bestuursadvisering

Compliance

In its sustainable and responsible investment, PGGM is bound by national and international laws and regulations. On March 10, 2021, the Sustainable Finance Disclosure Regulation (SFDR) entered into force. PGGM is obliged to provide information about sustainability and its investments based on SFDR.

1. Policy on the integration of sustainability risks
(Art 3 SFDR)

General

PGGM Vermogensbeheer B.V. (PGGM Investments, hereinafter PVBV) firmly believes that sustainability risks have an impact on the return profile of investments, and that this impact will become increasingly significant as time goes on. We define sustainability risks as events and circumstances related to environmental, social or governance factors, which may have a substantive negative impact on the value of an investment. Examples of such events include climate change, human rights controversies or the scarcity of raw materials.

The negative impact of such risks on the value of investments may be direct or indirect (as a result of their impact on other types of risk, such as liquidity or counterparty risk). This impact is particularly evident in the long term.
That is why PVBV integrates ESG risks and ESG opportunities into its investment process. We call this ‘ESG integration’. PVBV therefore defines ESG integration as taking into consideration the effect of ESG factors on the investment risk and return. PVBV also defines this as the structural and systematic involvement of material ESG factors in existing investment processes. Material ESG factors are factors that have a significant impact on the underlying investment, for example by increasing risk, improving turnover or saving costs. PVBV applies this ESG integration to investments that it manages, and it is also a yardstick when selecting and monitoring the appointment of external managers. The following description explains the investment process at PVBV.

Responsibility

The organisation is responsible for ESG integration. This means that, insofar as possible, the investment teams are responsible for ESG integration in the relevant investment portfolio. The investment proposals made by the investment teams must contain a paragraph on ESG. ESG integration by the investment teams is supported by the department of Responsible Investment (‘RI’), which has expert knowledge in areas including the implementation of ESG, policy papers, (ESG) data systems and best practices. The Head of RI is a member of the Investment Committee (IC). What’s more, the Risk Management department plays a part in assessing the investment proposals made by the investment teams. ESG is part of this assessment.

Framework

PVBV uses investment frameworks in order to assess what ESG risks apply to a specific investment. As a rule, we use a framework that is based on the Materiality Map of the Sustainable Accounting Standards Board (SASB). Where this is not applicable, an investment team will determine whether alternative frameworks are available.

Process

The way in which the different investment teams integrate ESG is outlined in each investment team’s ESG Guideline. You can find these on the PVBV website.

The process for ESG due diligence varies depending on the investment team and the type of investment. For investments in private markets, such as Private Real Estate or Private Equity, ESG due diligence mainly takes place in the investment proposal phase. This is carried out by the portfolio manager and followed by an independent assessment by the Risk Analysis department, based on resources including the SASB methodology and (industry) data from various data providers, including Sustainalytics and MSCI. If significant ESG risks are identified based on this screening, Risk Analysis can rely on the knowledge within the RI department in order to carry out a further analysis. During the management phase of the portfolio, the ESG integration consists of monitoring the ESG aspects of the investment.

For active investment mandates in public markets (i.e. with investments via trading platforms), such as Listed Real Estate, the investment teams will specify in more detail what ESG integration will look like within the conditions set out by the clients. RI shall advise on policy requirements and the use of relevant data sources and methodologies. In addition, RI will help to identify and determine the ESG factors that are relevant for the team, based on the SASB methodology. RI will also assist with communication with the relevant companies. For the passively completed mandates for public markets, the ESG integration is performed by the department for Responsible Investment, based on screening of the investments for material ESG risks and in consultation with the External Management department.

More information on reporting sustainability risks

You can find more information about how we handle sustainability risks and how we implement ESG integration in our Implementing Directive for ESG Integration on the PVBV website.

2. How do we deal with adverse sustainability impacts of investments?
(Art 4 SFDR)

General

PGGM Vermogensbeheer B.V. (PGGM Investments, hereinafter PVBV) feels that it has a duty to contribute to a liveable, more sustainable world. After all, a good pension is worth more in a liveable world. That is why PVBV takes into account the most important negative effects of investments on sustainability factors when making investment decisions (both when selecting investments and when managing them). We define sustainability factors as environmental, social and employment matters, human rights, and combating corruption and bribery. How we do this is outlined below.

