Dutch pension funds should use engagement 'wisely'

Industry experts have cautioned Dutch pension schemes to use engagement "wisely", arguing that it should not be used as an excuse to remain invested in certain companies despite a lack of progress on climate issues.

Speaking at an AXA Investment Managers roundtable event on Dutch pension funds and climate issues, Dutch Metalworkers pension fund PME Pensioenfonds responsible investment strategist, Daan Spaargaren, warned that engagement is a “very sensitive instrument”.

“It can never be a justification to continue investments in a certain company,” he said, explaining that whilst the scheme has been engaging with climate, oil and gas companies "for a while now" there are "just not enough results".

“Companies are moving slowly, and primarily on paper," he continued.

"We’ve seen ambitions, but these ambitions are focused on the next decades, not this decade, whilst we all know that the biggest steps should be taken now, there’s no time to wait."

The comments also follow a number of divestments by PME Pensioenfonds, which saw the scheme become the first major Dutch pension fund to sell off its remaining investments in fossil fuels for a total of €1.2bn.

Adding to this, Ortec co-head climate and ESG solutions, Willemijn Verdegaal, said that whilst she is a “big, big supporter of engagement” there is sometimes “no point” if the math shows they will not be profitable under a net-zero scenario in a 10-year horizon.

However, AXA IM head of Rosenburg Equities, Paul Flavier, noted that whilst it can be “a bit difficult to distinguish the signal from the noise”, there are some stranded assets that could be transformed into a new innovative use in the future.

“A very good example is when you look at oil companies,” he said. “They have a network of gas stations. Now, you could see that as a stranded asset, but you could also see that as a formidable growth opportunity if you transform all of these gas stations into recharge stations.

He continued: “I think the companies that are dominating today will still dominate in the future, and the ones which are generating returns and dividends today will also be the ones generating returns and dividends in the future. But this return will come from different assets.

“I think that we really see an investment opportunity to identify the companies that can actually transform these stranded assets into innovation and ones which will be just left with the stranded assets”.

He also warned that the “pure exclusion approach is something that can be a bit dangerous”, as it could increase the cost of capital for companies with stranded assets.

AXA IM solutions strategist, Bruno Bamberger, also suggested that engagement has been “really growing in importance across investors”, stressing that it is “essential” for investors to impact the medium-to-long-term resilience of the companies they invest into.

“Really engaging with them to try and change their business model, not only can you hold onto those companies, but you can improve them and have better returns from them in the future,” he explained.

“And engagement can be done across all levels, so it can be done from a whole asset owner perspective, from investor collaboration, down to the credit analysts and the traders that we speak to on a daily basis; they can speak to the investor relations, and to the CIOs and the CEOs of the companies that we invest in to get them to change their business model to be more resilient to climate change.”

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