What is special about this is that PGGM applies this to all index investments in shares. While ESG is already being integrated in active share strategies by various investors internationally, the inclusion of ESG in ‘passive’ index strategies is still in its infancy. At the end of 2012 PGGM had a total of 33.8 billion euros in clients’ assets invested in these kinds of strategies.
Combined with engagement and an exclusion policy
PGGM uses the ESG index in combination with an active engagement and exclusion policy. Selection and active shareholdership are thus combined in index strategies. With this strategy PGGM meets the demand from its clients, the pension funds, for more responsible investing. This strategy also represents a cost-effective method for PGGM to invest in shares while achieving a broad spread and espousing higher ESG ambitions.
Based on the ESG index, PGGM has sold shares in 210 of the 2,853 companies that are part of the FTSE All World index. A total of 79 companies are on a ‘watch list’; PGGM will be in dialogue with these companies to promote improvement.
The capital released has been shifted to the companies that are indeed included in the ESG index drawn up by PGGM. The ESG index contains seventy criteria relating to environmental performance, social policy and good governance for which companies in the FTSE All World index are assessed.
Marcel Jeucken, Managing Director Responsible Investment at PGGM, says: “We have now developed an instrument which allows us to better assess the companies in the FTSE All World for ESG aspects. Selection on the basis of ESG aspects encourages companies to perform better in the area of ESG. We are seeking dialogue with some of those lagging behind in order to indicate where we believe they are lacking.”
The new instrument that is now being applied to the investments in the FTSE All World index is part of PGGM’s broader responsible investment policy. In that policy, the aspects of people, the environment and society are all included in investment decisions and dialogue is sought with companies on corporate social responsibility. PGGM does not invest its clients’ funds in companies that produce or deal in controversial weapons. Nor are funds invested in companies that violate human rights or labour rights and who are unwilling to discuss making improvements. PGGM voted at 3,106 shareholder meetings last year, talked with 746 companies about improving ESG and excluded 42 companies.
PGGM is a cooperative pension fund service provider. PGGM offers its institutional clients pension fund management, comprehensive asset management, policy advice and management support. PGGM currently manages roughly EUR 133 billion in pension assets on behalf of five pension funds representing some 2.5 million people. As a cooperative with roughly 578,000 members, PGGM is helping to achieve a valuable future. PGGM is working both on its own and with strategic partners to develop innovative future provisions by linking together pensions, care, housing and work. More information can be found at www.pggm.nl.