Report Sustainable And Responsible Investment 2019 .

1. Our sustainable andresponsible investmentpolicyWe strive to ensure a good pension for our participants. And we strive tocontribute to a sustainable world in which they can enjoy that pension. Themajority of our participants indicate that they find this important. Thereforein making our investments we pay attention to return, risk, costs and also tohow companies deal with people, the environment and corporate governance.Chevron-circle-rightA good and affordablepension is the starting pointChevron-circle-rightfor our investment choicesWith attention to people,the environment and goodgovernanceResponsible investment choicesABP wishes to invest in companies (and projects) whereChevron-circle-rightFinancial returns and sustainable and responsible investing can go hand-in-handSustainability and responsibility form part of everyinvestment choicethere is sufficient attention to people, the environmentand good corporate governance (ESG; Environmental,Social and Governance). And also in companies that weReturnexpect we can persuade to make improvements. Thesecompanies remain in the portfolio if they make sufficientprogress in the areas that we find important.Taking account of people, environment and good governance has become ever more important to ABP. In 2015we decided to fully integrate corporate social responsibil-RiskFrom 2015ity and sustainability into our investment decisions. Forequities and corporate bonds this has resulted in ourinclusion policy. Since then we have assessed over 10,000companies in which we can invest through shares orbonds based on return, risk, costs and how sustainableand responsible they are. More about this in chapter 2.10Report Sustainable and responsible investment 2019 Sustainable &ResponsibleCost

What are we seeking to accomplish?in the cocoa sector, takes time and requires efforts bySustainability is not optional for ABP: we really want toall parties involved. You can read more about this incontribute to a world that is pleasantly livable. That is whychapter 6.we have formulated a number of clear targets for the2015 – 2020 policy period. Compared with January 1, 2015we want:Challenge: availability ofinformation on sustainabilityThe availability of reliable information on sustainability is our investments that contribute to the SustainableDevelopment Goals to have doubled to 58 billion; to be investing five times as much ( 5 billion) inrenewable energy; the CO2 footprint of our equity investments to havedecreased by 25%; to have invested an extra 1 billion in education andcrucial for proper implementation of our policy andremains a point for attention. One of the challenges isthat in the field of sustainability and responsible businesspractices, unequivocal definitions such as those thatexist for financial terms such as ‘profit’ are often lacking.Investors often use different definitions for what is and isnot sustainable.communication technology.What are the results?We urge companies in which we invest to publish moreinformation on sustainability. We also strive to gatherOn December 31, 2019 the policy period for sustainabledata ourselves. For example we rely partly on artificialand responsible investment 2015 – 2020 came to an end.intelligence to determine which companies contributeThe objectives that we had set in 2015 have all beento the Sustainable Development Goals.attained. Some of them amply.An additional challenge is the multiplicity of standardsIn establishing policy we look several years ahead into aprescribing how companies and investors should reportworld that is in a constant state of flux. That makeson sustainability. As a result it is often hard to see thesetting goals that are both ambitious and realistic quite awood for the trees. Meanwhile a number of initiativeschallenge. The fact that we have attained our objectives ishave been started to bring these standards more into line,the result above all of the informed choices we have madesuch as the Corporate Reporting Dialogue's Betterand the steps taken by companies in which we invest.Alignment Project.At the same time we can see, looking back, that inattaining certain goals, such as reducing the CO2 footprintBy launching our own initiatives such as the SDI Assetof our equity investments, we had the wind at our backs.Owner Platform (see p. 22), and taking part in jointBecause CO2-intensive sectors have been performingprojects such as Climate Action 100 (p. 28), we aimrelatively less well in the past few years, investing in themtogether with other investors to set the same reportingwas also less attractive from the financial point of view.requirements for companies.But this does not mean that all objectives were easy toattain or that we can simply increase them all for the nextABP once again the most sustainable pension fundperiod. For example: the less we invest in CO2-intensiveIn October ABP was once again voted the Netherlands’companies, the more difficult it becomes to achievemost sustainable pension fund. In the ranking of thefurther reductions.VBDO (Association of Investors for Sustainable Development)2, ABP scored 4.6 out of a maximum possible fiveWe have also made progress in our thematic engagementpoints. ABP headed the list in 2018 too, that time with thetrajectories in sectors with a high risk of involvement infull five points. VBDO decided to raise the bar in 2019human rights violations. Experience has taught usbecause pension funds were performing better and betterhowever that tackling some social ills, such as child laborin the area of sustainable and responsible /2019/11/VBDO-BM-PF-2019-1.pdf11

