International Award on Investor Climate-Related Disclosures

Transcription

1 International Award on Investor Climate-Related Disclosures

2 Content Company profile and mission... 3 Climate, Water, and Land... 3 The basis... 4 Proactive approach... 7 Active Ownership Activities Reducing CO2 emissions Communication Future Appendix Methodology: Measuring our Carbon Footprint Green Bond Policy... 41

3 Company profile and mission ACTIAM is a Dutch responsible fund and asset manager, located in Utrecht, the Netherlands, with 55.9 billion in assets under management (30 June 2016). Responsible asset management is imbedded in our DNA and we continue to invest to maintain that leadership. Our mission is to assist our clients in achieving their investment goals by providing them sustainable performance, service, and advice. ACTIAM provides fund management services to both retail and institutional investors and asset management services to institutional investors. All assets under management (equities, fixed-income securities, property, and cash resources) are invested in line with ACTIAM s Fundamental Investment Principles. We do so by following a rigorous selection process without giving up financial returns; investments should not violate international standards and conventions, and ACTIAM s own principles. Achieving behavioural change of entities is central in ACTIAM s approach. On behalf of its clients, ACTIAM uses its position as a partial owner of or lender to an entity to stimulate that behavioural change. In addition to providing financial returns, we want to help address the key challenges facing society today. Climate, Water, and Land In the coming decades, world population and welfare are expected to grow considerably, putting increasing pressure on earth and its resources. Based on these trends and the materiality for our investments, ACTIAM chose three focus themes for its responsible investment activities: climate, water and land. These three topics are crucial for our vision: a liveable world, where people can live in good health, with sufficient income and proper housing. This is aligned with our strategy From Insight to Impact : by making our portfolio and the impact of investments transparent, we can aim to make a positive impact. Our goal is to contribute to the United Nation s Sustainable Development Goals. As a signatory of the Paris Pledge for Action, ACTIAM wants to contribute to meet the ambitions as set out by the Paris Agreement: limit global warming to 2 C above pre-industrial levels and pursue efforts to limit the increase to 1.5 C. The IPCC calculated that a reduction in carbon emissions of 40-70% is necessary in 2050 (compared to 2010 levels) in order to achieve the 2-degree scenario with high probability 1. In line with this scenario, it is ACTIAM s objective to reduce the carbon footprint of all investments by at least 25% in 2025 and at least 40% in 2040 and to review the ambition of these targets on a regular basis. We apply all our tools (e.g. active ownership, ESG-integration, exclusion, etc.) to achieve this goal. For example, as part of our energy transition policy, companies that obtain 15% of their revenue from coal or utilities with >50% coal in their energy mix are engaged and can face exclusion if their strategy towards a low-carbon economy is insufficient or not credible. With respect to ACTIAM s own operations, our buildings, operations, and management are already carbon- 1

