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We had discussions with CVS Health Corp, an American pharmaceutical company, about the relationship between reward and performance. The CEO had received the highest bonus in the company's history for 2018, while the company's earnings were poor. We informed the board that we expect no bonus to be paid out (not even a p... |
APG Responsible Investment Report 2019 35 |
7.3 What about APG’s remuneration? |
At APG we follow a controlled and prudent remuneration policy that enables us to attract and retain qualified employees with integrity. This requires a balance between the remuneration of the executive board and employees, and a balance between the remuneration of different parts of the organization. Equal pay between ... |
We look at what is customary in the market and use that as a yardstick for the remuneration of our employees. As a major investor of pension funds, we work in an international, commercial and competitive market. We seek a good balance between an attractive remuneration policy and our aim to create the greatest possible... |
Bonuses. |
APG's executive board does not receive any variable remuneration (bonus). Variable remuneration is also not customary for employees at APG Netherlands. In the Netherlands, only APG employees with a direct impact on the investment result are eligible for variable remuneration. For employees of APG Asset Management abroa... |
The reason for paying our portfolio managers variable remuneration is that APG makes about three quarters of all investments itself and thus wants to ensure it gets the right people for the job. In order to attract good investors, it is customary in the market to pay performance-related bonuses. These are recouped by t... |
In 2019, APG paid out approximately €40 million in variable remuneration. Of this amount, approximately €6 million was paid out in the Netherlands. |
7.4 Voting on directors. |
When we vote on the appointment of new directors in the companies we invest in, we check whether there is a good balance between the number of executive and non-executive (supervisory) directors. We also want the majority of non- executive directors to be independent. Directors must have the right knowledge and skills ... |
We expect that if directors wish to stay on the executive board after four years, they should apply for reappointment; after twelve years they should preferably apply annually. At larger companies, especially those in sectors with a major impact on people and the environment, we expect the board to have a director who ... |
In 2019, we voted on a total of 20,692 nomination proposals. |
We voted in favor in 74% of the cases. This is the same percentage as in 2019. |
APG Responsible Investment Report 2019 36 |
7.5 Diverse executive boards can make better decisions. |
Scientific research supports our view that diversity leads to better decisions. |
[18] Diversity can relate to a balanced mix of gender, ethnic background, education, personality and age. We ask companies to take this into account when appointing directors. |
A diverse, inclusive culture at APG. |
APG strives for a diverse, inclusive culture where employees can be themselves. Not only because we believe in equal opportunities for all, but also because this leads to greater satisfaction and commitment. |
Compared with many other companies in the financial sector, we still have a long way to go in terms of gender diversity. |
Two-thirds of APG employees are male. Relatively few women work in the IT and asset management departments in particular. We want to gradually change that. In senior management, but also in recruiting other employees, we ask agencies to actively contribute to our diversity ambitions. |
APG employs a small group of people with limited working capacity who would have few opportunities in the labor market if they had to leave APG. That is why we specified in the Collective Labor Agreement that we will set up ten supported custom workplaces. These are specially designed for our own employees, so that we ... |
7.6 Reliability of greenhouse gas emission data. |
Many companies have ambitious targets to reduce their carbon emissions. Yet global emissions are still increasing. To see what's really happening at companies (and not just on paper), we thoroughly check companies' climate reports. In doing so, we come across companies that report large reductions in greenhouse gas emi... |
7.7 Prevention of money laundering at banks. |
Preventing money laundering at banks was also an important topic in 2019. We spoke to Credit Suisse, among others, about combating bribery and corruption and about measures to prevent money laundering. At the bank, standards of conduct and ethics drawn up by the company in 2017 now play an important role in the assessm... |
Employees are also trained annually in the prevention of financial crimes. We have asked Credit Suisse to publish its anti-bribery & corruption policy. The bank has promised to share the principles of this policy with us. |
[18] For example: Marcus Noland, Tyler Moran, Barbara Kotschwar, “Is Gender Diversity Profitable? Evidence from a Global Survey”, Peterson Institute for International Economics, 2016. |
APG Responsible Investment Report 2019 37 |
“It takes years of building trust to get past Investor Relations” |
Interview with Yoo-Kyung Park, Head of Responsible Investment & Governance Asia-Pacific at APG. |
With a background in student activism and investment banking, Yoo-Kyung (YK) Park is driven to change corporate Asia for the better. She’s been at it for eleven years, and is by no means less committed. |
In what ways does engagement in Asia differ from that in other parts of the world, such as Europe? “There is a big difference between the various countries in Asia. There are developed countries, such as Japan, Singapore and. |
Hong Kong, and developing countries, which include China, India and South Korea. What they have in common, though, is that their ESG standards are still under development.” “Some practices that we take for granted in Europe, are not so common in Asia. In Europe, for example, if you want to engage with a company, you ca... |
How receptive are Asian companies to what you ask of them? “It depends on what you’re asking. If you want a company to improve its reporting, you can talk to the Investor Relations department, and there’s a good chance they will respond to your request. But if you want a company to change its corporate culture, or deal... |
I then seek cooperation with other parties, such as politicians, diplomates, NGOs, or the media.” |
How do you find a way to deal with more sensitive topics, such as human rights? “It depends on the country. In Japan, you can talk about human rights, but in China you need to come up with less direct ways to address this. You have to make the topic about, for example, employees’ health & safety, or working conditions ... |
When I talked to Korean shipbuilders about fatal accidents in their operations, and did not get a satisfactory response, I alerted their clients, the large ship buyers, to this issue. They were concerned about safe working conditions and called on the shipbuilders to improve them. Several oil companies have now paid mo... |
