ABN AMRO Pension Fund: when sustainability and ROI go hand in hand

How much do people care about sustainability as it relates to the assets funding their pensions? That question actually begs another: to what extent are employees even thinking about their pensions at all? 

“Generally speaking, you could say that pensions aren’t exactly a burning issue,” says Maarten Roest, Head of Asset Management and Executive Director of the ABN AMRO Pension Fund since 2014. “And that’s too bad because our pension is one of the most important terms of employment.”

Yet with some 100,000 participants and €30 billion in assets under management, the stakes and impact are high. That’s why the fund is committed to raising awareness of, and general interest in, pensions among participants. One way the fund actively seeks to learn what’s important to participants is through surveys.

Responsible investment

In 2015, the board decided to review its outlook on responsible investment and specifically committed to do more in the area of sustainability. A recent survey of participants shows they ‘agree’ with the steps that have been taken, Roest says. “However, participants also believe the new aims should not have a negative impact on returns.” 

As a result of the feedback from the survey, the decision was made to stop investing in controversial weapons and to exclude the tobacco industry from investment.

Sustainability policy elements

The ABN AMRO Pension Fund’s sustainability policy is built on five elements.

• Engagement: the fund discusses sustainability and corporate responsibility with investee companies. 

• Integrating environmental, social and corporate governance (ESG) scores into the policy: where both equities and corporate bonds are concerned, the fund has a preference for companies with a good ESG score. 

• Carbon reduction: the fund is aiming to significantly reduce the carbon emissions of its investment portfolios. With respect to its equity portfolio, the fund’s five-year objective is to reduce carbon emissions by 50 per cent relative to the level at the end of 2017. 

• Principles for Responsible Investment (PRI): the ABN AMRO Pension Fund signed the PRI in 2018, six sustainability principles for investment endorsed by the United Nations. 

• Sustainable Development Goals: the fund supports the UN’s sustainability objectives, particularly numbers 7 (clean energy) and 13 (climate). 

The fund operates in accordance with the basic principle that implementing sustainability initiatives should not be to the detriment of the risk-return profile it has chosen. So far, though, ROI and sustainability have gone hand in hand. “Neither has had a negative impact on the other,” Roest says. “In fact, they strengthen each other.”

Coverage ratio

By the same token, sustainability is never the sole factor in decision-making – it’s just one of the criteria taken into account by the board, which is made up of a chair, four executive members and eight supervisory members. 

ABN AMRO’s Pension Fund has been none the worse for this course of action. Indeed, it’s achieved excellent results for many years and has a coverage ratio in excess of 125 per cent, while that of the average Dutch pension fund is 102 per cent (as at November 2019).

“We belong to the group of funds with the highest coverage ratio. We’ve been able to index the pensions to price rises in the past, and there’s currently no need for pension cuts,” affirms Roest.

Independent

Roest says the fund’s performance is due to its balanced approach. Interest rate risk is largely hedged, while risks are taken in the equity markets, for example, to generate additional returns. “In the equity portfolio, we use a factoring approach that combines equities with low volatility, high quality, value characteristics and ESG scoring,” Roest explains. Research shows that this combination is effective over the long term. “We’ve opted for long-term success and accept that the short term may not always live up to expectations.” 

The fund regularly consults with the bank, and the bank’s sustainability goals are a frequent topic of discussion. Roest says, “The bank recognises our independent status. The Pension Fund board alone is responsible for the policy it pursues. But the importance of sustainability is growing at the fund, too, as it is right across the bank.”