4 neutral after using carbon credits (see onderreducing CO2 emissions for more information) and efforts are being undertaken to decrease the carbon footprint. Through our investments and (on behalf of our clients) our influence as a partial owner of or lender to an entity we are able to contribute to the transition to a low-carbon economy; to reach the goals that we have set, and to limit the carbon-related risks in our portfolio. As an institutional investor, there are several tools that we can use for this cause. The underlying principles are to reward frontrunners, and the polluter pays. The various tools contribute to our goal in different ways, which will be addressed below. Since signing the Paris Pledge for Action, ACTIAM has taken several steps in order to meet its indicative targets of reducing its carbon footprint by at least 25% by 2025: The Paris Agreement was added to our Fundamental Investment Principles; the energy transition and green bonds policies were updated; climate change was made one of ACTIAM s three focus themes; targets for carbon reduction were formulated; ACTIAM joined PCAF (Platform Carbon Accounting Financials); ESG-integration guidelines were updated by including assessments of worst offenders and positive selection (explained later); and carbon data into the ESG-score on a sector level, thus underweighting carbon intensive sectors. The basis Fundamental Investment Principles The Fundamental Investment Principles (FIP) for companies and sovereigns form the basis of ACTIAM s responsible investment practices: they outline ACTIAM's criteria for responsive engagement 2 and exclusion. These principles are derived from international treaties, conventions and best practices, such as the UN Global Compact, and relate to a variety of important themes: human rights, fundamental labour rights, corruption, the environment, weapons, and customer and product integrity. ACTIAM does want to be involved in activities that cause serious environmental damage through pollution, biodiversity loss, or the depletion of natural resources. Also related to the environment, ACTIAM added the Paris Agreement to its Fundamental Investment Principles, forming a basis for responsive engagement with or exclusion of companies that are insufficiently working towards a low-carbon economy. This measure has already been taken for several companies. An up to date overview of companies excluded by ACTIAM can be found here. However, ACTIAM prefers to enter into dialogue with a company (engagement), focusing on behavioural change. The Fundamental Investment Principles are applicable to all assets managed by ACTIAM itself. For the remainder of the assets those that are managed externally - ACTIAM developed a 'third parties framework'. ACTIAM expects its external asset managers to be a PRI (Principles for Responsible Investment) signatory. Of all externally managed assets, about 2% is managed by non-pri signatories, as opposed to 5% in the previous year. These investments are managed by alternative managers. They are older and illiquid investments; with any new investment through external managers it is a prerequisite that the external manager is a PRI signatory. 2 ACTIAM distinguishes different types of engagement. Responsive engagement is conducted with companies that violate our policies, proactive engagement is conducted with companies where we see a risk or possibilities for improvement, with a focus on the climate, water and land themes, and collaborative engagement is when we cooperative with other investors in achieving behavioural change.

5 If the external investment is structured as a segregated mandate, we enforce adherence to our exclusion list. If the investment vehicle is a mutual fund, we are bound by the broader investment guidelines set for the fund. We will still point out the importance of avoiding investment in the names on our exclusion list, but enforcement in this case is not possible. Moreover, we ask external managers to vote proxies and to engage on our behalf. For segregated accounts, we vote the stocks in managers' portfolios ourselves (supported by a service provider), in line with our ESG voting policy. On a regular basis, we evaluate the outcome of the voting process and the current strategy and results of engagement activities. ACTIAM created a questionnaire for external managers to measure the application of ESG criteria in the investment process. This questionnaire is used for pre-assessment purposes. The ESG score of this questionnaire makes up 1/6 of the total score that we assign to external managers for their services. The ESG criteria covers (1) the availability and quality of ESG policies (issues it must cover are human rights, labour rights, environment (including climate change), anti-corruption, and controversial weapons), (2) the incorporation of ESG data in the investment decision making process, (3) the application of exclusionary criteria and the amount of overlap with the ACTIAM exclusion list (in case of pooled funds), (4) the execution of active ownership by the manager, and (5) finally the level of transparency and reporting. The ESG score of the questionnaire puts particular focus on the manager s ESG integration in their decision making process. We communicate openly about the criteria to our existing and evaluated external managers and engage with them to improve their alignment with ACTIAM s vision. Our policy is to have a minimum of four contact moments every year with every external manager in our portfolio, preferably at least two of which are face-to-face meetings. In practice, the frequency of interaction typically exceeds the minimum requirement. ESG / responsible investing and examples of good responsible investment practices by other managers are topics at every monitoring meeting. Moreover, ESG characteristics of the portfolio and the impact of ESG issues on financial performance is reviewed. The scope of ACTIAM s policies depends on the nature of the externally managed funds. In case of segregated mandates, ACTIAM s Fundamental Investment Principles and energy transition policies, as well as other policies that lead to exclusion of companies, can be and are applied. This is the case for two equity funds, a North American and Asian fund managed by T-Rowe Price and Capital Group respectively. The green bonds policy does not apply as the funds are equity funds. In case of mutual funds, as described above, we cannot enforce our policies but we will communicate policy updates and exclusions to these managers.

