PDN ANNUAL REPORT 2023
CONTENTS

Sustainability Policy

In the 2023 Sustainability Report, Pensioenfonds PDN explained its sustainability policy and accounts for the most significant results over the reporting year 2023. The complete sustainability report (PDF) can be found on the Pensioenfonds PDN website under downloads and is included in the 2023 annual report.

 

The fund has again taken major steps in 2023 in the light of our commitment to sustainability and responsible investing. We are delighted to note that this has also been recognised by others, such as the VBDO ranking. This ranking, established by the Dutch Association of Investors for Sustainable Development (VBDO), assesses pension funds’ dedication and performance with respect to sustainable investing.

We live at a time in which global society is becoming increasingly polarised, with a growing gap between different visions and values. This affects how people view the future, with some not seeing or wanting to see perspective. At the same time, important elections are taking place in both the United States and in the European Union, which could impact the direction of the Sustainability Policy and international collaboration.

 

Future perspectives

When we look ahead, it is clear that various important themes require our attention:

  • Digital transformation and sustainability: Technology’s role in promoting sustainability is undeniable. Innovations can contribute to energy efficiency and the development of smart, sustainable cities.
  • Water management: Sustainable management of our water sources is essential if we are to ensure that future generations have access to sufficient clean water.
  • Social inclusion and employment: Investing in sustainable projects enables us to help create jobs and promote social inclusion, especially in developing countries.
  • Circular economy: Supporting companies that embrace circular economy principles is a step towards minimising waste and the efficient use of resources.
  • Ethical investment and human rights: It is our responsibility to ensure that our investments embrace ethical considerations and respect for human rights.
  • Biodiversity: The protection and promotion of biodiversity is essential if we are to retain the healthy ecosystems that are crucial for life on earth. The investment world is increasing its focus on investments that help protect natural habitats and species diversity.

Although we are aware of the complexity of the challenges we are facing, we also see the possibilities of making positive impact. With dedication, innovation and cooperation, we can help create a more sustainable and just world for everyone. To increase our positive influence as a fund, we have been focusing on three specific sustainability themes since 2021:

  1. Health and Well-being
  2. Climate and Energy
  3. Raw Materials and Circularity

These themes are linked to the United Nation’s four sustainable development objectives: the Sustainable Development Goals (SDGs). We are focusing more specifically on:

  • SDG 3: Good health and well-being
  • SDG 7: Affordable and clean energy
  • SDG 12: Responsible consumption and production
  • SDG 13: Climate action
Six policy instruments defined in the sustainability policy are used to contribute to our objectives.

More information on the Sustainability Policy and the policy instruments Pensioenfonds PDN uses for this are available on Pensioenfonds PDN’s website via this link. This page also provides an explanation of the policy being implemented, including reports on how votes were cast at shareholder meetings and the progress of engagement actions. Pensioenfonds PDN also publishes a list of companies and countries in which it invests on its website (each year).

1. ESG-integration

Where possible, Pensioenfonds PDN manages and evaluates investments according to ESG factors. ESG stands for Environmental, Social and Governance. Sustainability risks for the portfolio and other ESG aspects are considered when making investment decisions in the various mandates. Another illustrative topic that falls within this is carbon emissions. Pensioenfonds PDN aims to reduce the investment portfolio’s carbon emissions via ESG integration in the investment process.

 

Outcome of the objectives for CO2 Reduction

2. Impact Investing

Impact investing is investing in countries, companies or projects that can help resolve social and environmental problems, such as poverty in developing countries or climate change. Pensioenfonds PDN does this on the basis of the United Nations Sustainable Development Goals.



Outcome of the objectives for Impact Investments

3. Engagement

Engagement involves dialogue with the companies in which we invest and helps stakeholders stimulate companies to change. The engagement instrument enables agreements to be made with companies about plans, objectives or ambitions, with respect to carbon emission reduction, for example. Engagement is also used to start a series of intensive dialogues with companies whose practices are not in line with the UN Global Compact’s principles and where potential or actual negative impact has been identified. An engagement process can be labelled as a proactive or reactive engagement process. If the engagement process does not lead to the desired result, the conditions under which disinvestment takes place are stated in the escalation ladder.

