Responsible investment policy
MN believes in the co-existence of financial and social return on investments. To limit the negative impact of businesses on people, the environment and society, MN has formulated a responsible investment policy. This policy is derived from the United Nations Principles for Responsible Investment (PRI). MN has been a signatory to the PRI since 2009 and is therefore a member of a worldwide organisation of more than 1,200 institutional investors, banks and asset managers who have joined forces to develop responsible investment.
The PRI relate to:
- including ESG (Environmental, Social, Governance) factors in investment decisions
- taking shareholder responsibility
- reporting on responsible investment policy
MN’s policy is that all clients should enforce these principles and that responsible investment must be part of the investment policy.
MN uses four pillars to implement responsible investment, namely: active ownership, ESG integration, exclusion and impact investments.
- Active ownership: MN votes on behalf of customers at shareholders’ meetings, engages with the company where necessary regarding economic and ESG factors and adopts legal measures to recover damage. If these actions do not lead to the desired result, a company may be excluded.
- ESG integration: applying criteria relating to environmental, social and governance policy.
- Exclusion: no investments are made in companies or countries that do not act in accordance with international treaties.
- Impact investments: investment possibilities within existing asset classes are identified that are interesting both from a return point of view and on the basis of ESG.
On behalf of its clients, MN exploits the opportunity as an investor to exercise control and influence. This is possible in the case of various investment classes. For instance, MN ensures that voting takes place at most of the annual shareholders’ meetings. MN also engages with companies in which clients have significant positions and where material ESG risks may occur. If clients suffer financial damage as a result of alleged fraudulent actions by a company in which investments have been made, legal proceedings may be initiated.
MN considers voting rights to be very important and exercises a customised voting policy for its clients. In 2014, MN voted on behalf of clients at 3,203 meetings in 38 countries, which corresponds to 93% of all meetings at which MN could vote.
Because of the large number of votes, the voting policy is implemented on the instructions of MN by ISS (Institutional Shareholder Services). This service provider also offers advice on how votes should be cast per agenda item in accordance with client policy. Each year, MN assesses whether ISS is implementing the voting policy correctly and whether the policy still suffices.
In the Netherlands, MN also expresses its opinion at shareholders’ meetings. In some cases MN is actually present at such meetings and in others it has itself represented by other institutional investors. For instance, MN works closely with members of Eumedion, a Dutch platform for corporate governance institutional investors.
By means of an engagement programme, MN consults on behalf of clients with companies where ESG factors can be improved. MN selects the companies that are involved in disputes or violating international standards when it comes to corporate responsibility. We then enter into consultation with the aim of making improvements regarding social responsibility. During the engagement programme, progress is measured and assessed. The extent to which a company is willing to cooperate and be transparent is an important indicator. The companies with which MN is engaging and the progress made are reported on a quarterly basis.
A third aspect of active ownership is the class actions programme. These collective proceedings target companies that have committed statutory violations and caused financial damage for our clients. By means of these class actions, we help shareholders, including our clients, to obtain compensation. Class actions can also be used to enforce corporate governance improvements and can serve as a general means of prevention.
MN and its clients aim to invest in financially sound companies that take their social responsibility. We invest on the basis of ESG criteria. ESG stands for Environmental, Social and Governance. ESG integration means that MN applies environmental, social and governance criteria in its investment decisions. This is in line with the first of the United Nations Principles for Responsible Investment (PRI): ‘We will incorporate environmental, social and governance issues into investment analysis and decision-making processes.’
We monitor this principle by using questionnaires and identifying where improvements are required. The consistent application of ESG criteria has several advantages compared with simply excluding companies from the portfolio. If a company is clearly performing poorly with regard to working conditions or the environment, MN can advise its clients to cease investing in that company.
MN embeds the exclusion policy of its clients in the investment process with the support of external research agencies. Clients pursue a policy of excluding countries and companies on the basis of violations of international treaties relating to ESG factors. At the end of 2014, there were 25 companies and 15 countries on this list. View the entire exclusion list here.
Exclusion of companies
In the case of some companies, MN and its clients believe that an investment will never be responsible because the nature of the products that the company manufactures is in conflict with international treaties. For instance, no investments are made in companies that manufacture controversial weapons such as cluster bombs or biological and chemical weapons. It has also been decided not to invest in certain sectors such as the tobacco industry. There are also companies whose manufacturing methods are irresponsible and damage workers’ rights or the environment.
A decision may also be taken to exclude a certain percentage of the most poorly performing businesses (from whatever sector) from the universe. MN developed this approach in 2014 for the developed countries equity portfolio of one client. The 10% of companies in the benchmarks for Europe, North America and Asia that have the worst ESG performance are not eligible for investment. If only the best performing countries of a benchmark are included in the investable universe, positive screening is involved. That is the case, for instance, for the government bond portfolios of MN clients.
If MN is engaging with a company and that company does not change its behaviour on the basis of the agreements made, MN may decide to exclude it. An independent research agency assesses listed companies every quarter and compiles a list of those that may be eligible for exclusion. Those companies are informed accordingly. If we invest in such companies, the portfolio is phased out in the short term.
Exclusion of countries
MN also excludes countries if sanctions have been imposed on their leaders by the European Union or the United Nations. In such cases, MN does not invest in the government bonds of those countries or in companies that have their head office there.
Impact investing means that our clients deliberately aim for financial return and positive effects on people, the environment and society. A satisfactory pension involves more than a proper financial benefit, it also touches upon the society of the future. Clients therefore consider how pension funds can add to the enjoyment of an effective pension by contributing with their investments to a sustainable society. The focus in on a positive impact rather than preventing the negative effects of investments.
In 2015, MN will investigate possible impact investments in close consultation with our clients. In this way, our clients can make investments that result not only in financial return, but also in positive effects on the environment and/or social return.