SNPS is striving to achieve sustainable development and a strong social license to operate. SNPS is made up of 5 building blocks: 3 Life Cycle Portfolios (LCP) and 2 Collective Variable Pension (CVP) portfolios. Based on the composition of the building blocks in which investments are made, 4 underlying pension schemes are distinguished (Table 1). These pension schemes promote environmental (E) or social (S) characteristics but do not have a sustainable investment objective as defined in the SFDR. This classifies the pension schemes as Article 8 financial products as defined in the SFDR.

The SNPS pension schemes promote the following E&S characteristics:

• Improved governance
The pension schemes promote improved governance in the global equity mandate by achieving a higher governance rating compared to the benchmark.

• CO₂ reduction
The pension schemes promote CO₂ reduction in the global equity mandate by achieving a lower CO2 intensity compared to the benchmark. The pension schemes aim to achieve a 15% lower CO₂ intensity compared to the benchmark.

• Exclusion of controversial weapons
The pension schemes promote the elimination of controversial weapons by excluding companies involved in the production, distribution or sale of controversial weapons.

SNPS has eight investment beliefs, including integrating Environmental, Social and Governance (ESG) factors into the investment cycle, which are the starting point for the investment strategy. These investment beliefs are explained in more detail in the Statement of Investment Principles (pdf). In addition to these investment beliefs, SNPS also applies a Socially Responsible Investment policy (SRI policy) both before and after purchasing investments. This is done by ESG service providers Achmea Investment Management B.V. (Achmea IM), to which SNPS has outsourced asset management, and EOS at Federated Hermes (EOS), from which SNPS purchases engagement services. In its SRI policy, SNPS prioritises thematic focus areas based in part on participant preferences. In addition to legislation, SNPS also takes national and international codes and guidelines as a starting point when developing its SRI policy, including the Dutch Pension Funds’ International Socially Responsible Investment Covenant (IMVB Covenant), UN Global Compact (UNGC), UN Guiding Principles on Business and Human Rights (UNGP), UN Sustainable Development Goals (SDGs) and the OECD Guidelines for Multinational Enterprises.

The E&S characteristics promoted by SNPS are made transparent through sustainability indicators. These sustainability indicators, which are based on measurements against generic benchmarks and international codes and guidelines, are monitored by the ESG service providers over the lifecycle of the pension schemes and reported to SNPS on a quarterly basis. Within the pension schemes, 0-30% of investments are aligned with the three E&S characteristics promoted by SNPS. This percentage is based on already available data. Within the Return, CVP net and CVP gross building blocks, investments are also made in emerging market equities, high-yield, Dutch mortgages and government bond investment funds, which incorporate ESG criteria. However, these investment funds cannot (yet) be regarded as an E&S characteristic, as they cannot (yet) be measured as such. Once data within these mutual funds are made available at the end of Q2 2023, the percentage of investments aligned with the three E&S characteristics will increase significantly.

SNPS’ ESG service providers use external data when measuring and monitoring the ESG performance of investee companies. To ensure data quality, external data providers are extensively scrutinised during the selection process, spot checks of data are performed on an ongoing basis, incomplete data are not included in calculations and investment decisions and, where possible, data are automatically read into administration systems by the ESG service providers. In doing so, SNPS’ ESG service providers seek to ensure that potential limitations to the methodologies and data used have as little impact as possible on how E&S characteristics are determined.

SNPS seeks dialogue with company management via ESG service provider EOS and external fund managers, both proactively and reactively. On the one hand through proactive engagement, encouraging companies to make improvements to specific themes (‘do good’). On the other hand through reactive engagement (‘do no harm’) including violation of the UN Global Compact Principles. On a quarterly basis, companies within SNPS’ investments are analysed by EOS for any controversial issues. These analyses are used for (1) shaping the voting policy, (2) deciding to undertake engagement, (3) assessing the progress of engagement and (4) deciding to exclude companies if no progress is made on violations of the UN Global Compact. On a pre-trade basis, companies that do not comply with international codes and guidelines relating to good governance are excluded. Engagement is undertaken with these companies on a post-trade basis. If no progress is made, there is still the option to exclude the relevant companies.

SNPS uses reference benchmarks to attain, or monitor the attainment of, some of the E&S characteristics promoted by SNPS. These are the characteristics ‘improved governance’ and ‘CO₂ reduction’ in relation to the global equity mandate.

