Dutch pension funds ready to embrace SRI approachJune 2003
Three-quarters of Dutch pension funds expect to take the social, environmental or ethical performance of companies into account when making investment decisions in the future.
A survey of 44 pension funds controlling 68 per cent of pension fund investment in The Netherlands found that three out of four expected to be using SRI criteria shortly when selecting stock and bonds for investment.
Only seven of the funds were currently operating an SRI policy, but 18 were either developing one or about to do so. A further eight expected to be using SRI criteria, but had yet to begin considering policies in this area.
Most of the pension funds felt they had a responsibility to promote SRI and only two thought it unimportant. A handful of the biggest funds had strategies for engaging with companies on social and environmental issues.
The study, published by Nyenrode University, concludes that SRI ‘has the potential to become a regular part of the investment management process’ within the Dutch pension fund sector.
Some of the large funds, among them ABP and PGGM, have already begun integrating SRI policies into their investment management processes. But the report says there is a danger that the initiative is coming only from the biggest funds. ‘This could lead to a free rider problem, where the large funds do the work while the rest silently wait to see what will happen,’ it says.
The Netherlands has no SRI disclosure regulation, and Harry Hummels, professor of SRI at Nyenrode, says legislation is unlikely in the near future. ‘The focus is on self-regulation by the sector and on stimulating initiatives by pension funds themselves,’ he said.
One of the main motivations for the pension funds to adopt an SRI approach was the belief that this could produce better returns. The vast majority of respondents agreed that compiling information on the social, ethical, and environmental performance of companies improves the management of investment risk. However, Hummels said this belief was ‘puzzling’, given there was no conclusive evidence on the effect of SRI on returns.
The report also raised the question of ‘why so few pension funds actually take this type of information into account if it is so important to them in assessing financial risks’, he added.
Half the respondent funds said the data that companies provided on their social and environmental performance met their needs.
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