Your pension, your future
Love your future. Shell Pension.
Your pension, your future
Love your future. Shell Pension.

November 2020

Interview Arnold Gast

"Participants are enthusiastic about our ESG policy"

In 2020, more than 7,000 Shell employees and pensioners from both funds expressed their views on our socially responsible investment policy (SRI) . This shows not only a wide support for the policy but also great enthusiasm for our goal-oriented approach. Arnold Gast, Risk & Investment officer at SPN, highlights the SRI milestones of this year.

In a short film on the website, SSPF describes its responsible investment policy as 'investing with a positive vibe'. What do you personally find the most evocative feature of that approach?

"Commitment. We initiate dialogue with companies in which we invest. We are convinced that responsible business and good governance are stimulated by engaged shareholdership. You lose that positive influence when you stop investing. We achieve real change by initiating dialogue with companies."

There are thousands of companies in SSPF's investment portfolio? How do you organise this dialogue?

"SSPF does not enter into dialogue with the companies itself, but hires a specialised company for that task that fits in with our vision: Hermes EOS. They enter a dialogue and give voting advice where necessary. However, it is impossible to talk to all the 10,000 or so companies in our world. That is why we limit ourselves to about 1,000 companies in our portfolio. That way we can really make a meaningful difference."

At what point do you start a discussion with a company?

"Every quarter, Hermes EOS receives an overview from our custodian of the companies in which we invest. These are screened based on the engagement plan, the results to be achieved and any identified controversies. Think of violations of international standards, such as the Global Compact Criteria and the United Nations Guiding Principles."

And then what's next?

"With some companies, which have been approached several times, a dialogue is ultimately no longer a worthwhile option. These companies are proposed for exclusion. Because ESG is a complex area that's also under development, with countless opinions and data, where you have to weigh ethical arguments alongside financial ones, we always double check from then on. We compare the information from Hermes EOS with the data from SAMCo, our asset manager and investment advisor. Eventually, it is decided whether we say goodbye or stay in contact. Ethical considerations are the main deciding factors here."

Did SSPF exclude companies from investment in 2020?

"In total, six companies were excluded from investment, three of which were represented in our portfolio. We have sold those interests. However, there is some reservation to be made, because these organisations will again have other shareholders and will continue. We are not changing the world by excluding them, but we do give a clear signal."

As a result of the introduction of the IMVB covenant (International Socially Responsible Investment), this year a survey was conducted among Shell employees and former employees to identify their views on the SSPF approach. What was their feedback?

"The policy is widely supported by the more than 7,000 people who completed the survey. They support the board's decision to increase our focus on 4 SDGs. These are: Climate Action (SDG 13), Affordable and Clean Energy (SDG 7) Gender Equality (SDG 5) and Sustainable Cities and Communities (SDG 11). These topics are viewed as very suitable for Shell. With one favourite SDG: 'Affordable and Clean Energy'. What the survey also made clear is the high level of commitment of our participants to the SDGs. This was considered very important, however people did point out that this should not be at the expense of returns." 

“We don’t change the world by excluding people; we give a signal”

What is your view on the relationship between returns and sustainability?

"In our vision, sustainability and return can go perfectly well together. We also verify this at every step in the investment policy by asking ourselves what the impact is on each of them. If they do not improve or at least remain at the same level, we will not proceed. This is also expressed in our investment beliefs: 'Integration of ESG elements makes a positive contribution to the risk/return profile'. In that sense, we anticipate a positive contribution from the integration within our investment portfolio. You can actually see that in the results over the last few years."

What other positive results have been achieved through the introduction of the IMVB covenant?

"Although until 2020 a lot was happening already in relation to SRI, things were not always clearly written down within our organisation. We have now changed this. First of all by mapping out the policy in detail and then by rewriting it. In March, this new document was approved by the board. Also in the contract with our asset manager SAMCo the SRI policy is now explicitly included. Two employees have actually been assigned to it. As a result, ESG is truly interwoven in our investment activities. We also publish much more about what we do and accomplish. For example, we have created a new SRI environment on our website with videos and podcasts that introduce you to our policy. Also the engagement processes are made more transparent. All in all, major steps forward. A course that we will continue with a positive vibe in 2021."

Yet back to the 4 SDGs. When the confirmation came in that Shell (former) employees overwhelmingly supported your choice of the 4 sustainability topics, how did you proceed?

