Socially Responsible Investment

op . Gepost in English Summary

 

Nedlloyd Pensionfund has integrated Socially Responsible Investment (SRI) into its investment policy. In addition, account has been taken of the legal obligations and social developments laid down in, inter alia, the Code Tabaksblat (on corporate governance). In 2006, the United Nations (UN) established the Principles for Responsible Investment (UNPRI). Nedlloyd Pensionfund has decided to implement a policy in line with both guidelines.
Via its asset manager(s), Nedlloyd Pensionfund wishes to act as a responsible investor. This entails making active use of its right to speak and vote at shareholders’ meetings, as well as entering into a constructive dialogue (engagement) with companies in its portfolio. In particular, Nedlloyd Pensionfund has laid down a number of environmental, social and governance (ESG) criteria which should be taken into account in the course of interacting with investee companies, with a view to encouraging better practices.
Socially Responsible Investment (also referred to as sustainable or ethical investment) is a form of investing which takes not only the traditional financial indicators into account but also the impact of company’s governance and business activities on people, the environment and the wider economy.
A carefully executed policy in respect of sustainable management is an essential condition to create value for investors. The companies that excel in the long term are those that not only know how to avoid sustainability risks successfully but can also spot opportunities and benefit from them.
In addition to engagement and voting, the screening of investment portfolios can form a part of the policy governing Responsible Investment.
In many cases, investment portfolios are screened against negative criteria. Generally, consideration is given to which products and processes contravene national (or international) agreements and treaties. Subsequently companies that have any involvement with these products and processes can be excluded from the investment universe. However, screening can also mean identifying companies that have positively distinguished themselves in respect of certain themes deemed important by theclients. Positive screening involves seeking out companies that provide products or services that support sustainable development or are aligned with external targets such as the UN Millennium Development Goals or global targets to reduce greenhouse gas emissions linked to climate change.
Investment in these themes can then be stimulated by allocating a certain part of the investment capital to them.
Engagement means entering into a constructive dialogue with companies about subjects such as the environment, society and corporate governance; a dialogue in which not only the risks and negative effects are discussed but one in which by way of cooperation consideration is given to the opportunities offered by changing (economic) conditions. The objective is to secure shareholder value in the long term. In addition to interaction with corporations, engagement also includes constructive dialogue with policy makers, regulators, industry bodies and civil society.
Another way in which pension funds can actively influence the companies in which they invest is by exercising their right to vote during shareholders’ meetings. Voting should be based on a number of international standards, which can take on different forms in different regions. The intended result is the maintenance and enhancement of shareholder value by combining managerial accountability with transparent reporting.
As of 2009 Nedlloyd Pension fund has appointed F&C Netherlands as its SRI manager. F&C uses its reo® solution to implement Nedlloyd Pension fund’s SRI strategy.
The reo® solution proposed by F&C consists of engagement and active voting at shareholder meetings. reo® acts as a framework (or overlay) and is not a screening service. It therefore does not limit portfolio construction or investment selection.
Through reo®, F&C encourages companies to actively manage a broad range of ESG issues that could impact the long-term sustainability of the company and investment performance. By means of reo®, companies are encouraged to enhance risk management, operating performance, accountability and transparency. Attention is paid to environmental, social and corporate governance issues that could impact company performance. This approach differs in two important ways from traditional sustainable investment:
The method of reo® is cooperation. Instead of avoiding certain investments, F&C works with companies to solve complex issues.
The emphasis of reo® is on questions of sustainability which have an actual effect on shareholder value in the near, medium or long term.
The objective of reo® is to encourage companies to actively manage sustainability issues in the interests of long term value to investors. All companies are contacted at least annually and encouraged to actively manage any ESG issues that could impact performance. Companies facing the greatest combination of risks and opportunities will be the subject of more prolonged detailed engagement. As a prominent institutional investor, F&C is pre-eminently placed to exercise considerable influence in this area.
Working directly with investee companies is of central importance. Much of F&C’s work consists of one-to-one meetings with these companies. However, participation in industry working groups, trade associations and collective initiatives can help raise standards and improve practices across a group of companies without compromising competitiveness. Therefore, F&C works closely through a number of collaborative initiatives to tackle systemic challenges. Often these collaborations involve joining forces with other investors, enabling resources to be pooled and the approach coordinated. Finally, participation in the development of government policies is another important feature of the reo® solution. There are always companies that voluntarily take action on important issues such as climate change, corruption or employment conditions. Despite this, changes are often only realised when laws and regulations ensure a level playing field. As an investor, F&C can play a role in informing governments and supervisory authorities which policies will improve practices, while offering long-term benefit to both society and investors.
On behalf of the Nedlloyd Pensionfund the asset manager observes a policy of considered voting. Consequently, account is taken of specific market and company information, as well as internationally accepted standards for sound corporate governance. In this context a principled but pragmatic attitude is important: if a company deviates from what is considered ‘good practice’, it should provide a clear explanation for why this deviation is appropriate, and this explanation will be given careful consideration. We do not apply a simple ‘tick the box’ approach.
An archive of documents, such as voting records and annual reports, can be found here.