Responsible investment policy
Socially responsible investing is becoming an ever more important theme for Dutch pension funds. Stichting Shell Pensioenfonds (SSPF) is striving to achieve sustainable development and a strong social ‘license to operate’ by incorporating environmental, social and governance aspects into the investment process. Implementation of the ambitions above have been anchored in SSPF policy.
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Responsible investment
SSPF defines ‘responsible investment’ as investments in which the interests of participants, inactive participants, retirees and society are represented in the long term. Besides financial considerations, environmental, social and governance (ESG) aspects are taken into account.
SSPF responsible investment policy covers the following elements of the policy cycle: the SSPF mission and vision on responsible investment, its objectives, anchoring in the Board, national and international ESG codes and guidelines, strategic tools, progress monitoring, transparency and reports on policy results and evaluation.
Mission and vision
One aspect of the SSPF pension fund mission involves meeting its pension-entitlement and pension-right commitments now and in the future. The pension fund also strives to ensure that commenced and non-contributory pension entitlements to be inflation-proof. SSPF aims to create long-term value via its investments, its vision being that responsible investment contributes to long-term value creation. SSPF formulates a number of investment beliefs in its Statement of Investment Principles. 2 of these investment beliefs follow below:
- Responsible ownership promotes good governance and corporate responsibility.
- ESG factors influence the investment risk and return of all asset categories and good governance is a precondition for improved performance by the organisation on the E (environmental) and S (social) factors.
Objectives
The objectives for the responsible investment policy at SSPF are that:
- policy and its implementation follow current treaties, conventions, legislation, guidelines, codes and covenants on the subject of responsible investment policy.
- the choices and results are transparent for and explainable to all SSPF stakeholders.
- it commits itself to sustainable improvements in respect of the environment, society and governance. For example, a reduction in its CO2 footprint and improved governance performance.
- it makes a positive contribution to the risk and return profile of SSPF investments, with due observance of the thematic preferences of participants.
Anchoring in the Board
The Board is responsible for ESG policy. SSPF has appointed several Board members as focal points for matters pertaining to responsible investment (‘ESG focal points’). They discuss all current matters in this respect and decide which items will be added to the Board agenda. In addition, another Board member has been appointed to focus specifically on the contacts with the external service provider for engagement and voting.
National and international codes and guidelines
SSPF bases the development of its responsible investment policy on legislation and the following codes and guidelines:
1. The United Nations
a. Global Compact (UNGC): this consists of 10 criteria in relation to human rights, labour, environment and anti-corruption.
b. Principles for Responsible Investment (UNPRI): in 2008, SSPF signed the UNPRI, in which the responsibilities of investors are aligned to the broader ESG interests of society.
c. Guiding Principles on Business and Human Rights (UNGP): these principles provide companies with a ‘protect’, respect’ and remedy’ framework in respect of human rights.
d. Sustainable Development Goals (UNSDG): the Board at SSPF acknowledges the importance of the Sustainable Development Goals of the United Nations.
2. OECD
a. OECD Guidelines for Multinational Enterprises: these guidelines help companies deal with issues like supply chain responsibility, human rights, child labour, the environment and corruption.
b. The following OECD guidelines apply specifically for institutional investors: ‘Responsible business conduct for institutional investors’. They set out the various elements of the due diligence process.
SSPF asks its external fiduciary managers, ESG service providers and/or asset managers and the companies in which it invests to act in accordance with the guidelines above or to endeavour to do so.
3. Covenant on International Socially Responsible Investment for Pension Funds (IMVB):
in 2018, SSPF signed the Covenant on International Socially Responsible Investment for Pension Funds, the object of which is to promote sustainable investment via collaboration between pension funds, social organisations, unions and the government.
Strategic tools
Taking long-term value creation as a guiding principle has been integrated into various parts of the overall policy and investment cycle and in selection criteria for external managers.
If possible, SSPF monitors the strategy, financial and non-financial performance and risks, capital structure, social and ecological impact and corporate government of the companies in which it invests. SSPF actively exercises its voting rights as much as and wherever possible. If necessary, SSPF actively collaborates with others, or external service providers, to seek active dialogue with companies in which it invests, in order to achieve improvements in environmental and social policy and good governance and, as a consequence, better returns, recovery and/or compensation too. This is executed by an external asset manager and specialist service providers.
SSPF asks external fiduciary managers, ESG service providers and/or asset managers to act in accordance with SSPF policy and objectives and strives to collaborate with them in the long term, in order to achieve long-term value creation via responsible investment.
In its responsible investment policy, SSPF prioritises thematic focus areas, which are based in part on its own risk assessment and the preferences of participants.
The strategic tools used to implement responsible investment policy are explained below.
