September 19, 2021

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Pension funds and the dilemmas of investing in 'fossils': returns matter too

Pension funds and the dilemmas of investing in ‘fossils’: returns matter too

The Netherlands’ first major pension fund will stop investing in fossil fuels. This was announced by the Metalworkers and Technology Fund yesterday morning. The PME is not the only pension fund struggling to get its share in the sector. why? Does this affect pension income?

Tim van Werkhoven works for chip machine manufacturer ASML and is increasing his pension at PME. “It’s not just about the money. If I have a good future financially, but we’re dealing with heat waves and floods, it doesn’t work. A good pension is that I can enjoy it.”

That’s why Van Werkhoven, along with colleagues from Green ASML and Young NXP, delivered a petition to PME this summer, on behalf of its 600 co-signers. In it, they called, among other things, to stop investing in fossil fuels.

Van Werkhoven sentiment is widespread in the Netherlands. The vast majority of pension fund participants want sustainable investments. And more than half of the 50- to 65-year-old group would be satisfied with a 1 percent lower return, provided they invest sustainably.

Efficiency is also important

Pension funds pay attention to what the participants want. Marek Knauf, Professor of Pensions and Economics at Leiden University: “People who build pensions through a fund can’t choose for themselves where their pension money is invested and can get angry about that. So pension funds are increasingly listening to that.”

ASML’er Van Werkhoven is pleased with PME’s move. “We are proud that our fund is number one, but they are not ready yet.” For example, he wants PME to also invest the rest of its assets in responsible companies and be transparent about the communications it has with companies to become environmentally friendly.

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To respond to such calls, the funds are adjusting their strategy. Knauf: “Many funds are really interested in sustainable investing, and everyone is interested in it. But the returns are also important. We all want a good pension.” The fossil fuel industry has been making good pension returns for decades.

no crystal ball

PME says stopping investment in “fossils” will not come at the expense of returns. But according to Mathijs van Dyck, professor of finance at Rotterdam School of Management, we don’t know. “Sustainable investments are sometimes said to be good for the portfolio, but the research is inconclusive. Past results are no guarantee of the future.”