"When the results of the survey were known in September, Hermes EOS included the 4 SDGs in its engagement plan. We also started talks with our asset manager SAMCo to look at even more opportunities in our investment portfolios. Because it is difficult to measure the 4 SDGs within the investment portfolios, we have decided to follow the implementation of the new European legislation that will come into force early 2021: the Sustainable Finance Disclosure Regulation (SFDR). These measures require pension funds to report on so-called adverse impact indicators. This will release data and calculation methods more quickly in order to use SDGs as a guideline for incorporating sustainability risks and making it more easy to measure the impact of investment decisions. The adverse impact indicators include, for example, criteria for CO2 emissions and concentrations and thus facilitate measuring the fulfilment of our ambitions on the topic of Climate Action (SDG 13)."

Has the focus on the 4 SDGs already been translated into discussions with companies?

"For nearly 75 percent of its interactions with companies in our portfolio, Hermes EOS already included a link to the SDGs until 2020. Also in their engagement plan for 2021-2023, the chosen SSPF topics - Gender Equality, Affordable and Clean Energy and Climate Action - are also playing an important role. In addition, Sustainable Cities and Communities are included in the objectives set by Hermes EOS. With this, the 4 SDGs are firmly anchored in the Hermes EOS engagement plan and are we increasingly able to demonstrate what sustainability means for our investment portfolio. An actual and great step.”

In the last quarter, you launched a new ALM study (Asset Liability Management Study). Has this already paid off in 2020?

"Yes, as a first step we have reviewed and rewritten our investment beliefs. This way, the board clearly demonstrates the firm interest it takes in ESG and its positive potential for investment return. Literally, one of the investment beliefs now reads: 'Engaged shareholdership promotes good governance and responsible business. Integration of ESG elements makes a positive contribution to the risk/return profile."

Meaning?

"That ESG factors influence the investment risk and return of all asset categories. In addition, good governance is a prerequisite for improving a company's performance on both the E (environmental) and S (social) factors."

What else did the ALM study in 2020 add?

"Together with Ortec Finance, a workshop was organised to describe the impact of future climate risks. For example, Shell's scenario team outlined what a successful transition to a climate-neutral Europe in 2050 could look like. To achieve this, a number of necessary steps need to be taken and the risks properly identified in order to intervene where at all possible. But above all, it also provides a lot of opportunities and we must continue to work towards a successful energy transition. That much is clear."

The VBDO ranking (Dutch Association of Investors for Sustainable Development) of the 50 largest pension funds takes place annually. Did SSPF do anything to get a higher position in the ranking? 

"We use the VBDO rating to see where we stand in comparison to the other pension funds. We have achieved a good midfield position which is hard work to maintain. The VBDO criteria and scores increase dramatically every year. This way, the entire asset management sector is improved."

In other words?

"We see the annual dialogue with VBDO as an important way of assessing our social relations. In addition, it provides concrete steps for improvement in the implementation of our socially responsible investment policy. In the past year, for example, we have taken additional steps in the area of integrating ESG factors in our investment decisions, increased the involvement of our ESG focal points in the board and greatly improved transparency through our various communication channels."

Last but not least, what is SSPF's vision for the CO2 emissions of its investment portfolio? Has there been any intervention in this area in 2020?

"For a large part of our investments in listed companies, we have used customised ESG benchmarks for a reduction in CO2. In line with this, we seek and maintain as much dialogue as possible on this subject. Hermes EOS is keeping a close watch on oil and energy companies worldwide to have them work on the energy transition. We expect these companies to supply more and more new energy and the overall economy to become less CO2-intensive. In line with the introduction of the new European legislation, we will ensure that the relevant data and measurements become available. Based on this, we will determine and report on our long-term goals in 2021. A great and relevant challenge, which we will be grabbing with both hands."

On Arnold Gast

Arnold Gast studied economics at the Rijksuniversiteit in Groningen and received his postdoctoral master’s degree in Financial Analyses from the Vrije Universiteit in Amsterdam. For much of his career Arnold Gast worked at Delta Loyd Asset Management, where he was in charge, among other things, of the Credits & Investment Office. He subsequently joined the board of ACTIAM as Chief Investment Officer. He has held the position of Risk & Investment Officer at the Shell Pensioenbureau Nederland B.V. since July 2019.