SNPS strives for sustainable development and a strong social ‘license to operate’, looking after the interests of current and former participants, pensioners as well as those of society. Besides important return and risk considerations, Environmental, Social and Governance (ESG) considerations are also taken into account in the investment process. SNPS has embedded these beliefs in a Socially Responsible Investment policy (SRI policy).

SNPS is made up of several building blocks. Based on the composition of the building blocks in which investments are made, 4 underlying pension schemes are distinguished (Table 1). These pension schemes promote E&S characteristics but do not have a sustainable investment objective as defined in the SFDR. This classifies the pension schemes as Article 8 financial products as defined in the SFDR.

Pension scheme	Building blocks	Entry into service before or after 1 July 2013	Choice of profile	Participation in Collective Variable Pension (CVP) (default)
Pension scheme 1	LCP Return, LCP Interest	After	Offensive	Yes
	LCP Return, LCP Interest	After	Neutral	Yes
	LCP Return, LCP Interest	After	Defensive	Yes
	LCP Return, LCP Interest	Before	Neutral	Yes
	LCP Return, LCP Interest	Before	Defensive	Yes
Pension scheme 2	LCP Return	Before	Offensive	Yes
Pension scheme 3	LCP Return, LCP Interest, LCP Matching	After	Offensive	No
	LCP Return, LCP Interest, LCP Matching	After	Neutral	No
	LCP Return, LCP Interest, LCP Matching	After	Defensive	No
	LCP Rendement, LCP Rente, LCP Matching	Before	Offensive	No
	LCP Return, LCP Interest, LCP Matching	Before	Neutral	No
	LCP Return, LCP Interest, LCP Matching	Before	Defensive	No
Pension scheme 4 (benefit phase)	CVP (Net)	N/A	CVP Net	-
	CVP (Gross)	N/A	CVP Gross	-

Table 1. Composition of pension schemes

Participants can choose in the year before they turn 58 whether they want to participate in the CVP. The composition of building blocks is the same for participants under the age of 58 regardless of their choice to participate or not participate in the CVP. Building blocks do of course differ depending on the profile chosen (defensive, neutral or offensive) and entry into service before or after 1 July 2013.

The pension schemes promote the following E&S characteristics:

• Improved governance
The pension schemes promote improved governance in the global equity mandate by achieving a higher governance rating* compared to the benchmark**.

• CO₂ reduction
The pension schemes promote CO₂ reduction in the global equity mandate by achieving a lower CO₂ intensity compared to the benchmark***. The pension schemes aim to achieve a 15% lower CO₂ intensity compared to the benchmark.

• Exclusion of controversial weapons
The pension schemes promote the elimination of controversial weapons by excluding companies involved in the production, distribution or sale of controversial weapons.

On a pre-trade basis, companies that perform very poorly**** in terms of good governance by violating international standards are excluded. Engagement is undertaken with these companies on a post-trade basis. If no progress is made, there is still the option to exclude the relevant companies.

* A governance rating is part of an ESG rating, which is a measurement of performance based on various ESG criteria. There are several institutes that determine an ESG rating. SNPS’ pension schemes use the ESG ratings of MSCI.
** The benchmark in this case is the generic MSCI World Index consisting of more than 1,500 shares of large-cap and mid-cap companies in 23 developed markets.
*** The benchmark in this case is the carbon metric data set of the generic MSCI World Index consisting of more than 1,500 shares of large-cap and mid-cap companies in 23 developed markets.
**** ‘Poor’ refers to companies that have been ‘red’ flagged by ISS ESG. ISS ESG grants this status in case of a verified violation of international standards. This requires two conditions to be met: the violation has been verified by an authoritative body and the company has not addressed the violation.

It is SNPS’ vision that responsible investment contributes to long-term value creation and that shareholder engagement promotes good governance and corporate responsibility. SNPS has eight investment beliefs that are the starting point for its investment strategy:

1. Taking deliberate investment risks is necessary to generate a return, but unrewarded risks must be hedged as much as possible where this is (economically) useful.

2. Diversification of investments improves the risk-return profile of the entire investment portfolio while explicitly taking into account the underlying sources of risk and return.

3. Age-related investment provides participants with a solid basis for an optimal risk-weighted (pension) result.

4. The governance of the pension fund must match the degree of complexity of the investment strategies and underlying portfolios.

5. Internal and external expertise, combined with robust countervailing power, results in well-considered investment decisions.

6. Engaged ownership promotes good governance and corporate social responsibility. Integration of ‘ESG’ factors is essential in the investment cycle and leads to an improvement of the risk-return profile.