Due diligence

We start by performing a due diligence process into (potential) investments, in order to identify any negative impact an investment may have on sustainability. We do this based on the OECD standards (incorporated in the IMVB covenant) and the UN Global Compact Principles. We consider the following:

  • The probability and seriousness of the negative impact;
  • The allocation percentage of the company within the portfolio;
  • The extent to which the company contributes to the clients’ focus areas and ‘sustainable world’ objectives.

 

For the selection and assessment of external investors, the External Management department uses the following approach:
We aim to select external managers who share the ESG beliefs that we hold at PVBV and who pay attention to ESG risks and opportunities in their investment decision-making processes. We expect external managers to adhere to our views when it comes to responsible investment. In assessing the external managers, we look at the extent to which they are clear frontrunners/opinion-formers in relation to ESG and the extent to which ESG integration is a visible component of the organisation and processes. The investment performance of the external investors are also tested, both in relation to financial and social objectives. Instead of the return in euros, we look more closely at factors including the portfolio’s ESG scores and the sustainability impact it has achieved. The ESG performance of the external managers is tested against the mandate’s ESG objective as well as compared to the performance of other managers managing a comparable mandate.

For the due diligence of the investments we manage, we use data from several sources: non-governmental organisations (NGOs), specialised data providers, the media and the companies themselves. PVBV then does additional research itself.

In order to establish the seriousness of the negative impact of companies on people and the environment, we have developed a screening method in cooperation with Sustainalytics. This is based on the OECD guidelines for institutional investors. Companies are given a score based on incidents within their own manufacturing sites and incidents in the supply chain. At the moment, this screening is only applied to the share portfolio. Our ambition is to apply this to the entirety of the listed share and bond portfolio by the end of 2021.

As PVBV invests in many different investment categories, there is a wide range of possible adverse impacts. These include climate change, human rights such as employment rights, or water shortages. Out of the possible adverse impacts, PVBV has identified climate change as the most important adverse sustainability impact.

When we identify that an investment comes with negative sustainability effects, we can take various measures. We can move to exclusion, or we can use active shareholdership to attempt to change the situation. In other words: based on our findings, we will decide whether we want to invest in a specific company, and if so, how we take up a position as the (active) shareholder.

The paragraphs below provide a more detailed description of these measures. For an overview of the measures that we have taken in the past year, please refer to our most recent annual report resposible investments.

Exclusions

We choose to exclude certain investments. This prevents investments managed by PVBV from contributing financially to certain practices that have a negative impact on sustainability factors and that therefore do not match the standards and values of PVBV, its clients and their participants. We adhere to a strict lower limit, which applies to all PGGM funds managed by PVBV and all public and private segregated mandates for individual clients managed by PVBV. The latter is also done in consultation with the client.

This lower limit applies both to the product made by companies (for example, we do not wish to invest in tobacco, controversial weapons, coal or tar sands) and to the behaviour of companies and governments (for example, we do not wish to invest in government bonds of countries on sanction lists).

If the participants in the PGGM funds jointly agree on additional exclusion criteria, PVBV will apply them to all relevant PGGM funds as a general rule.

Moreover, if clients wish to apply a stricter minimum limit to their mandate investments, translated into their own list, then PVBV will facilitate the implementation.

Active and involved shareholdership

Aside from the exclusion policy and initial due diligence, PVBV uses its influence as a shareholder to constantly monitor developments in the companies in its portfolio and, where necessary, making improvements in the area of ESG. We do this by engaging in conversation (dialogue), by implementing predefined improvements in the area of ESG (engagement), by exercising our voting rights and, in extreme cases, by issuing legal proceedings.

In order to promote the objectives of active and involved shareholdership, we strive to cooperate with other, like-minded, institutional investors and to communicate with other interested parties in the company, in line with the Dutch Stewardship Code endorsed by PVBV and where appropriate. We are involved in a great number of different international partnerships, as a participant or a member, including UNPRI, Eumedion, the Asian Corporate Governance Association, Climate Action 100+, Institutional Investors Group on Climate Change (IIGCC) or the Platform Living Wage (PLW), and we also endorse relevant standards such as the Climate Agreement and the IMVB (international responsible investment covenant).

a. Dialogue and engagement

PVBV aims to engage in a constructive dialogue with companies in the investment portfolio or market parties regarding their policy or activities and to implement predefined improvements in the area of ESG (engagement). By doing this, PVBV aims to prevent, mitigate and resolve any potential negative impact of investments in the portfolio on sustainability factors (as explained under Due Diligence). We rely on standards such as Global compact, the IMVB covenant and the OECD Guidelines for multinationals as a guide. Where appropriate, we also communicate with relevant stakeholders.

