PFZW’s investments in companies that contribute to the United Nations’ Sustainable Development Goals (SDGs) have underperformed its other equity investments over the past two years, according to data in the annual report of the €242bn scheme for Dutch care workers.
Since 2020, PFZW has a separate portfolio of stocks that the pension fund believes contribute to achieving the SDGs.
Since 2022, the fund has been separately tracking the returns on this €5bn portfolio.
While a positive return of 11.9% was recorded in 2023, this was still much lower than the return made on the fund’s €32bn portfolio of ‘ordinary’ developed market equities (21.5%).
In 2022, SDG equities did perform better, with a return of -13.2% (compared to -17.9% for ‘ordinary’ developed market equities). Over 2022 and 2023 combined, a loss of 2.9% for SDG equities was recorded, compared to just 0.2% for the fund’s conventional equity mandate.
Tech underweight
A PFZW spokesperson attributes the relatively weak performance of SDG equities to the mandate’s relatively low exposure to the technology sector, which performed “specifically well” in 2023.
Structurally, PFZW expects investments in SDG equities to contribute to the fund’s returns “by their weight”, the spokesperson added.
The management fees paid for the SDG equity porfolio are also comparatively high (0.21% to 0.03% for the developed market equity mandate), as this is an actively managed mandate of which 60% has been outsourced to UBS Asset Management.
“As such, it has relatively higher costs than the largely passively managed equity mandate,” the spokesperson said.
ABP in the dark about SDG returns
PFZW is not the only pension fund with separate SDG equity investments.
The Dutch civil service scheme ABP also has such a portfolio. However, the fund cannot say how well these investments are doing compared to other equity holdings.
“Currently, ABP is setting up a process to structurally and consistently measure and report performance. It is still too early to share the results,” an ABP spokesperson told IPE.
The management costs of ABP’s SDG portfolio are also not known.
“Because SDG investments are managed integrally within the investment strategies, asset management costs cannot be specifically allocated,” the spokesperson said.
PFZW invests relatively little in SDG equities. The largest chunk of assets contributing to the SDGs is invested in private assets such as infrastructure and private equity.
These investments also performed relatively poorly last year, leading to a reduction of the percentage of SDG investments in the total portfolio from 21.5% to 19.9%. This is again below the target of at least 20% of SDG investments that PFZW wants to achieve by 2025.
PFZW invests by far the most money in SDG 11: sustainable cities and communities. To this, US fire extinguisher manufacturer Fire Protection Solutions also contributes positively, as fire extinguishers protect against fire and thus contribute to livability.