7. Active management can provide added value because not all markets are always as efficient.

8. Additional costs, within certain boundaries, are acceptable for the generation of additional expected return, better risk management or the realisation of important investment objectives.

In addition to these investment beliefs, SNPS also applies the SRI policy both before and after investings. This is done by ESG service providers Achmea Investment Management B.V. (Achmea IM), to which SNPS has outsourced asset management, and EOS at Federated Hermes (EOS), from which SNPS purchases engagement services. In its SRI policy, SNPS prioritises thematic focus areas based in part on participant preferences. In addition to legislation, SNPS also takes national and international codes and guidelines as a starting point when developing its SRI policy, including the Dutch Pension Funds’ International Socially Responsible Investment Covenant (IMVB Covenant), UN Global Compact (UNGC), UN Guiding Principles on Business and Human Rights (UNGP), UN Sustainable Development Goals (SDGs) and the OECD Guidelines for Multinational Enterprises.

The SRI policy is implemented through the following instruments:

• Selecting and supervising external managers
When choosing an external fund manager, a consideration is that it uses sustainability criteria and long-term value creation as a guiding principle.

• ESG integration
By taking ESG factors into consideration during the investment process.

• Engagement and voting policy
By seeking dialogue with company management, both proactively and reactively, and expressing SNPS’ ESG vision through voting.

• Exclusion policy
By excluding companies that do not make any progress in terms of corporate sustainability in addition to companies involved in the production, distribution or sale of controversial weapons and companies that, on a pre-trade basis, perform very poorly in terms of good governance*.

SNPS invests most of its assets in investment funds that are managed by external asset managers. In doing so, SNPS is not the legal owner of the investments that are maintained in these funds and therefore applies a derived responsible ownership vision when it comes to these investment funds. This means SNPS imposes certain requirements on external asset managers including having and implementing appropriate engagement and voting policies and providing transparent reports on them. Part of SNPS’ assets are invested directly through the global equity mandate, whereby SNPS, through EOS, engages with companies in which SNPS invests. Because SNPS believes in engagement as a tool to achieve sustainable change, exclusion is implemented as a last resort when engagement has repeatedly proven ineffective/impossible. This will be decided on a case-by-case basis.

* ‘Poor’ refers to companies that have been ‘red’ flagged by ISS ESG. ISS ESG grants this status in case of a verified violation of international standards. This requires two conditions to be met: the violation has been verified by an authoritative body and the company has not addressed the violation.

The table below shows for each pension scheme what percentage of investments within the underlying building blocks are aligned with E&S characteristics.

Pension scheme	Building blocks	#1 Aligned with E&S characteristics	#2 Other
Pension scheme 1	LCP Return	30%	70%
	LCP Interest	0%	100%
Pension scheme 2	LCP Return	30%	70%
Pension scheme 3	LCP Return	30%	70%
	LCP Interest	0%	100%
	LCP Matching	0%	100%
Pension scheme 4 (benefit phase)	CVP net	12%	88%
	CVP gross	12%	88%

Table 2. Percentage of investments aligned with E&S characteristics

The percentage of the investments within the building blocks which is aligned with the E&S characteristics is based on already available data. Within the Return, CVP net and CVP gross building blocks, investments are also made in emerging market equities, high-yield, Dutch mortgages and government bond mutual funds, which incorporate ESG criteria. However, these mutual funds cannot (yet) be regarded as an E&S characteristic, as they cannot (yet) be measured as such. Once data within these mutual funds are made available at the end of Q2 2023, the percentage of the investments aligned with the E&S characteristics will increase significantly.

The exact percentage of investments aligned with E&S characteristics varies by participant (except for participants in CVP net and CVP gross portfolios), as the ratio of the building blocks invested in is based on age cohorts.

The E&S characteristics promoted by SNPS are made transparent through the following sustainability indicators:

• Improved governance
The weighted governance rating* in the global equity mandate.

• CO₂ reduction
The carbon footprint of the investment portfolio in the global equity mandate.

• Exclusion of controversial weapons
The percentage of companies excluded from the investment portfolio which are involved in the production, distribution or sale of controversial weapons.

These sustainability indicators are monitored over the lifecycle of the pension schemes and reported to SNPS by ESG service providers EOS (screening for controversial weapons) and Achmea IM (improved governance, CO₂ reduction and exclusion of controversial weapons). To this process, EOS and Achmea IM apply quality standards and management measures in the form of a data supply agreement with external data providers, ensuring that data and plausibility checks are validated. The results of this reporting process are included in SNPS’ periodic reporting.

