PME, the pension fund for the Dutch technology industry, has sold its holdings in 112 companies in developed markets that do not meet the its new ESG requirements. The companies that were sold include Nestlé, Rio Tinto and chemicals producer Dupont.
The sale of the holdings, worth over €800m together, is a first step in the implementation of PME’s new sustainable investment policy, according to responsible investment strategist Daan Spaargaren.
The fund, with assets worth €54.6bn, has been excluding companies based on their ESG scores for years, but it and recently adopted additional criteria.
25 themes
“Until recently, we used general ESG ratings from MSCI, excluding companies that scored below a certain threshold. We have replaced that method with 25 ESG themes that we think are important. We want to move our portfolio towards companies that try to contribute to solving problems that society is confronted with,” Spaargaren said.
The 25 themes include topics such as climate and biodiversity, but also the circular economy and diversity and inclusion.
“If a company scores below a certain threshold on one of these themes, we no longer invest in it,” Spaargaren explained. No company gets a score on all of these themes, as some are very specific. “A theme like affordable housing, for example, is very important to us, but it is hardly reflected in our equity portfolio,” he added.
The companies that PME divested from include household names, such as food company Nestlé, in which PME invested about €55m. Nestlé was sold because it does not sufficiently take biodiversity protection into account.
For instance, the Swiss food producer is still linked to the use of palm oil on land that has been illegally deforested, despite the fact that Nestlé already promised to stop sourcing unsustainable palm oil back in 2010.
Investments in mining company Rio Tinto (€15m) and chemical company Dupont (€12m) were also sold. Both companies scored insufficiently to pass the minimum threshold on the subject of air quality and waste.
Rio Tinto has regularly been in the news in recent years after environmental disasters involving mining waste, and Dupont has been discharging toxic substances, such as PFAS, into the environment for years while knowing they were harmful to human health.
Of the excluded companies, PME had the most money invested in US pharmaceutical Amgen (€60m). That company scored poorly on drugs, healthcare and healthy nutrition.
From passive to active
PME will gradually roll out the same approach across all asset classes, including private assets. The tightened sustainability policy cannot be seen separately from the move PME plans to make to active management of its equity portfolio, announced last year.
One of the reasons for this was that PME wanted to integrate ESG criteria more seriously into its investment policy.
PME wants to gradually move to active investing, it has now decided. The fund wants to move a growing share of its equity investments to a concentrated portfolio of around 250 names, which will take years.
“We are now in the process of selecting managers for that focus portfolio, which we will initially run alongside the existing index portfolio to see if we can indeed beat the market with an actively managed portfolio,” said Spaargaren.
The fund wants to start, likely from next year, with a ratio of 66% passive, 33% active. “In subsequent years, we want to gradually convert an increasing proportion from passive to active,” he added.
Shell’s lower climate ambition ‘proves us right’, says PME
Shell last week revised downwards its climate target to emit 20% less CO2 by 2030, to 15-20%. It also abandoned its 45% carbon reduction target for 2035 altogether.
According to PME’s Daan Spaargaren, the move confirms the pension fund has been right in banning all fossil companies, which it did in 2021.
“Oil and gas companies are clinging to a fossil energy system. That Shell too is downgrading climate targets now, confirms a trend and shows that shareholders with a climate agenda are not being listened to by the fossil fuels industry,” he noted.
Metals industry fund PMT continues to invest in Shell. It said in response to questions from IPE that it is “disappointed” with Shell’s move to abandon climate goals, which the pension fund links to “a growing focus on LNG [liquefied natural gas]”.
However, PME will remain “in discussion” with the energy company instead of selling its stake. MN, PMT’s asset manager, is lead investor for Shell for climate coalition Climate Action 100+.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication
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