International Leaders’ GroupABP expects lower returns of around 4% per year in theThere was also international praise for how ABP givescoming years. The lower expected returns are due abovemeaning to sustainable and responsible investment in itsall to the low level of interest rates, which depresses bondinvestment portfolio. In September the fund was includedyields. Investing sustainably and responsibly has no effectin the PRI (Principles for Responsible Investment) Leaders’on low interest rates.Group 2019.3 Publication of the Leaders’ Group, whichnumbers 47 international investors, is intended to encour-Just as before, we continue to keep a constant close eyeage other major investors to give responsible investmenton the effects of our policy on risk and return. In ouran explicit place in their organization and investmentannual reports and on our website we will show how weportfolio.are doing in this respect and whether we need to adjustResponsible investment and returnsour planning.Our annual participants survey shows that nearly 60%New policy 2020-2025of ABP participants find it important for us to investIn 2019, in preparation for the development of the newsustainably and responsibly, without this being to thepolicy for sustainable and responsible investment, we helddetriment of returns (see chapter 8). The core of ourmeetings with stakeholders and took stock of what ourpolicy, and of the new policy from 2020, is therefore: toparticipants consider important. We also naturally madeobtain a good return for our participants, in a sustainableuse of the experience gained in the past policy period. Youand responsible manner, at acceptable cost and withcan read more about this in chapter 9.appropriate risk.More about our research into the link between responsiIn our new policy for the period 2020 to 2025 we focus onble investment and return can be found in the interviewthree great transitions – climate, shortage of raw materialswith Diane Griffioen on the page opposite.and digitalization – which are developing strongly (seechapter 9). For all new goals in the policy we have askedour asset manager to assess the feasibility. The goalsseem feasible without consequences for the risk andreturn of the portfolio. However we realize that predictingthe future is difficult and that we are dependent on manyexternal factors such as market circumstances.312The Principles for Responsible Investment (PRI) is an international network of over 2,300 pension funds, asset managers andcompanies. They work together to further develop responsible investment. They also share knowledge and insights in the area ofresponsible investment.Report Sustainable and responsible investment 2019

Photograph: Nils VermeulenInterview with Diane Griffioen, Head of Investments with ABPWhat does investing sustainablyand responsibly do to returns?Does investing with an eye to people, the environmentthe company are concerned. This dovetails with ourand good corporate governance influence the risk andinclusion policy: we assess all investments based on ESGreturn of the investments? This is one of participants’criteria and go and talk to companies that still need tomost frequent questions. The answer comes fromtake steps.”Diane Griffioen, ABP’s Head of Investments.Does ABP also examine the effect on its ownABP wishes to invest sustainably and responsibly. Is thatinvestments?good for risk and return?“Where possible for the period 2015 to 2020 we“ABP is convinced that we can invest responsibly andexamined the effect of sustainable and responsiblemake the investment portfolio sustainable without thisinvestment on risk and return. There are no indicationsbeing to the detriment of the risk and return profile.that the policy had a negative influence on the risk andIn other words: we expect to obtain at least the samereturn profile of the investments. You must bear inreturn as if we did not invest sustainably and responsi-mind of course that we could only look back over ably. At our request, in 2019 Professor Kees Koedijk ofshort period, and that with investment past results arethe University of Tilburg again looked into what thenever a guarantee for the future. But it does give causeacademic literature has to say aboutthis.4Just as in hisfor confidence.”earlier research, Professor Koedijk concludes that thevast majority of studies show a neutral or positive effectSo what’s the next step?on the risk and return of an investment portfolio.”“For the new policy we also looked into whether wecould attain the objectives without detriment to riskABP uses its influence to bring about improvements inand return. We’re confident that with the new policycompanies. Does this also lead to better investments?we don’t have to make any concessions on this point.“Professor Koedijk’s study shows that companies’ long-We’re also working on a method for measuring andterm financial performance improves as a result ofmonitoring the influence of sustainable and responsiblesuccessful engagement programs. Particularly whereinvestment on an ongoing basis.”issues that can have major financial consequences for4His research paper, for which more than 2,000 scientific publications were studied, can be read at eratuurstudie/ (in Dutch).

