Socially
Responsible
Investing
and Governance
April 2015 edition
Disclaimer
The information provided in this brochure by Stichting Pensioenfonds DSM Nederland, established at Heerlen (the “pension
fund”) is general, purely indicative and subject to change. It is intended only to provide members with a general view. The
information provided is assumed to be reliable, but is used entirely at the user’s risk. Neither the administrator (DSM Pension
Services B.V.), nor the pension fund accepts any liability for damage arising from errors or omissions in the information, or for
damage arising in connection with the use of, reliance on, or distribution of the information. Rights can be derived only from
the pension regulations applying to the member.
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Socially Responsible Investing and Governance
In this brochure we explain the influence
that socially responsible investing (SRI)
and governance have on the way in which
Pensioenfonds DSM Nederland (PDN)
invests its pension money. Socially
responsible investments are investments
motivated by socio-ethical and environmental considerations, while governance
stands for the principles of responsible
corporate management and the procedures we like to see in companies in which
PDN invests.
The ten principles of the UN Compact
are:
Recognizing its social responsibility, PDN
has developed a policy for socially responsible investing, the basic premise being
that such investments should yield the returns needed to pay out the pensions
agreed with the employer, now and in the
future. According to the pension fund, SRI
investments can yield the same returns as
conventional investments.
Labor
Human Rights
Principle 1: Businesses should support
and respect the protection of
internationally proclaimed
human rights; and
Principle 2: make sure that they are not
complicit in human rights
abuses.
Principle 3: Businesses should uphold
the freedom of association
and the effective recognition
of the right to collective
bargaining;
Principle 4: the elimination of all forms of
forced and compulsory
labor;
Principle 5: the effective abolition of
child labor; and
Principle 6: the elimination of discrimination in respect of employment and occupation.
PDN’s SRI policy is based on three pillars:
1) exclusion, 2) target investments, and 3)
transparency.
1. Exclusion
PDN has decided not to invest in certain
companies or countries because they
engage in activities that the United Nations
(UN), the European Union (EU) or the
Dutch government considers unacceptable. In its Global Compact the UN explains
what activities are considered unacceptable. The UN Global Compact comprises
ten principles, derived from the following
international treaties and declarations:
The Universal Declaration of Human
Rights
The International Labor Organization’s
Declaration of Fundamental Principles
and Rights at Work
The Rio Declaration on Environment and
Development
The United Nations Convention
Against Corruption.
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Environment
Principle 7:
Principle 8:
Principle 9:
Investment research firm Sustainalytics
helps PDN (and other investors) find out
which companies and countries should be
excluded from investments because they
do not uphold the ten principles of the UN
Global Impact.
Businesses should support
a precautionary approach to
environmental challenges;
undertake initiatives to
promote greater environmental responsibility; and
encourage the development
and diffusion of environmentally friendly technologies.
2. Target investments
Target investments are investments in
companies that are committed to sustainable development and that are active in
fields like alternative energy, microfinancing and social projects. A condition to be
met by such target investments is that
they should not result in deterioration of
PDN’s returns and risk profile.
Anti-Corruption
Principle 10: Businesses should work
against corruption in all its
forms, including extortion
and bribery.
Microfinancing implies that money is lent
out to ‘poor people in poor countries’ who
normally do not qualify for loans from, for
instance, banks because they do not meet
certain requirements, such as having
equity capital. A small loan (microcredit)
enables them to start their own company
and build a better existence.
Besides companies that do not comply
with the Global Compact principles, PDN
also excludes companies that produce
controversial weapons or are major
suppliers to such producers. Controversial
weapons are:
landmines
biological weapons
chemical weapons
depleted uranium ammunition
nuclear arms
white phosphorus ammunition.
Alternative energy, such as wind, solar
and bio-energy, can in principle be used
indefinitely without having a negative
impact on the living environment of
today’s and tomorrow’s generations.
Government bonds issued by countries
that are the subject of UN and/or EU
sanctions are also excluded from investments by PDN. Such sanctions are
imposed mainly because of human rights
and arms issues.