* A governance rating is part of an ESG rating, which is a measurement of performance based on various ESG criteria. There are several institutes that determine an ESG rating. SNPS’ pension schemes use the ESG ratings of MSCI.

To measure how the E&S characteristics promoted by SNPS are achieved, the following methodologies are applied:

• The weighted governance rating* of the global equity mandate is measured against the benchmark** using external data.

• To measure the carbon footprint of the global equity mandate against the benchmark***, the total annual greenhouse gas emissions of all companies are calculated first. The calculation looks at both the emissions caused by the company’s own business activities (scope 1 according to the Greenhouse Gas Protocol****) and those associated with the production of energy purchased by the company (scope 2 according to the Greenhouse Gas Protocol). This is divided by the enterprise value including cash (EVIC) in the same year. The result shows how many greenhouse gases a company emits for every euro of funding. To arrive at the carbon footprint of the global equity mandate, the weighted average of the carbon footprints of all investee companies in the global equity mandate is calculated. Companies in which investments are high thus carry more weight. Companies where data are missing are effectively assigned the portfolio average.

• Every six months, an external data provider (see Data sources and processing) identifies which companies are involved in the production of controversial weapons. To this end, the data provider looks at the entire investment universe. If any involvement is identified, the relevant company will be excluded. The exclusion criteria can be found in the SRI policy.

* A governance rating is part of an ESG rating, which is a measurement of performance based on various ESG criteria. There are several institutes that determine an ESG rating. SNPS’ pension schemes use the ESG ratings of MSCI.
** The benchmark in this case is the generic MSCI World Index consisting of more than 1,500 shares of large-cap and mid-cap companies in 23 developed markets.
*** The benchmark in this case is the carbon metric data set of the generic MSCI World Index consisting of more than 1,500 shares of large-cap and mid-cap companies in 23 developed markets.
**** The Greenhouse Gas Protocol is a global standard for measuring and reporting greenhouse gas emissions by companies and organisations.

SNPS’ ESG service providers, EOS and Achmea IM, use external data as input for sustainable investment processes. The preference is to use standardised data where possible, such as data from independent data providers ISS ESG, MSCI ESG and Sustainalytics. ESG service providers EOS and Achmea IM conduct research on potential data providers to determine whether the data (I) are suitable for the purpose for which the data will be used, (II) match the investment universe and (III) are of sufficiently high quality.

The table below summarises the data sources used by EOS and Achmea IM for each E&S characteristic.

E&S Characteristic	Indicator	Data source
Improved governance	Governance rating	MSCI ESG
CO2 reduction	Portfolio’s carbon footprint (CO2 / EVIC)	MSCI ESG / Factset
Exclusion of controversial weapons (screening)	Involvement in the production of controversial weapons	ISS ESG / Sustainalytics

Table 3. Data sources

The data from selected external data providers are in most cases the prevailing factor when applying the exclusion policy and ESG integration. In the case of normative exclusions (exclusions based on a possible violation of internationally accepted standards), a qualitative consideration is made. Here, the input from data providers is taken into account, but it is not leading.

The data quality of each data provider is assessed by EOS and Achmea IM during the data provider selection process. This process includes activities such as reviewing the data model, statistical checks and assessing data coverage on benchmarks and portfolios. Where relevant, the impact of different data sources on investment decisions is tested ex ante by the ESG service providers, for example when it comes to understanding the financial impact of exclusions on returns. By taking these steps, SNPS’ ESG service providers aim to build a sufficient level of trust in the chosen data and data providers.

In addition, spot checks of data are carried out on an ongoing basis by EOS and Achmea IM. Outliers are discussed with the relevant data provider. This can lead to ad hoc adjustments of external data or to structural adjustments in the use of data. Overwriting data and/or using alternative data is substantiated and documented. The ESG service providers carry out more comprehensive periodical reviews of the selected data providers and selected data. This evaluation may lead to the termination of cooperation with a data provider or to the selection of an alternative data provider.

Where possible, the data are automated in the administration systems of EOS and Achmea IM and transferred through an API (a data link between the data provider and the SNPS systems) and used by the administration system for investment processes and reporting purposes. For certain investment processes, data access takes place through third-party platforms. The data for the exclusion processes are processed in a database and shared with the asset managers within the global equity mandate or SNPS by means of automatically generated Excel templates.

EOS and Achmea IM do not make estimates in the data themselves, but purchase data. If no data are available, there is no ground for actions.

There are certain limitations to the methodology and data used.

