The 20 largest pension funds in the Netherlands now have pension arrangements that they claim promote sustainability. In total, 100 out of 176 pension funds in the country have opted for an article 8 classification according to the Sustainable Finance Disclosure Regulation (SFDR), consultancy Sprenkels has found.
The SFDR requires pension funds to label their pension arrangement as article 8 (promoting ESG features), article 9 (a sustainable product) or article 6 (a product without sustainability features). Funds are required to state on their website which of the three options they choose.
Overall, a slight majority of funds (57%) have chosen an article 8 type of arrangement. All of the 20 pension funds with assets of over €10bn (as at end-2022) say they promote sustainability features in their pension arrangements. None has chosen sustainability (article 9) as its objective.
However, the smaller a fund is, the less likely it is to choose an arrangement promoting ESG features. Among funds with less than €1bn under management, only 42% have chosen article 8. These are mainly smaller company pension funds. Among industry and occupational pension funds, 80% have opted for article 8 classification.
The difference between large and small funds is even greater when it comes to pension funds taking into account the principal adverse impact (PAI) of their investments on sustainability.
The largest five funds – ABP, PFZW, PMT, PME and Bpf Bouw – have all chosen voluntarily to opt-in to this so-called article 4 of the SFDR. Pension funds are not required to report on PAI because they have fewer than 500 employees.
The picture among funds with assets under €2bn is radically different. Of these smaller funds, only about a quarter consider the negative impact of their investments on sustainability. In total, 40% of Dutch pension funds have chosen an opt-in.
Starting this year, they must report on the negative effects of their investments in companies, government bonds and real estate.
Article 8 pension funds are more inclined to also report on the principal adverse impact of their investments on sustainability.
“On average, 70% of pension funds classified as Article 8 also opt in on article 4,” said Caroline Bosch, a consultant at the actuarial and investment firm Sprenkels.
However, one fund combines an opt-in on article 4 with a ‘grey’ pension arrangement (article 6).
Bosch declined to name the pension fund concerned, but additional research by IPE found that Pensioenfonds Hoogovens, the pension scheme for workers of the Tata Steel plant in IJmuiden, is the fund in question.
A combination of article 4 and article 6 “is not really possible,” according to consultant Ernst de Klerk of AF Advisors, who investigated Dutch pension funds’ SFDR choices as early as 2021.
“The moment you apparently take into account the principle adverse impact of your investments on sustainability, then you arguably can no longer say that your pension scheme does not promote sustainable features,” De Klerk noted.
That view is supported by a document on the website of the European Commission, he believes. This document states that a product (such as a pension arrangement) that takes into account sustainability risks can be classified as article 8.
Janwillem Bouma, chair of Pensioenfonds Hoogovens, told IPE that the choice for an opt-in on article 4 stems from the signing of the so-called IMVB covenant on responsible investing by the pension fund.
Indeed, the regulator AFM already stated late last year that an opt-out on article 4 “is not consistent with the IMVB covenant”. Despite this, many of the 54 pension funds that have signed this covenant have chosen for the time being not to report on the sustainability risks of their investments.
At the same time, the pension fund considers an article 8 classification for the pension scheme “not appropriate,” said Bouma, adding: “Article 8 represents a higher level of ambition than Pensioenfonds Hoogovens’ sustainability policy strives for.”
Bouma went on to note that a looser interpretation of article 8, which equates to “doing something about sustainability”, is “increasingly popular”. The pension fund will reconsider its choice for an article 6 arrangement this year, he said.
This article appeared originally in Pensioen Pro, IPE’s Dutch sister publication.