Fair investing
An update with seven critical questions
You probably already know that TNO Pension Fund considers socially responsible investing to be a matter of course. It is also an important part of our investment policy. But how well do we do that actually? Read more below and also check out our answers to the seven critical questions you asked us.
Our current situation
Over a year ago we determined a long-term plan for our ESG policy (Environment, Social and Governance). We did this so that we can make a difference in the long term. We already made good headway in 2020. For instance, the pension fund is actively involved in drawing up our custodian bank’s ESG report. This enables us to start more focused dialogue with our asset managers. We also established a system in 2020 that excludes companies that are owned by countries that violate human rights. We are also not only excluding companies that obtain 5% or more of their profits from tobacco production but also those companies that obtain 5% of their turnover from tobacco sales. The number of companies that has been excluded since the ESG long-term plan was drawn up has increased significantly. We excluded 70 companies at the end of 2019 and around 320 at the end of 2020. This ensures that our investments are increasingly ‘fair’.
Impact investing
We also started preparations for impact investing last year. This concerns investments in specific sustainable projects. By adopting this approach, we want to help solve global problems such as poverty, inequality, and climate change. Together with the sponsor TNO, we are now also looking at which of the seventeen United Nation’s Sustainable Development Goals are interesting for us. Investment projects will then be sought for this. As soon as we know what the impact investments will be and which SDGs we are aiming for, we will of course let you know.
Risks of socially responsible investing
Pension Fund TNO's vision is that sustainable investment contributes to a better return in the long term. In the short term, this relationship is not always present or clearly visible. Moreover, by opting for sustainability an investment may decrease in value. Transparency about this is important. This is also at the heart of the new SFDR regulation that will take effect from March 10, 2021. SFDR stands for Sustainable Finance Disclosure Regulation. For us, this means that we will be mapping out unfavorable effects of sustainability factors even better. It is a valuable step in taking even better account of adverse effects on society and the environment in investment decisions.
Follow the developments
We post quarterly updates on the website. If you would like more information, please follow the news relating to TNO Pension Fund’s ESG policy developments. You can read more there about the number of companies we have excluded and see an overview of the steps we have taken over the past year. If you want to know what else we aim to do please have a look at the updated long-term ESG policy plan and the action points for 2021 under Documents.
Critical questions
TNO Pension Fund was asked many questions via the chat during the ‘Income after retirement’ webinar. These included critical questions about our socially responsible investment policy. We are really pleased about this, as that also tells us how committed you are to this topic. We answered all these questions personally. You can find them on the webinar page. The seven most important questions are stated below.
1
Are all the TNO Pension Fund investments sustainable or responsible investments? We invest across the world in thousands of companies and many countries. We do not invest in shares and bonds that are issued by companies involved in controversial activities. The ten United Nations Global Compact Principles are leading in this. We also do not invest in state bonds from countries that are on United States or EU sanctions lists. Nor do we invest in tobacco producers and retailers. The overview of all our investments is detailed on the Documents page on our website under the ‘Socially Responsible Investing’ heading. What’s new in 2021 is that we want to identify the potential and actual negative risks of our investment portfolio on society and the environment. This is in line with the 'IMVB-convenant Pensioenfondsen', which we have signed.
2
Has China been excluded based on its violation of human rights? The exclusion grounds for countries are focused on UN and/or EU weapons’ embargoes and/or sanctions. No sanctions have been issued against China. That is why Chinese bonds are currently not excluded. However, we do not invest in specific Chinese companies if it appears that they have violated the United Nations Global Compact Principles. Involvement in the production and sale of tobacco is also a reason not to invest in a Chinese company. China is an Emerging Market. We invest in an investment fund that buys shares from companies that are listed in Emerging Markets, including China. This fund’s investment guideline is that it does not invest in companies that do not adhere closely with ESG factors. Based on that criterion, many Chinese companies are excluded from investment.
3
How great is the risk if you only invest in sustainable funds? Our number-one priority is ensuring good pensions. We aim to do that via sustainable funds as far as possible and want our investments to have a positive impact on society. It is expected in the coming years that we will invest more and more in sustainable funds.
4
How does TNO Pension Fund know whether the companies in which it invests act in a socially responsible way? All liquid investment portfolios are screened. We have outsourced this to an organization called Sustainalytics. Each quarter, we receive a list of companies that have not adhered to social norms and values. These are companies that do not act in a socially responsible way. If the shares or bonds are in the name of the fund, these companies are excluded. This enables us to retain an overview of the controversial companies.
5
Which body checks whether TNO Pension Fund invests in a socially responsible way? An independent organization (VBDO) evaluates the Socially Responsible Investment Policy of the largest pension funds every year. The fifty biggest Dutch pension funds that participate in the benchmark are together responsible for 92% of the total invested assets of all Dutch pension funds. TNO Pension Fund also takes part in this annual benchmark. In 2019, we rose from 35ᵗʰ to 26ᵗʰ place. Last year the assessment was adjusted slightly, which meant that we ended in 27ᵗʰ place. You can read more about this in this newsletter on our website.
6
Cluster bombs are excluded. Does that mean that you do invest in other bombs and grenades? Dutch pension funds are prohibited by legislation and regulations from investing in cluster bombs. And, of course, we comply with this. The legislator has made an exception for cluster bomb companies in index funds. They may retain up to 5% in the companies that fall under the prohibition. We are part of a European share fund that, as well as excluding cluster bombs, also excludes companies that are involved in the production of biological weapons, nuclear weapons, and anti-personnel mines.
7
What does TNO Pension Fund do with respect to investing in fossil fuels? This is not only an environmental risk; it’s also a financial risk. The Pension Fund Board of Management is aware of the risks associated with investing in fossil fuels, both conventional as well as non-conventional fossil fuels. We recently formulated a climate plan, which will be rolled out in the coming period. This plan does not only refer to the environmental risks, but also the financial risks. Certain fossil fuels are already excluded from some investment funds. We will keep you informed of the climate plan developments via the website.