 

Engagement process

An engagement process comprises four phases. It starts with determining a company-specific objective. CTI then contacts the company concerned to raise the identified issues. CTI then monitors the extent to which the company commits to addressing the issue up to the point that the issues are resolved and the objectives are achieved. Unfortunately, the latter is not always the end of an engagement process. Sometimes, companies do not ‘engage’ during these phases, resulting in the engagement process being aborted.


Outcome of the objectives for Engagement

4. Voting Policy

As an institutional investor, Pensioenfonds PDN complies with the Dutch Corporate Governance Code. This code defines principles and procedures for good corporate governance. Pensioenfonds PDN’s good governance policy aims to protect our interests as a shareholder while living up to our responsibility in that role. Wherever there is an indication that a company is acting irresponsibly, the fund has several options to exert influence, including voting at shareholder meetings of all listed companies in which the fund invests worldwide. On our website every quarter, we publish how CTI voted on behalf of Pensioenfonds PDN in general meetings of the companies in which we invest. We publish this per individual company and per voting point and this can be found on the Pensioenfonds PDN website via this link.

1,097 shareholder meetings took place in 2023 for all listed companies in Pensioenfonds PDN portfolio. CTI cast votes on behalf of PDN Pension Fund at 1,089 of these meetings. This was not possible at eight meetings due to applicable liquidity constraints or other operational restrictions in the voting process. This means that the KPI was not strictly achieved. However, Pensioenfonds PDN is satisfied with the result that, where possible, votes were cast at every shareholder meeting. 

 

Votes were cast on over 14,000 proposals at all 1,089 shareholder meetings. As mentioned above, it was not possible to vote at various shareholder meetings, resulting in a total of 0.5% of the number of proposals not being voted on. Votes were cast on the remaining 99.5%. Figure 6 shows the number of votes for or against, blank votes, or abstentions. ‘Other’ includes proposals in which it was not possible to cast a vote ‘for’ or ‘against’ but, for example, frequency of reporting on remuneration policy is requested (e.g. annually or biennially). Again, this KPI was not strictly achieved but Pensioenfonds PDN is satisfied with its voting activity in 2023.



Outcome of the objectives for the Voting Policy

5. Exclusion

Pensioenfonds PDN’s investment policy produces an investment portfolio that reflects its standards and values. For that reason, Pensioenfonds PDN excludes companies and countries based on the risk of negative impact and conflict with our norms and values. Pensioenfonds PDN applies criteria for this such as the harmfulness of the product, the impossibility of effecting change through voting and engagement, and the fact that there would be adverse consequences if the product ceased to exist.

 

Product groups that we exclude or partially exclude include controversial weapons, cluster munitions, coal, oil from tar sands and tobacco. We exclude companies or countries based on their behaviour with respect to the UN Global Compact’s Ten Principles and the UN Security Council, Dutch or European international sanctions lists. Countries and companies are added to our exclusion list if there are serious and structural violations.

Our objective for exclusions means that we do not hold any investments, excluding our fund investments, in companies and countries that are on our exclusion list. We have achieved this target. Individual investments in companies and countries on the exclusions list were sold within a calendar quarter of the screening taking place. At the end of 2023, Pensioenfonds PDN’s list of exclusions comprised a total of 174 companies and fourteen countries in the investment universe. This represents an increase of 6 companies and roughly the same number of countries compared with the end of 2022.



Outcome of the objectives for Exclusion

6. Transparancy

Pensioenfonds PDN publishes an annual Sustainability Report to ensure transparency about the Sustainability Policy and its implementation. On its website, Pensioenfonds PDN also publishes an annual overview of the outcomes of the total investment portfolio as well as reporting on the results of its voting policy at shareholder meetings. Finally, Pensioenfonds PDN participates in market-wide initiatives such as the VBDO benchmark and the UN PRI assessment.

 

Implementation of Sustainability Legislation and Covenants in 2023

Mandatory legislation and regulations with respect to sustainability have increased in recent years as a consequence of the European Action Plan ‘Financing Sustainable Growth’. The purpose of this Action Plan is to encourage the financial sector to contribute to the Paris Climate Agreement objectives.

