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. 2 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. 3 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. 4 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. 5 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. 6
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