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PDN’s target investments, which currently
make up 1% of its total investments, are
investments in:
This includes investments made on
behalf of PDN by external investors.
Please click here for a list of PDN’s
investments.
Actiam Institutional Microfinance Fund I
and III
These funds provide microfinancing to
small entrepreneurs in developing
countries. Its money is not lent directly to
individuals but goes to local microfinance
institutions (MFIs) in Latin America, South
East Asia, Eastern Europe and Africa.
These MFIs in turn lend money, often
between US$100 and 1500, to entrepreneurs for a period of 6 to 12 months.
Sustainability
Besides these three pillars, there is yet
another factor that PDN takes into
account in its SRI policy: sustainability.
This implies that PDN considers the ESG
factors (Environment, Social and
Governance) in its decisions about
potential investments.
In PDN’s view, companies that have an
excessive environmental impact or that
handle certain social factors (for instance
employees and other stakeholders) in an
unacceptable way do not represent good
investments. PDN is of the opinion that
such companies will lose their license to
operate in the future, disqualifying them
for investment. A certain ESG level is,
therefore, necessary to guarantee a
company’s license to operate.
DIF Infrastructure II Fund and DIF Infrastructure III Fund
These funds invest in European infrastructure projects, such as roads, schools and
hospitals, and in alternative energy such
as wind and solar energy. In 2009 DIF
Infrastructure II for instance invested in
the Harrow Schools project, which involved the setting up of a primary school
and two schools for children with special
needs. It further invested in the development of two hospitals specializing in
cancer treatment and heart conditions. In
the field of alternative energy it has
investments in wind energy in Germany.
Companies also create opportunities by
taking the ESG factors seriously.
Sustainable companies can improve their
revenues by creating energy responsible
or environmentally responsible products.
This is a win/win situation, combining a
lower environmental impact with good
returns on investments for shareholders.
DIF Renewable Energy Fund
The DIF Renewable Energy Fund invests
in alternative energy projects, the focus
being on wind energy and solar energy,
mainly in Europe.
Glenmont Clean Energy I and II
These funds, too, invest mainly in European wind and solar energy projects, both in
the pre-start-up phase and the operational
phase. Examples are the construction of
four wind farms in the UK and a solar
energy project in Italy.
3. Transparency
A third pillar of PDN’s SRI policy is the
fund’s transparency about its investments.
The PDN website lists all companies in
which PDN has invested, in all investment
categories.
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Good governance is about transparent
and efficient monitoring of corporate
management. This requires a balanced
distribution of influence between managing board, supervisory board and general
shareholder meeting. The starting point is
that the managing and supervisory boards
are accountable for corporate policy and
the supervisory board’s supervision of this
policy, while shareholders must be able to
influence this policy and its supervision.
Governance / voting policy
By expressing its views at shareholder
meetings, PDN can directly influence the
policy and the quality of the management
of companies in which it invests. This may
eventually have a positive effect on the
share value and reduce the risks of the
investment.
Each share in a company entitles the
holder to vote at shareholder meetings.
Subjects on which shareholders can vote
include adoption of the annual accounts,
profit distribution, the power to purchase
the company’s own shares or to issue
shares, appointment of managing and
supervisory board members, and the
remuneration policy.
Companies also create opportunities by
taking the ESG factors seriously.
Sustainable companies can improve their
revenues by creating energy responsible
or environmentally responsible products.
This is a win/win situation, combining a
lower environmental impact with good
returns on investments for shareholders.
PDN invests in many companies, and it is
not always possible to attend shareholder
meetings. Since PDN does want to vote, it
does so by proxy, for which it uses the
services of Institutional Shareholders
Services (ISS). PDN has an active policy
only for Dutch listed companies. For more
information on our voting policy, please
click here 2014 European Proxy Voting
Summary Guidelines). To find out how
PDN has voted, please click here.
Good governance is about transparent
and efficient monitoring of corporate
management. This requires a balanced
distribution of influence between managing board, supervisory board and general
shareholder meeting. The starting point is
that the managing and supervisory boards
are accountable for corporate policy and
the supervisory board’s supervision of this
policy, while shareholders must be able to
influence this policy and its supervision.
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