 

EU Sustainability Finance Disclosure Regulation (SFDR Legislation)

In the context of the SFDR legislation, Pensioenfonds PDN has chosen an ‘article 8 classification’. This means that Pensioenfonds PDN implements sustainability characteristics within its investment portfolio and also reports on them transparently. From 2024, Pensioenfonds PDN will begin reporting under the SFDR legislation on key adverse impacts with respect to the sustainability factors prescribed by the SFDR legislation. Pensioenfonds PDN has not yet set a target SRI percentage as defined in the SFDR. However, this does not mean that PDN Pension Fund is not investing sustainably. Pensioenfonds PDN most certainly does this, but the difference in definitions of sustainable investments is rather complex. Pensioenfonds  PDN will further investigate in 2024 whether employing a minimum percentage of sustainable investments with respect to the SFDR legislation is desirable and implementable (also see the Taxonomy section below). . 

 

Taxonomy 

Through the Taxonomy Regulation, the European Union has established criteria for determining whether each economic activity is carried out in a sustainable manner. Those are economic activities that contribute to an ecological goal, and which do not cause significant damage to other ecological goals. In total, six different ecological objectives have been defined. Pensioenfonds PDN believes it is important to also invest in economic activities that contribute to these ecological objectives. To determine how much PDN Pension Fund invests in these activities, it must first be clear to what degree the companies in which PDN Pension Fund invests, and can invest, contribute to these ecological goals. To determine this, more data is needed from these companies. In the fourth quarter of each year, Pensioenfonds PDN will review data of companies in the portfolio and assess the target percentage of Taxonomy-classified investments that Pensioenfonds PDN can set for the following year.

 

IMVB Covenant

On 20 December 2018, we and 69 other pension funds signed the International Socially Responsible Investing (IMVB) Covenant. This Covenant is based on the OECD Guidelines and the UN Guiding Principles on Business and Human Rights (UNGPs). The OECD Guidelines clarify what can be expected of companies in terms of corporate social responsibility when doing business internationally. They contain standards on how to deal with issues such as supply chain responsibility, human rights, child labour, the environment and corruption. In 2020, we updated our Sustainability Policy to reflect the requirements of the Covenant. On that occasion, we included in the policy that we take into account the due diligence process as defined in the OECD Guidelines. This means that we identify negative impacts in our investment portfolio and then strive to stop, mitigate and/or prevent them. We held discussions with all our asset managers in 2021 regarding the new requirements that Pensioenfonds PDN expects of them based on the IMVB Covenant. Wherever possible, these new requirements have been contractually agreed with our asset managers. From 2022, screening has taken place on that part of the portfolio where screening is possible based on the OECD Guidelines and the UNGPs and we will discuss this with the managers. A covenant was signed in late 2022. The implementation of OESO guidelines and UNGPs will, however, continue to be introduced in our processes and Pensioenfonds PDN will continue to monitor this, including with the external manager.

 

Looking ahead to 2024

Following a year of continued efforts and commitment to our Sustainability Policy, in 2024 we will continue to focus on strengthening our sustainability ambition and implementing concrete measures that contribute to a better future both for our members and society as a whole.

In the coming year, we will continue our efforts to further develop and implement our Sustainability Policy. Some important topics that are high on our agenda include:

  • Sustainability framework and ESG risk management: We will continue to refine our framework for sustainability and the management of environmental, social and governance (ESG) risks. In doing so, we will pay specific attention to relevant themes during our planned theme days.
  • Sustainability Report: Formulating our Sustainability Report continues to be a key focus point. We aim to produce a transparent report on our sustainability performance and on our progress with respect to our targets.
  • Target allocation impact bonds: We will review our commitment to impact bonds and make adjustments where necessary to strengthen our targets in this area.
  • Target allocation EU taxonomy-related investments: Identifying and allocating investments that comply with EU taxonomy will be a focus area to support our sustainability objectives.
  • ESG risk management: We will continue our commitment to the effective identification, assessment and management of ESG risks within our investment portfolio.

 

With these objectives in mind, we aim to further strengthen our role as a responsible investor and contribute to a more sustainable future for all.