Skip to main content

Spring seminar Pension Funds 2024

The "S" of "ESG"

Seminar 7 March 2024, 12:30
Het Koninklijk Instituut van Ingenieurs

This eminar discussed the social aspects of investments, or the "S' of ESG.

Topics were artificial intelligence, often cited as the greatest invention since electricity, investing in safety, with conflicts all over the word and a condition for all other investments, and social impact bonds.

Preliminary program

Speakers & presentations

12:30

Governance and artificial intelliigence

drs. Marc Welters RE RA CRISC
drs. Marc Welters RE RA CRISC
Partner Financial Services, EY

Mr Welters said that a pension fund or an investment management firm must form policy on the use of artificial intelligence when its use in the organisation is “material”. He noticed that his clients expiriment with AI applications such as pensions communiction and customer service.

Mr Welters mentioned that Dutch Central Bank has issued a document fort he financial sector with guiding principles to make AI policy. These principles are called Soundness, ccountability, Fairness, Ethics, Skills and Transparency. These principles are published on the website of Dutch Central Bank here

He also referred to the NOREA Guiding Principles Trustworthy AI Investigations

13:00

A "down to Earth"view on Artificial Intelligence

Mr Van Ette addresses the opportunities and restrictions of artificial intelligence, explaining what it can, and cannot do, for pension fund trustees to use as input for their governance policy.

Mr Van Ette gave a brief overview of the history of artificial intelligence since the 1950s. He stressed that in addition tot he technological side of development there is an amportnat ethical aspect. This development may be used for good, and for evil. Governments and organisations have to prepare themselves for the risks of the latter.

13:30

Artificial Intelligence and the Future of Investment Management

Robert Crossley
Robert Crossley
Franklin Templeton

Mr Crossley discussed the development of artificial intelligence for investment management. Pension funds and asset managers share the same issue which is that the environment is changing and customer expectations are changing. Thanks to pattern recognition capabilities of AI, we already know some trends:

Pension funds will see that different generations have different financial needs. Younger generations do not trust active investment management as much as older generations. They tend to go for passive investments.

More wealth is created in private markets. This means companies that are not listed on a stock exchang. This will lead to more alternative forms of financing.

The development of AI is so rapid that computer power doubles every 3.5 months. This will lead to more value of the use of AI in the financial sector, not to less costs to pension funds.

14:30

Investing in Security

Security is the essential condition without which no important societal issues can be addressed. Investing in security creates great societal impact.

This is a transcript of his presentation:

This week as a plan participant of pension fund ABP I received a letter titled “New Investment Policy For A Changing World”.

I read it with great interest and increasing astonishment. In particular the sentence: “Climate and biodiversity we view as the most important themes with which society and the economy are changing”.

This sentence does not reflect what’s going on in the world today, in my opinion.

Never have there been more conflicts than today. The United Nations has stated that the world has entered a new era of violence. For NATO this means a new era of collective defence.

In the past few months political and military leaders including myself have issued statements on preparing for war.

That’s not bevcause we WANT war. It’s because there’s a real chance that we’ll be involved in one.

NATO is a defence organisation and i twill never attack another country or even threaten one.

But the fact that NATO believes in peace doesn’t mean that our adversaries do.

We merely have to look at Ukraine to see: the unthinkable can happen.

At the military level this has been accepted since 2017/18. At the political level since 2022.

And now society has to accept this. This includes investors.

Politico wrote this week: the peace dividend is dead.

The quicker we realise this, the better. In the EU awareness has come that more investments are needed. A good exapmpe is the new investment plan the European Commission launched this week.

But even though the defence industry is getting out of the doghouse the industry is still not viewed as “sustainable”. Because: weapons are bad, and we don’t like war.

I don’t like war either. Just like a fireman doesn’t like fires and a doctor doesn’t like disease. But war is a fact of life. And if you’re not prepared: a fact of death.

Part of the solution lies with those who determine which activities are deemed sustainable: the taxonomy.

