Pensioenfonds Hoogovens, the pension fund for workers of the Tata Steel plant in the Netherlands, is focusing its new climate policy on reducing the CO2 emissions of its current portfolio.

The fund does not want to go down the route of excluding big polluters or companies with low ESG scores to clean up its portfolio, as many other pension funds do.

In a move reminiscent of a recent announcement by Swedish pension fund AP7, Hoogovens said in its annual report for 2022 that its new climate policy will centre on realising “real world change”.

The fund’s president, and PensionsEurope chair, Janwillem Bouma commented: “This means we will primarily focus on attaining reductions of emissions due to improvements in production processes and policies of the companies in our existing portfolio.”

Nevertheless, Pensioenfonds Hoogovens has also set a fairly ambitious carbon reduction target for 2030, when it plans to have reduced emissions by 48% compared to 2019. By 2050, the fund wants to have a carbon-neutral portfolio. These targets are similar to those of pension funds ABP, PFZW and PME.

Hoogovens wants to achieve “real world change” through more intensive engagement with the companies in the portfolio. To this end, the scheme has hired Columbia Threadneedle Investments. As of 2023, it has been using the firm’s engagement overlay service.

As part of this service, Columbia Threadneedle engages with companies and votes at shareholder meetings on behalf of Hoogovens.

Janwillem Bouma, PensionsEurope

Janwillem Bouma

Pension fund Nedlloyd left Columbia Threadneedle early this year because it found the asset manager’s engagement service incompatible with the its own active investment policy.

Pensioenfonds Hoogovens also largely actively invests in equities, but chair Bouma sees no problem in this because, unlike Nedlloyd, the fund invests through mandates rather than mutual funds.

“This makes it possible to use our own exclusion list, and implement engagement and voting rights ourselves through the overlay service according to our own policy,” Bouma explained.

Geopolitical risk prompts reduction in EM equity exposure

Pensioenfonds Hoogovens has reduced its allocation to emerging markets within its equity portfolio from 20% to 15%.

The fund gives “the current geopolitical transition from globalisation to separate power blocs” as the reason for the change.

Due to increased geopolitical tensions, the €9bn scheme now considers investments in emerging markets as riskier. The proceeds from the equity sale have been reinvested closer to home, in European equities.

Stricter exclusion policy

As part of its new responsible investment policy, Pensioenfonds Hoogovens has also made its exclusion policy more strict. Companies facing “very serious controversies”, producers of oil from oil sands, thermal coal, tobacco and controversial weapons have now been excluded from the fund’s investment universe.

Investments can, however, still be made in producers of coking coal, which is used to produce steel. Finally, companies can now also be excluded after unsuccessful engagement.

Another four companies have been excluded to emphasise the pension fund’s independence from its sponsor Tata Steel. “Especially abroad, it is not always recognised that the pension fund is an independent foundation, with its own policy separate from that of the company,” said Bouma.

He added: “To proactively avoid misunderstandings and potential disruption of each other’s activities, for example between engagement activities of the company and those of the pension fund, it was decided to place a number of companies that are essential to Tata Steel’s business operations outside the pension fund’s investment universe.”

In addition to sponsor Tata Steel, these include Rio Tinto, BHP Group and Vale, three major suppliers of iron ore and choking coal to Tata Steel.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication.