A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/expat-holland
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://www.pmepensioen.nl/beleggen/we-beleggen-steeds-duurzamer
https://www.pmepensioen.nl/en/news/pme-takes-next-step-in-new-equity-portfolio-strategy
B] The Issue
It is safe to say that asset owners are increasingly scrutinising how their managers are approaching sustainability. And PME, the Dutch pension fund for those in the metal and technology sector, is at the forefront of these efforts.
C] The Details
The €59 billion asset owner is in the process of revising its approach to selecting and assessing managers to ensure the ones they use are delivering on its return expectations and are aligned with its values.
Evaluating managers on ESG is not new, notes Daan Spaargaren, senior responsible investment strategist at PME. But he believes that, until now, the asset owner’s criteria were “relatively basic and often assumed a general industry alignment on ESG”.
“That assumption no longer holds,” he says. Unsurprisingly, Spaargaren points to certain managers’ recent retreat from sustainability commitments, which he believes is partly in response to political pressure – particularly in the US – “but also because meeting certain ESG and climate targets has become more challenging”. “This is because achieving these goals requires climate action in the real economy or drastic adjustments to investment portfolios. Asset managers seem less willing to force this.”
D] In Depth Screening
On its work on potential changes to its selection and assessment framework, he explains that PME is planning to more explicitly screen for value alignment alongside financial characteristics, as well as take a deeper look at the “actual sustainability characteristics” of its managers.
“That means going beyond surface-level policies or general ESG claims. We expect managers to demonstrate credible action on issues like climate change and labour rights, including demonstrable progress,” he says. “Vague or generic policies without follow-through will be looked at more critically going forward.”
Spaargaren adds that PME will pay closer attention to engagement practices and voting behaviour, which have seen growing divergence between European and US-based managers. “These are important indicators of how seriously managers take their responsibilities as stewards of capital.”
E] General Trend
Asset owners – particularly in the UK – have become increasingly outspoken about the perceived misalignment between their expectations and their managers’ voting. Membership in industry initiatives like the Principles for Responsible Investment (PRI) and a commitment to the OECD guidelines are part of PME’s selection and assessment process.
Spaargaren says they will remain “but more as a baseline – not a differentiator”. “Such affiliations signal basic intent, but in our view, they are not sufficient to judge whether a manager is truly aligned with our values in practice.” The new evaluation framework in the process of being finalised. Once completed, it will be embedded structurally. “The idea is to ensure that value alignment and credible sustainability performance are core criteria, not afterthoughts.”
F] Manager Engagement
Alongside developing the framework, PME has been directly engaging managers. Spaargaren says he understands that managers need time to adjust to changing preferences of asset owners. However, he believes there have been examples of managers “speaking out of both sides of their mouths”. “From our perspective, managers should aim for a coherent set of values – we expect them to embed a long-term vision.”
Returning to the ESG backlash, he says that, ironically, one silver lining is that it is bringing clarity and making it easier for owners to distinguish which managers have a genuine, long-term commitment to sustainability, and which were only partially engaged. “That kind of visibility helps asset owners make more informed decisions, and yes, in some cases, it may lead to capital being redirected. But of course, that will differ by asset owner, depending on their values and strategy.”
Some asset owners have already taken such action. Both the People’s Pension and AkademikerPension cited responsible investment as a factor in pulling mandates from State Street this year, while PGGM said stewardship was a key factor in reallocations carried out towards the end of 2024.
Spaargaren also suggests that if US managers are increasingly influenced or constrained by political pressure “that may strengthen the case for building a more autonomous and value-driven European financial sector”. “However, European managers also need to step up and show they are truly embedding sustainability – I would say they have shown it on things like engagement and voting,” he says. “Contrary to the US, the efforts by European managers are backed by regulation such as the EU Shareholder Rights Directive.”
Overall, Spaargaren believes asset owners need to be more vocal and explicit about what they expect from managers when it comes to both financial returns and sustainability efforts. “And we need to understand that there are trade-offs, for example between short-term performance pressures and long-term impact goals, or between financial optimisation and active stewardship. Those tensions shouldn’t be ignored, they should be discussed openly with managers.”
G] Pension Funds & Defence
The place of defence in sustainability is currently a key point of discussion – and disagreement – in the responsible investor space. For Spaargaren, pension funds need to reflect and take a more mature and nuanced view.
“The old binary view that defence is bad and peace is good is not capturing the reality of the world we are in. I think the real question is do we as pension funds want to help safeguard the conditions that make peace and prosperity possible,” he says.
“This doesn’t mean we should throw ethics away – that’s absolutely not what I’m saying. We still oppose investment in controversial weapons.” Spaargaren does not believe PME will “radically change” its defence exclusion policy, which classifies chemical and biological weapons, cluster weapons, landmines, depleted uranium weapons, white phosphorus weapons and nuclear weapons as controversial.
Companies will be excluded if they manufacture or supply one or more of them as a type of product, if they produce essential components or custom parts, or if they provide services for the sale, maintenance or development of said weapons. PME also looks at companies that have a controlling interest in a company that meets its exclusion criteria.
Regarding other investors looking at tweaking their exclusion policies to be able to invest more in defence, Spaargaren believes this is “too narrow an approach”. “From an ethical perspective it may be concerning, and its only really opening them up to invest in the large defence companies, which I think are well-financed,” he says. “I think there is a need to build a whole new defence industry.”
He sees an opportunity for investors to look not just at common defence equipment, but also at new technologies like cybersecurity, dual-use technologies and resilience. “That means that we should also focus on European autonomy, such as energy independence, and critical infrastructure, such as a strong European rail infrastructure.”
H] EIOPA’s View
In order to create a broader and correct insight we always like to include the policy of EU insurance regulator body called EIOPA about these issues. Which is included in the following link:
https://www.eiopa.europa.eu/publications/occupational-pension-funds-green-investments_en