b. Voting

PVBV intends to vote at every shareholders meeting and on all items on the agenda that relate to every company that we are investing in. The main subjects relating to strategy, financial and non-financial performances and risks, the capital structure, the social and ecological effects and corporate governance subjects will be addressed there. Our view in respect of the usual items on the agenda during a shareholders meeting can be found in our voting guidelines (Proxy Voting Guidelines, which can be found on our website). ESG factors form one of the focus points in these guidelines. We will also coordinate with other institutional investors and apply proxy voting where necessary. Information and opinions are also shared with other institutional investors in order to activate parties that are on the same wavelength.

The RI department holds final responsibility for the way in which voting takes place and can fulfil this task unencumbered.

c. Legal proceedings

PVBV is proactive when investigating events that have led to damages for clients due to misconduct on behalf of listed companies, to assess these or have them assessed for legal merits and collecting damages as a result.

PVBV has set up internal systems that enable it to monitor on a worldwide scale where possible proceedings could be conducted in the interest of its clients. PVBV will look into those opportunities and will provide its clients with reasoned advice as to whether or not to get involved in these proceedings, and if so, in what capacity.

For a detailed description of the way in which we enter into dialogue, how we approach voting and our involvement in legal proceedings, please click here.

More information

For more information about how we handle the negative impact of our investments on sustainability factors, please read our Implementation Guidelines for ‘Active Shareholdership’ and ‘Exclusion and Not investing’.

3. How do we take sustainability risks into account in our remuneration policy?
(Art 5 SFDR)

People who work for PVBV are remunerated in accordance with PGGM’s remuneration policy, which applies to all group companies, including PVBV.

One of the principles of this policy is that it does not encourage short-term or risky behaviour. As indicated above in the explanatory statement about Article 3 SFDR, PVBV firmly believes that sustainability risks have an impact on the risk return profile of investments. This belief logically means that the remuneration policy cannot encourage employees to ignore sustainability factors and the risks that these factors may pose to the value of investments.

We have taken various steps to guarantee this in practice.

First, we perform an annual risk analysis of the remuneration policy. This risk analysis focuses on issues including ‘perverse incentives’: risks that may cause employees to act without integrity, such as:

  • Activities that are purely aimed at short-term results;
  • Taking on undue risks, including sustainability risks;
  • Acting contrary to the interest of the client or the company;


Second, HR organises the performance cycle for the annual assessment of employees, ensuring that the assessment method contributes to the objectives and principles of PVBV and its clients. This also means that the assessment process is organised in such a way that employees are not (and cannot be) rewarded for taking undue sustainability risks.

Finally, some employees are eligible for a variable remuneration (bonus). A variable remuneration can be awarded if the employee has attained predefined targets in a specific year. These targets are derived from the objectives of the clients, PVBV, the unit and the department. As a result, the targets are set up in such a way that employees are not (and cannot be) rewarded for taking undue sustainability risks. What’s more, the variable remuneration that has been awarded but has not yet been paid out can be adjusted downwards. The Management Board can do this if the bonus is unacceptable based on the standards of reasonableness and fairness.

Finally, the Management Board can decide to recover a paid variable remuneration if the payment was made based on incorrect information regarding the targets that needed to be met in order to receive the variable remuneration. The possibility of reducing or recovering the variable remuneration also ensures that employees do not take any undue sustainability or other risks.

4. How do we integrate sustainability risks?
(Art 6 SFDR)

Where relevant, PVBV will integrate sustainability risks in the funds and/or mandates and give (precontractual) information to our clients on the way in which sustainability risks are integrated into the investment decisions.

Funds

The information on the way in which sustainability risks are integrated into their investment decisions, and the assessment of the likely impact of sustainability risks on the return, are included in the ESG Guideline for each team managing the fund. In the fund prospectus, we refer to the Responsible Investment Implementation Framework and the ESG Guideline for each team (see below for each fund).

Mandates

The information on the way in which sustainability risks are integrated into their investment decisions, and the assessment of the likely impact of sustainability risks on the return, are made available to the respective client.

5. What are the main adverse effects on sustainability?
(Art 7 SFDR)

Based on SFDR, we have to state by 30 December 2022 at the latest what the main adverse sustainability impacts are that we take into account for a financial product. We will be adding this information here in the near future.

