholders.

Marvin: What is driving the increasing demand for ESG data and analysis in Europe?

Gert-Jan: Our pension fund clients and underlying pension participants are asking for socially responsible investing and as one of Europe’s largest pension fund asset and fiduciary managers, we must anticipate and respond to this demand. Our pension fund clients are always interviewing pension participants about their investment preferences and recent research shows a large majority of pension participants think the responsible investing of their pension money is important. Even 20 percent are willing to give up financial return for investments with a positive social and/or environmental impact. While PGGM does not make investments that sacrifice financial return, this clearly demonstrates how important socially responsible investing is to our client base.

Legislation is another influence. France recently required investors to disclose how they factor ESG criteria and carbon-related aspects into investment policies. Dutch regulators are considering increased ESG scrutiny. The European Union (EU) overall recently approved the Directive on Institutions for Occupational Retirement Provision (IORP II), which requires pension providers to evaluate and disclose ESG risks.

Marvin: How did you determine what ESG issues to focus on for your investment portfolio?

Gert-Jan: The key is that issue areas must be investible. The United Nations Sustainable Development Goals are critical to society, but not all are investible on an institutional scale. With this in mind and in conversation with clients, we came up with four priority ESG focus areas where we think we can have significant impact: climate change, water, healthcare and food security.

Marvin: You recently presented at the BNY Mellon Client Advisory Board the PGGM tiered approach to socially responsible investing. Can you briefly summarize that approach and where you have partnered with BNY Mellon to deliver value?

Gert-Jan: We have three pillars for evaluating investments. The first is exclusionary screens like human rights violations and conventional arms financing. The second is engagement with companies and proxy voting. PGGM is a shareholder in 3,500 companies globally and we actively engage with them where there can be further improvement on ESG factors. BNY Mellon acts as an agent for us and works in close cooperation with the ISS Proxy Voting service to vote on our behalf.

The third pillar is investing with a positive societal impact, where the focus is on the upside opportunity in ESG investing. We first analyze the effect that ESG factors, such as corporate governance issues, have on investments in the portfolio. In addition, we look for investments aligned with the four focus themes of our pension fund client; we call them “Investment in Solutions.” Long-term, the goal of our client PFZW (the Dutch pension fund of the healthcare sector) is to invest $20 billion by 2020 across climate, water, food security and healthcare themes while continuing to generate strong financial returns. We see great potential to collaborate with BNY Mellon on this pillar in particular.

Marvin: Can you elaborate further on the collaboration opportunity with BNY Mellon and what you hope we can accomplish together?

Gert-Jan: Our joint interest with BNY Mellon is in the data behind these investment decisions. I am excited about our collaboration to develop tools that better measure impact and standardize impact reporting. We are also exploring ways to more efficiently analyze ESG data, including leveraging blockchain technology and fintech expertise. These projects are in the early stages but I am confident in what we can accomplish together.

Learn how BNY Mellon’s CSR strategy delivers for financial markets, communities and the world at large in the 2017 CSR Report.