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Special Report

ESG: The metrics jigsaw

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Resisting the European trend

Belgium has been in the spotlight of the European pension fund industry since it decided not to back the EU directive on occupational pensions, presented for approval in Spain last June.
This decision did not come as a surprise. The Belgians want the directive to include more restrictions on pension fund investment, as they fear the EC proposal could conflict with their new law on pension funds, the Vandenbroucke law, expected to come into force early next year.
Commenting on the directive, Hugo Clemeur, general secretary of the Belgian Association of Pension Funds (ABFP), said that because the Vandenbroucke law is limited to domestic funds and makes no allowance for Europe-wide pensions, the directive could “hinder the domestic reform programme and lead to a drain of assets”.
The new Belgian law, which seeks to encourage the development of the country’s supplementary pension system, will also have a significant impact on the investment strategies of all Belgian defined contribution (DC) schemes. These will have to guarantee a minimum overall return of 3.25% on contributions, which in current market conditions is not an easy task.
Performance figures released by the ABPF earlier this year were once again disappointing for both members and plan sponsors. For the second year in a row, Belgian pension funds underperformed, by –5.1% in 2001 and –0.07% in 2000. With around 50% of total assets invested in equities, funds have been badly affected by volatility in the markets. Such results are a painful contrast for pension funds that in 1999 returned 15.3%.
Although these figures have not resulted in panic among investors, pension funds are concerned about their shrinking reserves and their future investment strategies. The new legislation and greater risk awareness are putting pressure on plan sponsors, which are looking for products that can control risk.
The new law encourages the development of industry-wide pension funds, an area that is expected to grow significantly in the near future. Some believe that the take-off of this sector could be much slower than expected, but some good examples of this type of fund can already be found in the market, such as Les Fonds de Pension Metal, with assets of €150m covering employees in the metal-related industries. For some the creation of sector funds is the key to the development of the country’s second pillar and other industries are following the metal industry’s lead.

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