I sincerely hope that these people realise that a triple A status can be gone in one blow if we get involved in a conflict.

ESG goals were never meant to not to defend ourselves. I do not know what is unethical about self defence.

ESG goals were set up for investors to consider the long view. Not for what’s good for shareholders NOW. Solutions that help us ALL-IN the long term. Tot hink anout “us” in a world of “I”.

To invest in determent, to prevent conflict, fits really well in that description. As does self defence.

It would not surprise me if defence will be included in the “S” of ESG.

My concern is: will it go fast enough? Will we be on time?

Speaking of which:

Another part of the solutiuon lies with the defence industry, that shouldn’t pump prices with slower delivery times. They should invest in more production capability. The defence industry, too, is still lacking a long term demand signal.

I think that anyone who reads the paper, does not have to look very far to see the long term demand signal.

As I said before, never have there been so many conflicts as today.

On the other hand I do understand the defence industry. They too have suffered under thirty years of government cut backs.

30 years of wanting a champagne lifestyle on a beer budget. So the government too, needs to change its approach: bigger contracts, for longer terms.

Whereby ammunition and defence equipment is purchased in line with NATO standards, for joint purchase with NATO Members.

This means: taller orders, and more incentive to increase priduction capacity. The government may relax procurement procedures.

At the moment we are in a mutual stronghold of private and public.

Where one waits on the other to make the first move.

Whereby the private side still looks at short term financial interests. And the public side ever more stuck in a bureaucrtic morass.

If we continue as we are doing today, we talk eachother into war.We will not be prepared sufficiently.

For thirty years we’ve lived in a time when everything could be planned and controlled. Focussed on efficiency: just in time, just enough.

That era is over. We need much more decisiveness and much larger stock.

How dark the world may be, there is room for optimism. And for hope. Let’s not fall in the pessimistic trap that we don’t have any influence ourselves.

NATO allies represent 50 percent of military power and 50 percent of economic power in the world. We have it in us to turn the tide. To change our approach.

And even though i twill go slower than as is the case at our autocratic opponents…wit hus, i twill go better eventually. Our systems are smarter, more robust and stronger. For the simple reason that they are based on freedom. On self determination. On conviction, not on force.

That fact makes that we have been able to create peace and wealth for decades.

More is possible than we think.

In Denmark pension funds have already invested 5 billion euro to produce frigates fort he next 25 years. I’m looking forward to hearing about such an initiative in the Netherlands. That’s both a literal and a figure of speech investment in our safety. As far as NATO is concerned, this cannot go quick enough. Time is no longer on our side. But we have it in us to turn the tide.

.

15:30

Social Impact Bonds

Rosl Veltmeijer-Smits
Rosl Veltmeijer-Smits
Triodos Investment Management

Mrs. Veltmeijer discussed the development of the social taxonomy and gave examples of how pension funds may invest as part of ESG investing or policy.

The European Commission started working on the social taxonomy, stating which activities are deemed “social”, so that investments into such activities may be labeled as “sustainable”. Criteria are certain processes at companies, such as whether or noit employees may form or join a union, and whether products contribute to basic societal needs, such as electricity, care. Both criteria must be met.

These are qualitative criteira, hardly measurable in numbers, and this is one of the reasons why it is not likely that the social taxonomy will get off the ground.

Pension funds can still invest in social impact bonds. Governments issue those bonds to stimulate employability, or social housing. Companies do not issie social bonds. Investments into social impact bonds follow the ICMA Social Bond Principles. Investors monitor the social impact that is realised. There is large demand for social impact bond and so their prices have gone up. These premiums remain in the secondary markets.

Mrs Veltmeijer ended her preentation by showing some successful examples of social impact bond investments made by Triodos IM for pension funds.

Sponsors

IVP thanks the following parties for making this event (financially) possible:

Main sponsors
Co-sponsors

What where your thoughts about this event? We hope to receive your remarks and suggestions in order to preserve the quality of our activities.


Venue