1. ESG integration
ESG integration involves the inclusion of ESG factors in the investment process. Wherever possible, SSPF uses external service providers to screen and monitor the progress achieved by companies, particularly in relation to ESG-subjects that are financially material and/or have a serious negative impact on society and the environment or themes that are established on the basis of participant preference in part (SDGs, for example). Subjects with the most serious negative impact are prioritised by nature and probability. This due diligence process is implemented per investment category. The further specifics of the above are described in procedures and in contracts with the external asset manager.
When carrying out their activities, external asset managers and service providers are expected to observe the Shell General Business Principles (SGBP) or similar principles. The SGBP have been formulated in line with the United Nations Global Compact (UNGC). ESG criteria are taken into consideration when selecting external managers and may tip the balance in situations where all other matters are equal.
SSPF’s investment policy includes scope for ‘impact investing’; these are investments that are assessed on the basis of (financial) risk and return as well as on its contribution to the achievement of social and/or environmental objectives. These instruments can be found, for example, in the global thematic equity portfolio (addressing sustainability themes) or in certain bond portfolios (e.g. green bonds). Instruments such as green bonds are selected over their vanilla equivalents (if the risk/return characteristics are comparable) because of their contribution to SSPF’s priority SDG’s 7, 11 and 13.
2. Engagement
SSPF defines ‘engagement’ as using its influence to achieve sustainable improvements in relation to environmental and social policy and good governance. SSPF believes that quiet diplomacy is in the interest of the way to successful dialogue. It seeks dialogue with company management via an external service provider, both reactively and proactively.
On the one hand, via proactive engagement, encouraging companies to make improvements to specific themes (‘do good’). On the other hand, via reactive engagement (‘do no harm’). The pension fund has appointed EOS Hermes to execute the engagement policy on behalf of SSPF. Where appropriate, SSPF seeks to achieve dialogue in collaboration with other institutional investors. SSPF contributes to and fully underwrites the engagement policy of this provider as its own engagement policy. EOS Hermes operates based on a 3-year engagement plan. In this plan, the engagement themes have been identified (10 major themes and 37 sub themes) and included in the engagement effort.
SSPF has an important role in establishing the engagement plan. The fund scrutinizes the plan and provides EOS with its preferences (including important SDGs and themes), the fund’s input is taken into account by the engagement provider in the final engagement plan. In addition, the fund has a process in which exclusion and divestment is possible if engagement, in case that of serious controversies, does not lead to the desired outcome. The execution of the engagement policy by EOS Hermes is monitored each quarter by the pension fund in the ESG forum. In addition, the pension fund evaluates the engagement services annually.
3. Exercising voting rights
SSPF strives to exercise its voting rights in all of the companies in which it invests. It refrains from exercising its voting rights on shares issued by Royal Dutch Shell (RDS) and from engagement with RDS, as it has a different (other than solely a shareholder) relationship with it.
4. Engagement and voting policy
SNPS defines ‘engagement’ as using its influence to achieve sustainable improvements in relation to environmental and social policy and governance. SNPS seeks dialogue with company management via an external service provider and external fund managers, both proactively and reactively. On the one hand, via proactive engagement, encouraging companies to make improvements to specific themes (‘do good’).
On the other hand, via reactive engagement (‘do no harm’). The pension fund has appointed EOS Hermes to execute the engagement policy on behalf of SSPF. Where appropriate, SSPF seeks to achieve dialogue in collaboration with other institutional investors. SSPF contributes to and fully underwrites the engagement policy of this provider as its own engagement policy. EOS Hermes operates based on a 3-year engagement plan. In this plan, the engagement themes have been identified (10 major themes and 37 sub themes) and included in the engagement effort.
SSPF has an important role in establishing the engagement plan. The fund scrutinizes the plan and provides EOS with its preferences (including important SDGs and themes), the fund’s input is taken into account by the engagement provider in the final engagement plan. In addition, the fund has a process in which exclusion and divestment is possible if engagement, in case that of serious controversies, does not lead to the desired outcome. The execution of the engagement policy by EOS Hermes is monitored each quarter by the pension fund in the ESG forum. In addition, the pension fund evaluates the engagement services annually.
Monitoring
SSPF monitors the progress and impact of its responsible investment policy via a quarterly report it receives from its external asset manager/service provider and by engaging in discussions about these reports. When necessary, SSPF makes adjustments.
Transparency and reports
Once every quarter, SSPF 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 SSPF voted against or in relation to which it abstained from voting. SSPF applies this policy worldwide. As part of this policy, SSPF does not issue any (public) communications about individual companies in which SSPF invests or that have been excluded by it. SSPF reports on its responsible investment activities in its annual report.
Policy evaluation and adjustment
The Board evaluates policy on responsible investment on an annual basis (in principle), at which time it is adjusted if necessary. SSPF responsible investment policy is set out in the Actuarial and Technical Business Report (ATCM) and published on this website.