PGGM is the Dutch pension fund for the healthcare and social welfare sector, responsible for the financial future of over 1m people and their family members. This is a major social responsibility, of which PGGM is very much aware. We reflect this responsibility by pursuing sustainable policies that are based on the principles of transparency and corporate governance.
PGGM’s pension scheme is a collective, compulsory pension scheme agreed by employers and employees’ representatives, the so-called social partners, and based on the principle of solidarity. More precisely, PGGM has 1.6m clients, 14,300 affiliated institutions and manages in total E50bn in assets (end 2001). The investment portfolio is managed by PGGM Investments, a rather lean organisation consisting of approximately 120 investment professionals.
Investment objectives
The basic investments objectives of PGGM are to achieve the long term viability of the pension system at low and stable premium rates and obtain maximum investment returns at a preferred risk perception with the acceptance of some general constraints.
The extremely negative developments in most financial markets meant PGGM’s investment results in 2001 were disappointing. However, the models used by PGGM Investments when putting its investment strategy into practice, focus on the longer term.
They make allowance for a whole range of different scenarios, including economic developments such as those seen in 2001. The basic assumptions underlying the investment policy remain valid even in economic circumstances of this nature.
Sustainability
Investment opportunities are increasingly being assessed not only in terms of their expected yields, but also from a social and environmental perspective.
o PGGM’s board of trustees has defined general constraints focusing these perspectives, stating:
o PGGM does not invest in countries where human rights are being violated flagrantly;
o PGGM does not invest in corporations whose main activity is in the weapons industry;
o PGGM puts an emphasis on countries and corporations that represent added sustainable-value (social and environmental);
o PGGM puts an emphasis on corporations with good corporate governance.
These constraints led to the adoption of a three-track policy in order to incorporate the principle of sustainability into PGGM’s investment decisions. This policy involves:
o excluding investments on the basis of negative criteria such as weapons or countries and companies systematically violating human rights;
o ranking investments on the basis of positive criteria, ie, the ‘best in class’ approach;
o ensuring an ongoing dialogue between shareholders and the companies in which PGGM invests (the ‘engagement’ approach).
The first mandate granted on the basis of this three-track policy was awarded to SNS Asset Management in 2000. A new mandate was awarded during 2001 to Sarasin, a manager of sustainable assets. This brought the total volume of specific pilot-mandates with strict criteria for sustainable investments to E114m. In the near future, PGGM strives to incorporate the ‘best of class’ approach into the total investments portfolio.
In addition, Friends Ivory & Sime (FIS) has been appointed to enter into an active and positive dialogue with companies in which PGGM invests, with the aim of encouraging these companies to ensure that their businesses are conducted on a sustainable basis. FIS uses its Responsible Engagement Overlay (reo‚) approach now for the E5.5bn European equity portfolio managed by PGGM. A similar mandate may also be awarded in 2002 for sustainable investments in the US.
In the pursuance of this policy, PGGM has attracted some attention. Some recent developments noticed at various levels, internal an external:
o other pension funds are becoming interested in PGGM’s sustainable investments experience
o the media attention has been high and increasing
o PGGM’s participants are positive about our policy
Evaluation of our sustainable policy is ongoing but definite results will only be known at the end of this year. Meanwhile, PGGM is making plans for the near future. Between 2002 and 2005, PGGM wants to:
o create its own vision on how to implement sustainable criteria into in-house equity portfolio management
o participate in Triodos research initiative (SIRI-research), which has already been put into effect
o obtain more clarity on the trade-off between outperformance (profits) versus sustainable criteria (people and planet)
o initiate pilot US portfolio
o take some initiatives towards the European Union, as PGGM believes that sustainable investments are not a hype but are here to stay and will lead to higher returns in the long run. PGGM tries to be in the forefront to obtain the maximum benefits from this development.
Corporate governance
Sustainable investments and corporate governance go hand in hand, they both focus on transparency and accountability.
PGGM has been putting its corporate governance policy into active practice. It was one of the co-founders of the Pension Funds’ Corporate Governance Research Foundation (known in Dutch as SCGOP). This foundation provides a forum for pension funds to work together to improve the corporate governance of companies in which they invest. Providing they agree on the issues, SCGOP members represent each other at shareholders’ meetings and vote on each other’s behalf by proxy. PGGM plays an active role in shareholders’ meetings – particularly in the Netherlands – in order to ensure that important issues are raised.
Recent topics in The Netherlands, regarding corporate governance are:
o Structure regime (self-electing board members) PGGM supports changes in the structure regime which will result in more influence for the shareholders, specifically at the appointment of supervisory board members and the exercise of shareholder voting rights.
o Management options PGGM is in favour of companies having to seek shareholders’ approval for option schemes set up for management. It has drawn attention to the need to hedge the positions arising as a result of such schemes being set up and to decide how such expense items should be shown in the profit and loss account.
o Proxy voting PGGM supports the principle of voting rights being able to be exercised by proxy at shareholders’ meetings by, for example, fax or via the internet.
o Independence of supervisory board PGGM expects the supervisory boards to be independent. That means that they must not be allied to any particular shareholder, to the management or to other interested parties.
International co-operation can be a way of ensuring that investors can exercise their rights as shareholders in all countries. Participants in such alliances can help each other to exercise their shareholder rights or may join forces to achieve improvements in the field of corporate governance. PGGM has, for example, become a member of the Global Institutional Governance Network (GIGN). This is an informal alliance of 10 large US, UK, Swedish and Dutch pension funds that exchange information on their domestic markets and help each other to exercise their rights effectively and constructively in order to improve long-term shareholder value. PGGM is also involved via the SCGOP in the International Corporate Governance Network (ICGN), an organisation involved in setting international norms for good corporate governance.
PGGM also invests specifically in companies whose share prices are depressed as a result of inadequate corporate governance. These investments are made via the European Focus Fund run by Hermes. The combination of acquiring relatively large stakes in such companies and actively working to improve their corporate governance policies are expected to generate excellent investment returns.
Finally, we would like to stress one of our most strong beliefs; we are convinced that investors are willing to pay a premium for a well governed company and that in the end a well governed company will outperform.
Roderick Munsters is managing director of investments at PGGM in The Netherlands

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