6.  What are the environmental or social characteristics of our funds and/or mandates?
(Art 8 SFDR)

Where our funds and/or mandates promote environmental or social characteristics within the meaning of the SFDR, we will provide our clients with additional (precontractual) information.

Funds

We have included the additional (precontractual) information about the environmental or social characteristics in an Annex to the ESG Guideline for each team managing the fund. These ESG Guidelines and the Responsible Investment Implementation Framework have been declared applicable in the fund’s prospectus.

Mandates

We will make the additional (precontractual) information about the ecological or social characteristics available to the respective client.

7. Sustainable investment as an objective.
(Art 9 SFDR)

The SFDR has additional requirements for funds and/or mandates that aim to make sustainable investments and meet certain criteria in doing so. At the moment, we have yet to consider any of our funds and/or mandates as such a product within the meaning of the SFDR.

8. More information about the methods used to assess, measure and monitor the environmental or social characteristics.
(Art 10 SFDR)

Exclusions

We choose to exclude certain investments. This prevents investments managed by PVBV from contributing financially to certain practices that have a negative impact on sustainability factors and that therefore do not match the standards and values of PVBV, its clients and their participants. We adhere to a strict lower limit, which applies to all PGGM funds managed by PVBV and all public and private segregated mandates for individual clients managed by PVBV. The companies in the benchmark that do not meet the criteria of the lower limit will be placed on a list referred to as the exclusion list. This list is regularly updated, at least twice per calendar year. We use external data providers (such as Sustainalytics, Trucost and Bloomberg) and our own analyses to compile the list of exclusions. The list of exclusions is available on our website.

Agreements have been made with all internal and external managers regarding compliance with the exclusion lists. For our internal managers, PVBV has set up monitoring, management and compliance systems, in Bloomberg, among others. This should prevent trading in companies that are on the exclusion list. External managers are responsible for complying with and monitoring the exclusion list in accordance with the contractual agreements. Every external manager has to make a compliance statement once a month, confirming to PVBV that the external manager has complied with all agreements with PVBV. This includes the correct implementation of the exclusion list. This compliance statement must be signed off by an independent compliance officer. PVBV monitors compliance with the obligations and the external managers also adhere to the obligations. Furthermore, PVBV also checks its funds and mandates after every trading day to ensure that no investments have been made in companies that are on the exclusion list.

Benchmark CO2

In 2016, PGGM started focusing on CO2 reduction in equity funds. As of this year, we are changing the values of companies in the index. We have calculated the CO2 footprint of the most CO2-intensive companies in the three industries with the highest CO2 emissions: energy, utility companies and materials (including chemistry, steel, cement and mining). This involves a total of over 200 companies that emit relatively large amounts of CO2 per dollar of turnover. We will gradually be removing the companies that emit the most CO2 per dollar of company turnover from our index. The released index value is then reinvested in non-industry-specific ways in companies that are more CO2-efficient in these three industries: companies that emit less CO2 per dollar of turnover. Where possible, we do this with a country-neutral reweighting. Prevention of a reduction in equity interest is only possible if companies can display a marked improvement of their CO2 footprint. We use different sources to calculate CO2 emissions, such as Trucost for listed shares, listed real estate and bonds, the GRESB assessments for private real estate and infrastructure, or the questionnaires of our private equity team for external managers (GPs) for the emissions data of portfolio companies. We try to calculate the so-called ‘Scope 1’ and ‘Scope 2’ emissions for each company. Scope 1 emissions concern the direct CO2 emissions: the CO2 emissions caused by the company itself, internally (for example in its manufacturing activities). Scope 2 emissions are indirect CO2 emissions: the CO2 that is emitted due to the consumption of electricity and heat by a company (which is generated by another party, such as a power station).

BOA [Investing in Solutions via Listed Equities] Benchmark

The BOA Benchmark is the implementation benchmark of the BOA mandate. The benchmark has been compiled based on the BOA universe that is characterised by the following two qualities:

  1. Positive Impact: the universe consists of companies that contribute to one of four sustainability challenges: climate change, food security, water scarcity and care and healthcare. These companies generate a profit from products and services that offer solutions to one of these four sustainability problems.
  2. Negative Screening: the PGGM exclusion list is applied, causing companies involved in the production of controversial weapons, tobacco, tar sand, coal-fired power stations and mining to be excluded from the universe.

