Dutch pension funds are failing to sufficiently integrate ESG risks in their risk management policies, the country’s pension regulator DNB concluded following several case studies it conducted in 2022.
Funds lack insight in the financial effects of for example climate change and child labour on their investments, according to DNB.
DNB noted that many pension funds attach high importance to ESG policies, with most of them having formulated specific goals related to one or more of the UN’s Sustainable Development Goals.
The regulator believes these goals can be made more concrete, however, which would facilitate monitoring.
Engagement with companies on ESG matters can also be helped by formulating so-called SMART targets (Specific, Measurable, Attainable, Relevant, Timely), and by considering to sell companies when they don’t reach these targets, DNB suggested.
There is much to improve in the way how pension funds translate ESG risks to their risk management policies, according to DNB.
Such risks include climate change, loss of biodiversity and child labour. These can be both financial (investment losses) and non-financial (reputational risk).
DNB said that pension funds tend to focus on climate change while more or less ignoring biodiversity, social aspects and governance.
To help pension funds to improve their ESG policies, DNB has published a guide with suggestions to improve the management of climate and environmental risks.