2. Inclusionof investmentsAn attractive return at an acceptable risk is a necessary but not a sufficientcondition for ABP. We also require the companies we invest in to operatesustainably and responsibly.Chevron-circle-rightThe foundations have beenlaid, but inclusion remains awork in progressChevron-circle-rightWe have assessed over10,000 companies on oursustainability criteriaChevron-circle-rightAt the end of 2019 we hadheld improvement talks with240 potential improversInvest, sell or improvee.g. systematically identifying ESG risks in the portfolio andWe assess all companies in which we can invest by meansexerting influence on companies to reduce these risks.of shares or bonds (the investment universe) in terms ofrisk and return, costs and the extent to which they oper-Differences among regions and sectorsate sustainably and responsibly. If a company meets ourFor each business sector we use separate criteria. Thesecriteria and also scores more than the average for thetake account of the specific risks affecting the sector. Weindustry concerned5, it is designated a ‘leader’. This is aalso look at the countries and regions in which companiescompany in which we gladly invest.are active. We expect companies that are active in territories at high risk of human rights violations to have anThen there are companies that score well on risk, returnand costs but are lagging in the area of sustainability andappropriate human rights policy.responsible business practices. We refer to these asEngagement takes time and effort‘laggards’. We can still invest in these companies, but onlyAt the end of 2019 there were 240 potential improvers inif we expect to be able to push them to improve. We mustour investment portfolio.6 Improvement talks with thesefind the company sufficiently attractive as regards risk andcompanies sometimes take time and effort. We do ofreturn to warrant our spending time and effort on helpingcourse set objectives with associated deadlines. At theit to improve. We call these ‘potential improvers’. We makesame time we aim to formulate objectives that makeclear what improvements we wish to see and by when.sense and that tackle the root causes of the problems.If we do not see adequate improvement, in due courseIn our view this is the only way to really improve thewe will sell our stake in the company. For such reasons insituation.2019, for example, we sold our interests in RESA, a gasand electricity distribution network operator in the BelgianInclusion is never finishedprovince of Liège.At the end of 2019 we had assessed over 10,000 companies on our criteria. In 2015 we expected that five yearsWith this policy, which we call the inclusion policy, welater our portfolio would consist entirely of leaders andcomply with the guidelines of the OECD (Organizationpotential improvers, but in practice inclusion turns out tofor Economic Cooperation and Development) forbe still a ‘work in progress’.5614More precisely: if the normalized score is above the median.An overview of companies with which we have had improvement talks and the subjects covered can be found ord-beleggen/hoe-beleggen-we.aspx (in Dutch).Report Sustainable and responsible investment 2019

