When you think about the Netherlands, Dutch pension funds and their environmental, social and governance (ESG) policies are probably not the first things that come to mind. However, while ESG has only recently, but rapidly, become more and more important in real estate in the UK and other European countries, the Dutch Pensions Federation decided to draw up an ESG covenant as early as 2017. This was then backed by 70 pension funds, representing 84 per cent of Dutch schemes’ assets, showing the overwhelming support behind the initiative.

ESG CRITERIA

ESG criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider for example how much landfill a company produces. Social criteria include relationships with employees, suppliers, customers, and the communities where it operates, while governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

SO WHY THE COVENANT?

One of the reasons is streamlining. ABP, the €382 billion civil service scheme, said that pension funds could benefit from each other’s experience. Furthermore, joint definitions and standards could help funds operate more efficiently.

Another reason is growth. According to the Global Impact Investing Network (GIIN), ESG and the impact investing market is now worth US$520 billion. During the first half of 2019 alone, assets in the sector rose 15 per cent to US$52 billion, according to Fitch Ratings.

DUTCH PENSION FUNDS

Coming back to the Netherlands, Dutch pension funds were clearly inspired by the forecasted growth of the market and a change in public perception over the years with, for example, a younger generation of pension-fund investors asking how their money is being invested, looking at the environmental and social ranking of their portfolios, as well as financial rankings.

In November 2018, the Dutch House of Representatives held a general consultation on International Corporate Social Responsibility (IMVO) covenants, to allow international outsourcing of corporate lending. A month later, Parliament passed a law that targets a 95 per cent reduction of emissions by 2050 compared with 1990 levels and a 49 per cent cut by 2030; one of the most ambitious green targets of any country in the world. And now, in autumn 2019, the IMVO covenants are under valuation to see which concrete results have been achieved in the seven agreed covenants and the six currently under development.

So the Netherlands is one to continue to watch closely with regards to pension funds and ESG as it continues to lead the way.

FURTHER INFORMATION

Read more: The ABC of ESG