Is the fact that you are a woman an impediment in some countries? “It was and still is. There are some very conservative countries. When I organize a meeting with executives or policy makers in countries like Japan and South Korea, all the others in the room are men and I am not expected to ask questions. I find that I... |
You have been in this job for over a decade. What keeps you going? “I want change. I don’t just want to keep talking for the sake of talking. I see hope for Asia. The culture and mindset of board members are changing and we have managed to make concrete changes for the better. What gives me courage is that I know I alw... |
APG Responsible Investment Report 2019 38 8 Looking ahead to 2020 and beyond |
APG Responsible Investment Report 2019 39 climate and energy transition; G scarcity of raw materials and handling of natural resources; G digitalization. G. |
For APG, 2020 will be dominated by the implementation of ABP's new responsible investment policy, policy-making for other pension fund clients and further implementation of the IMVB covenant, among other things. |
8.1 New ABP policy. |
In February 2020, pension fund client ABP announced its renewed sustainable & responsible investment policy for the period of 2020-2025. The starting point is a vision of what the world should look like in 2050: a climate-neutral global economy, characterized by responsible (re)use of raw materials, in which digital te... |
ABP's new policy responds to the risks and opportunities associated with the three major transitions that will shape this vision of the future in the coming decades: |
These themes fit in well with the Sustainable Development. |
Goals. In implementing this policy, we will focus on investing more in companies that do well on these themes, more targeted engagement with companies, and fine-tuning the criteria for inclusion. ABP has also decided to extend the exclusion of government bonds to countries where an EU arms embargo has been imposed. |
8.2 Policy development at bpfBOUW and SPW. |
For bpfBOUW and SPW, the responsible investment policy period ends on 31 December 2020. We are already working with our clients on policies and objectives for the next period. |
Recently, bpfBOUW and SPW decided to fine-tune the policy for government bonds in the short term. To this end, additional criteria are being introduced, such as EU arms embargoes and assessments of democracy, freedom and human rights. |
8.3 Implementation of IMVB covenant. |
The covenant on International Socially Responsible Investment (IMVB) will be further substantiated in 2020. All participating funds must have integrated the IMVB provisions into their policies by 2020. The IMVB covenant also entails an extension of the reporting requirements in the coming years. This will involve both ... |
8.4 SDI Asset Owner Platform. |
After years of co-operation, APG and PGGM announced the creation of an SDI Asset Owner Platform in 2019. The platform has meanwhile been launched in 2020, joined by. |
AustralianSuper and British Colombia Investment Management. |
Corporation. Our aim is for a significant number of financial institutions to use a standard to determine the extent to which they contribute to the Sustainable Development Goals. The methodology behind the platform makes consistent, systematic use of financial data and artificial intelligence. This allows users to spe... |
8.5 Insight into impact on risk and return. |
In 2020, we will further refine the analysis for measuring the impact of responsible investment on risk and return. Our aim is to develop a method by which we can measure and monitor the impact of responsible investment on an ongoing basis. We want to be able to do this in a variety of asset categories, initially for l... |
APG Responsible Investment Report 2019 40 9 Appendices |
APG Responsible Investment Report 2019 41. |
Climate factor Description. |
Policy & Legislation The impact of tighter climate policies on companies and investors, e.g. pricing of carbon emissions, incentives for cleaner alternatives, or restrictions on carbonintensive industries. |
Technology, Market & Reputation Effects of the availability of cleaner alternatives to carbon-intensive production methods or products (e.g. electric cars or energy efficiency). Changes in consumer, business and investor preferences for the products they buy or companies they want to invest in. |
Physical Impact The effects of changing weather patterns, including more frequent and more intense extreme weather (such as floods) and structural changes (e.g. prolonged drought). |
Appendix 1: Addressing climate risks and opportunities. |
This appendix shows what activities APG undertakes to identify and manage climate risks and opportunities. We follow the framework established by the Task Force on Climate-related. |
Financial Disclosures (TCFD). |
In this report, climate change and the energy transition are not only discussed in a chapter of their own but are also addressed in various chapters that focus on other themes. This appendix discusses what APG did in 2019, but also what we set in motion in previous years. Information about our climate approach can also... |
Investment (PRI). |
APG has developed a climate dashboard to provide insight into how fast the energy transition is progressing. We are looking at 20 indicators, such as the global demand for fossil fuels and investments in renewable energy. The dashboard gives an indication of the extent to which the world is on track to achieve the Pari... |
Measurements taken at the end of 2019 show that the speed of transition is still insufficient to achieve this objective. |
1. How have we structured governance around climate- related risks and opportunities? |
On behalf of our pension fund clients, APG is responsible for integrating climate change into the investment process. In 2019, APG adopted a formal climate risk policy and added climate risks to the risk taxonomy for investments. A climate steering group has been appointed at APG, whose task is to coordinate the variou... |
2. What are the actual and potential impacts of climate- related risks and opportunities on our business operations, strategy and financial planning? |
We classify climate factors that may impact our investments as follows: |
Within these three categories we distinguish a total of 44 types of climate risks and opportunities. These factors can adversely affect our investments, such as the declining value of fossil fuel investments. But they can also create new investment opportunities in industries such as renewable energy, electric transpor... |
In order to identify such climate risks and opportunities for our portfolio, we have used scenario analysis. This technique is suitable because little historical information is available. That is why it is better to work with constructed future scenarios and to examine what would happen to the portfolio if such a scena... |
We used two scenarios for the climate analysis. One scenario leads to a warming of 3.7 degrees because governments take too little action and green technologies do not develop fast enough (the so-called ‘business-as-usual’ scenario). The second scenario describes a world in which governments are serious about meeting t... |
With these scenarios we have summarized climate risks and opportunities for 26 specific economic sectors. Together, these sectors represent more than half of the value of the investment |
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