Mining: a broad range of ESG risksWith mining companies, we assess whether theyPharmaceutical companies: productsafety and briberyhave a good policy for controlling risks such asPharmaceutical companies are exposed to risks inbribery & corruption and risks in the areas ofsuch areas as product quality & safety, aggressivehealth and safety, human rights and environment.marketing, and bribery & corruption. An obviousWe also look to see whether they have beenexample is the granting of inappropriate remuner-involved in any incidents.ation to doctors for prescribing certain medicines. Examples of leaders: Anglo American, Newmont Examples of leaders: Merck, Roche, PfizerGoldcorp Examples of potential improvers: BHP Billiton,Rio Tinto, Glencore, Vale Examples of potential improvers: GlaxoSmithKline, Valeant (now Bausch Health), Anthem,NovartisVale: offer compensation to the victims of the mineNovartis: avoid bribery and corruptiondisasterNovartis was involved in various cases of briberyAfter the Brumadinho dam collapse in Brazil (morebetween 2002 and 2015. There were also concernsabout this on p. 37) we urged he owner, Vale, to takeabout the process for clinical trials and the safetydrastic measures to improve safety. Because weof their products. Our conversations with Novartiswere not satisfied with the way the companyfocused on strengthening supervision of researchreacted, we voted against the board’s policy at theand production and better policy for preventingAGM. In October we received a delegation frombribery and corruption.Brazil, which included relatives of victims of theBrumadinho disaster. We want a thorough investi-We have had several contacts with Novartis. In thegation to determine exactly what went wrong. It ispast few years the company has taken a numberalso important for relatives to receive financialof measures, including the appointment of acompensation from Vale.director specifically responsible for ethics, risks andcompliance with the relevant laws and regulations.In December Vale announced 50 measures that areThe company also provides anti-bribery training forintended to lead to responsible dealings by theits personnel. Employees receive smaller bonusescompany with people and the environment. Thesethan before and must comply with certain valuesalso include measures in the area of safety.and rules of conduct in order to be even consid-ABP’s position is that Vale must now effectivelyered for a bonus.implement these measures, and it will monitorthis critically.15

Banks: change of cultureBanks are duty bound to combat money laundering, bribery, corruption and fraud. We expectamong other things good whistleblower arrangements and demonstrable measures to preventmoney laundering. Examples of leaders: Japan Post Bank, SvenskaUtilities: no expansion of coal capacityHandelsbanken, KeyCorp Examples of potential improvers: HSBC, WellsFargoUtilities often have intensive contact with governments in the countries where they operate onWells Fargo: accelerate changesaccount of the permits required. This entails theIn 2016 Wells Fargo, one of the biggest banks inrisk of their becoming involved in bribery andthe U.S., announced that employees had soldcorruption.financial products on a large scale on the basis ofmisleading information. They had opened accountsIn addition, we do not wish utilities to expand theirwithout their customer’s consent to make the salescoal capacity. If there are plans to do so, we bringfigures look better. The company was fined. Overpressure to bear to dissuade them. Instead, we5,000 employees were fired.expect them to make plans for the transition torenewable energy.Since then we have spoken with the bank severaltimes. Wells Fargo has taken measures: four board Examples of leaders: Hong Kong & China Gas,Endesa Example of potential improver: RWEmembers have been replaced, the remunerationpolicy has been fine-tuned and the whistleblowerarrangements improved. However, we believe thatmuch remains to be improved and the implemen-RWE: stop the expansion of coal-fired power plantstation of improvements needs to be speeded up.We have asked the German utility RWE to call a haltTherefore we continue to bring pressure to bear.to its plans for new coal-fired power stations andinstead to come up with a plan to phase out coalfired electricity.In April 2019 RWE announced the cancellation ofplans for the BOAplus project, a 1.1 gigawattlignite-fired power plant in Germany. The companywill build no new coal-fired plants and will stick tothe objectives of the German commission for thephasing out of coal. The company is busily engagedin the transition to clean energy and with the takeover of E.ON will become a major producer

Sustainable and responsible investment milestones 2015 – 2020 8 1. Our sustainable and responsible investment policy 10 2. Inclusion of investments 14 3. Exclusion 20 4. Contributing to the Sustainable Development Goals 21 5. Dealing with climate change 25 6. Human rights and