 

The previous concept of ‘Investing in Solutions’ (BiO) will be expanded this year, going from four sustainability challenges to including all Sustainable Development Goals (SDGs). These investments will now be referred to as Sustainable Development Investments via Listed Shares, or ‘Sustainable Development Investments’ (SDI) for short.

The BOA mandate will become the SBA mandate this year, focusing on companies that contribute to achieving the Sustainable Development Goals (SDGs). This means that the implementation benchmark will change from the BOA benchmark to the SBA benchmark, with the result of adding more positive impact themes and applying more negative screens.

Active and involved shareholdership

PVBV uses its influence as a shareholder to constantly monitor developments in the companies in its portfolio and, where necessary, making improvements in the area of ESG. We do this by engaging in conversation (dialogue), by implementing predefined improvements in the area of ESG (engagement), by exercising our voting rights and, in extreme cases, by issuing legal proceedings.

(i) Dialogue and engagement

PVBV has a Responsible Investment (RI) team for setting up, monitoring and reporting on the implementation of engagement. RI uses an assessment framework (see ‘Figure: Assessment Framework for Implementation of Engagement’ in the Responsible Investment Implementation Framework) to establish the most appropriate way to implement engagement - as established in the policy. Depending on the theme and/or sector, RI uses various (external) data sources and data providers. Information is also involved via our membership organisations and collaborations with like-minded institutional investors. PVBV monitors the progress of executed engagement processes by recording these in an Engagement Data Base (EDB) that we ourselves have built. At the end of the engagement programmes and processes, PVBV will establish whether the engagement programme has had the desired result. This is where PVBV distinguishes between successful and unsuccessful engagements.

In the event of (a reactive or proactive) engagement, we distinguish between engagement to prevent, mitigate or resolve negative issues in the investment portfolio (‘sound basis’) and reinforcing the positive contribution to the Sustainable Development Goals (SDGs) that are a focus area (‘sustainable world’). In the event of a reactive approach, PGGM will monitor whether there is (a risk of) an incident. As concerns the sound basis, a screening in accordance with the OECD standards (incorporated in the IMVB covenant) is used in order to discuss with clients which companies they wish to engage with.

(ii) Voting (proxy voting)

PVBV will cast active and informed votes on behalf of its clients. PVBV does this on the basis of publicly accessible voting guidelines (the Global Voting Guidelines) that are evaluated and updated annually. In order to cast votes, PVBV uses a specialist voting service provider (Glass Lewis). This voting service provider also gives voting advice based on PVBV’s aforementioned voting guidelines. This voting platform allows PVBV to vote remotely in the listed portfolio companies. Every quarter, a sample is used to verify whether the voting advice is in line with the voting guidelines at PVBV and the voting service provider itself will make a compliance statement to confirm compliance.

(iii) Legal proceedings

PVBV has set up internal systems that enable it to monitor on a worldwide scale where possible proceedings relating to our investments (in listed companies) could be conducted in the interest of its clients. PVBV will look into those opportunities and will provide its clients with reasoned advice as to whether or not to get involved in these proceedings, and if so, in what capacity. Where appropriate, we will use a specialist law firm to conduct a feasibility analysis and/or to conduct proceedings, whether or not jointly with other affected institutional investors.

Article 8 SFDR information on the website

We have outlined above where you can find the additional (precontractual) information on the ecological or social characteristics for our funds and mandates (see below for each fund).

9. Would you like more information about our policy and reports?

PVBV values clear reports and transparency regarding our policy, activities and results obtained in the area of responsible investment. Download our reports and our policy documents here.

This unofficial English translation has been provided for convenience pursues only. Should there be any discrepancy between this version and the official Dutch version, the Dutch version shall prevail. Please see our website: https://www.pggm.nl/onze-diensten/compliance/

Investment Funds

PGGM Credits Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Developed Markets Alternative Equity Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Developed Markets Alternative Equity II Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Developed Markets Equity PF Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Emerging Markets Credit Fund
1. Implementation framework
2. ESG guidelines
3. Annex (as referred to in the ESG guideline under 2)

PGGM Emerging Markets Debt (LC) Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Emerging Markets Equity PF Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Government Bond Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM High Yield Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Infrastructure Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Listed Real Estate II Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Listed Real Estate Index Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Listed Real Estate PF Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2010
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2011
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2012
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2013
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2014
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2015
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2016
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2017
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2018
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Equity Fund 2019
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

PGGM Private Real Estate Fund
1. Implementation framework
2. ESG guidelines 
3. Annex (as referred to in the ESG guideline under 2)

Last updated: 9 March 2021