Changing regulatory landscape is a welcome push for Dutch Pension Funds

January 2017

By: Kanchan Mishra and Anniek Herder

The introduction of the revised EU Directive ‘IORP II’ is a welcome push for pension funds in the Netherlands to adopt Socially Responsible Investment (SRI) policies and strategies more rapidly. But especially the small and medium sized pension funds need to apply an integrated approach towards ESG investing strategies in order to keep up with the biggest pension funds, for which applying SRI policies is already a regular activity.

At present, the SRI regulations (derived from IORP I) in the Dutch Pension Act require pension funds to include in their annual report an explanation on “how their invest­ment policy takes account of issues relating to the environment, climate, human rights, and social relations”. This requirement was further strengthened in July 2014 by the adoption of the Code of the Dutch Pension Funds. Besides a reporting requirement, the Code states that pension funds should assess risks and returns while deciding on responsible investment (RI). Further, such a decision should be taken with sufficient support from stakeholders and the articulation thereon must be shared with the stakeholders. However, it is not binding on the pension funds to adopt RI and hence leaves a lot of scope for pension funds to develop their own definition of responsible investment, strategy, and adoption as even the reason for not adopting a RI policy is acceptable. Moreover, since the regulations put extra emphasis on disclosure, the expectations from the pension funds on SRI remains blurred and not adequately enforced. 

In November 2016, new rules on RI were passed in the European Parliament (effective early 2017). The revised Directive is applicable to the Institutions for Occupational Retirement Provision (IORP), also called workplace pension schemes, covering assets of about EUR 2.5 trillion. According to Giegold, the three key points to be noted from the new law are:

  • “Environmental, Social and Governance (ESG) risks should be considered in the investment decisions and their implementation should be reported;
  • IORP risk assessments should include possible stranded assets due to regulatory changes, as an answer to tackle climate change; and
  • Lastly, it states that the fund manager is the “prudent person” and can’t be taken to the court in case he takes a decision based on ESG risks and not on financials, even if the return doesn’t achieve the maximum potential.”

The uptake of SRI by institutional investors in different European countries has been largely dependent on the maturity of the regulatory landscape and voluntary initiatives taken in each country. In the United Kingdom, the launch of the Stewardship Code in 2010, has led to the adoption of active ownership strategies by many institutional investors. Similarly, the ban on cluster munition and anti-personnel landmines investments have led to the highest adoption rate of exclusion strategies in the countries that have banned these controversial weapons, such as the United Kingdom (2010) and The Netherlands (2013).

Considering the effect of these regulations, we expect that IORP II will go a long way in improving the quality of RI in the pension fund sector. The new developments and expected changes in the regulatory impetus will push pension funds to further adopt RI policies and move towards a more standard and well defined approach. As revising and re-defining the existing RI policies already is a regular activity at some of the biggest pension funds in the Netherlands,[vii] others will start to develop advanced responsible investment policies covering various sustainability themes.

We believe that, after defining the principles and investment beliefs of the RI policy, for a proper implementation of these principles, pension funds should apply an integrated approach towards various ESG investing strategies suitable for different asset classes and investment products (active/passive investments). Such an approach includes multiple strategies, which strengthen each other’s characteristics and are focused on a set of clear goals for change in various industries and individual companies. While applying active ownership strategies and ESG-selections can take various forms at different pension funds, for more positive outcomes, pension funds would need to increase cooperation with each other and share their long-term vision and ambitions.

For more information or research opportunities on this topic, please contact: Kanchan Mishra ( or Anniek Herder (

Copyright Profundo, development EasyMIND