Our ESG incorporation strategy is based on a portfolio that is as sustainable as possible, while generating a sufficiently high financial return to fulfill all of our (future) commitments. SPF Beheer manages for us the strategic equity portfolio (SAP). The concentrated nature of this portfolio, where we are not bound by any benchmark and carefully scrutinize every company we invest in, renders it possible to truly integrate ESG issues in every investment decision.
The entire portfolio is subject to an exclusion list. On this list are companies that are involved in the production of controversial weapons. We consider cluster munitions, anti-personnel mines, nuclear, biological and chemical weapons as being controversial. White phosphorous is considered a chemical weapon. Additionally companies that do not meet our engagement criteria are placed on the exclusion list. Companies that are on the exclusion list can under no circumstances be invested in. Companies that are added to the list are given the opportunity to respond to our investigation. When a company denies allegations, however, we will balance their answer with the proof we have, to determine whether a company will stay on the exclusion list or be removed.
Whenever an investment proposal is made (for a company that is not on the exclusion list), the company is screened against the ESG policy of the funds. The Global Compact principles are leading; but also the Ruggie Framework and the OECD guidelines are taken into consideration. From these general guidelines, we distracted our own policy guidelines. Specific focus is placed on the topics human rights, child labour and the environment; however, this does not mean that other issues are not being looked at. Depending on the company's we focus our attention on specific sector risks. Companies have to comply with a minimum standard, otherwise investment will not take place.
After investment smaller issues and potential areas for (ESG) improvement at the company are addressed via regular dialogue with the company. When breaches of our ESG standards are discovered, an engagement process will start. We will demand change within a predefined period of time (depending on the nature of the issue, but usually 1 year to see initial progress). If change is not seen, the company will be divested from and placed on our exclusion list.
Since 2012 we do no longer invest in tobacco companies in this actively managed portfolio. This decision was based on ESG criteria. Tobacco is the only sector that the portfoliomanagers of this portfolio have specifically decided not to invest in. Some other sectors, however, are subjected to further analysis. The fossil fuel sector is an example of a sector that is intensively scrutinized by us on ESG aspects.
We also employ a thematic strategy, yet not in the actively managed listed equity portfolio. A separate part of the portfolio is fully dedicated to such investments. Themed-like investments (sustainable energy, green bonds, etc.) do also occur in other portfolios, yet not by a pre-determined percentage. We just select the best investments from a combined financial-ESG perspective.