The main limitation in the area of ‘improved governance’ within the global equity mandate is that ESG ratings, and hence governance ratings as part of ESG ratings, are potentially subjective and partly determined by a qualitative value judgment of a data provider. There are no ESG materiality matrices available on which market-wide consensus has been reached. An ESG rating is therefore largely dependent on the relative importance the data provider attaches to different attributes which leads to subjective ESG ratings. In addition, inconsistency in the underlying raw data from companies means that companies cannot be compared on the same footing. This may result in different ratings for equivalent companies in a sector. Additional shortcomings include lack of coverage of a specific sector or type of entity, insufficient detail of data and lack of transparency on the methodologies used for specific elements of the ESG rating. By taking these potential limitations into account both in the selection process of data providers and in the choice of whether or not to base investment decisions on ESG ratings, ESG service provider Achmea IM tries to ensure that the limitations have as little impact as possible on how the E&S characteristic is achieved.

The main limitation in the area of ‘CO₂ reduction’ in the global equity mandate is that in some cases emission data are not readily available and that currently used methods for modelling scope 3 emissions are still deficient. By using modelled emissions data where they are not readily available and by not including scope 3 emissions data in calculations and investment decisions, Achmea IM tries to ensure that the potential limitations have as little impact as possible on how the E&S characteristic is achieved.

The main limitation in the area of ‘exclusion of controversial weapons’ is the reliance on the judgement of the selected external data provider. When formulating an opinion of a company, the data provider uses both sources originating from the company in question and sources from publicly available documents. These can come from civil society organisations, scientific publications, industry associations, intergovernmental organisations, (local) governments, etcetera. Using the available sources, the external data provider makes an informed assessment of whether and to what extent a company is involved in a product that is subject to a ground for exclusion. By conducting sufficient checks on both the data provider and the data provided by the data provider (see Data sources and processing), SNPS’ ESG service providers try to ensure that the potential limitations have as little impact as possible on how the E&S characteristic is achieved.

ESG factors are included in considerations during the investment process. When selecting an external fund manager, one of SNPS’s considerations is whether the fund manager applies these sustainability criteria and long-term value creation as guiding principles when establishing the investment policy of the investment fund in which SNPS is considering investing. Here, SNPS is assisted by Achmea IM. In addition, the ESG performance of the investment funds in which SNPS invests is screened both at the start of the investment process and periodically afterwards.

SNPS defines engagement as SNPS using its influence to achieve sustainable improvements in relation to environmental and social policy and governance. SNPS seeks dialogue with company management via ESG service provider EOS and external fund managers, both proactively and reactively. On the one hand through proactive engagement, encouraging companies to make improvements to specific themes (‘do good’). On the other through reactive engagement (‘do no harm’) including violation of the UN Global Compact Principles.

On a quarterly basis, companies within SNPS’ investments are analysed by EOS for any controversial issues. These analyses are used for (1) shaping the voting policy, (2) deciding to undertake engagement, (3) assessing the progress of engagement and (4) deciding to exclude companies if no progress is made on violations of the UN Global Compact. This includes the (potential) negative consequences of the exclusion, and thus the loss of influence on a company, on social stakeholders and the environment.

Once every quarter, SNPS reports on its implementation of voting and engagement policy on its website. It specifies the engagements initiated and voting policy per region, the votes cast and items that SNPS, through EOS, voted against or in relation to which it abstained from voting. The policy is applied worldwide. Part of the policy is that SNPS does not make any (public) announcements about engagement and voting policy for individual investee companies, partly because this can negatively affect the effectiveness of the voting and engagement policy.

SNPS’ ESG service provider, Achmea IM, uses reference benchmarks to achieve, or monitor the achievement of, some of the E&S characteristics promoted by SNPS. These are the characteristics ‘improved governance’ and ‘CO₂ reduction’ in relation to the global equity mandate.

For the ‘CO₂ reduction’ characteristic, the governance rating (which is part of the ESG rating) of the generic MSCI World Index is used, which consists of more than 1,500 shares of large-cap and mid-cap companies in 23 developed markets. The global equity mandate is compared with the MSCI World Index benchmark and adjusted where necessary to ensure that the governance rating of the global equity mandate is higher than the benchmark at all times. For the ‘CO₂ reduction’ characteristic, the carbon metric data set of the generic MSCI World Index is used, which consists of more than 1,500 shares of large-cap and mid-cap companies in 23 developed markets. The global equity mandate is compared with the MSCI World Index benchmark and adjusted where necessary to ensure that the carbon footprint of the global equity mandate is 15% lower than the benchmark at all times.