6 Energy Transition Policy The Energy Transition Policy builds on the Fundamental Investment Principles and sets out criteria for responsive engagement or ultimately exclusion of companies in the energy sector. ACTIAM conducts responsive engagement with ACTIAM conducts responsive engagement with ACTIAM conducts responsive engagement with ACTIAM conducts responsive engagement with ACTIAM conducts responsive engagement with ACTIAM conducts responsive engagement with Oil companies that are active in offshore Arctic oil drilling. Utilities that have been involved in a number of nuclear incidents with possible safety risks. Oil and gas companies that refuse to give insight in the social and environmental consequences of shale gas/oil or the application of best available techniques. Oil companies where more than 20% of production consists of tar sands and there is a lack of (credible) strategies to reduce this exposure. Mining companies where 15% or more of their average revenue in the past 3 years comes from thermal coal and there is a lack of (credible) strategies to reduce this exposure. Utilities where 50% or more of the energy mix consists of coal and there is a lack of (credible) strategies to reduce this exposure. Exclusions ACTIAM can exclude entities from investment if they violate our principles and are unwilling to change. We take great care in determining whether a company should be excluded from our investment universe. Excluding companies with a high exposure to fossil fuels or high carbon intensity can reduce the carbon footprint of our portfolio, however it would not change the actual carbon emissions in the real economy. For this reason, we prefer to work towards behavioural change of the entities in which we invest. Nevertheless, exclusion is a tool we sometimes use, for example when companies do not want to collaborate and after repeated pressure still do not take steps to reduce their impact on the climate. As of September 2016, 87 companies were excluded from investment as a result of violating ACTIAM s Fundamental Investment Principles (broader than climate). Regarding the environment and climate change, several companies have been excluded due to involvement in mountaintop removal, Artic oil, and coal power generation. These companies include Gazprom OAO, ArcelorMittal, DTE Energy and others. For a current overview of our exclusions, please see: How this tool helps us achieve our goals: we see exclusion as a last resort as we would first try to achieve behavioural change. Exclusion does not help us achieve our goal of decreasing the amount of GHG that are emitted in the world, it is rather a tool to manage risks by limiting our exposure to companies that are insufficiently willing to work towards a low-carbon economy as set out by the Paris Agreement.

7 Proactive approach ESG scores Making optimal use of the existing bodies of knowledge of ESG and portfolio management expertise, we are taking the integration one step further by consistently applying an ESG scoring methodology to the investable entities (including sovereigns). This applies to specific equity and fixed income funds 3. At present, the ESG score does not apply to externally managed funds. ACTIAM is working on implementing ESG scores for these externally managed funds. The methodology for the ESG scores has been jointly developed by our ESG specialists and debt and equity portfolio managers as well as the manager selection team. The ESG score reflects the sustainability of the entity on different indicators. Applying this framework facilitates and assures balanced investment decisions, taking into account both financial and non-financial aspects of any investment. It allows evaluation of the ESG active positions of portfolios relative to the benchmark and can be used in developing client specific ESG strategies with positive ESG biases, and integrating ACTIAM s focus themes climate, water and land. The ESG score consists of three components: a BGP score, an ACTIAM sector score, and an ACTIAM analyst score. A company can receive an ESG score of The BGP score is based on quantitative and qualitative data that ACTIAM purchases from a data provider. 147 ESG indicators weight policies, behaviour, and a company s product. Policies account for 40% of the score, behaviour for 55% and products for 5% of the BGP score. A company s final ESG score is based on (1) the industry it operates, (2) the company s policies, behaviour, and product it offers, and (3) ACTIAM s vision on the sustainability of the company. 3 Zwitserleven Europees Aandelenfonds, SNS Euro Aandelenfonds, RZL Euro Aandelenfonds, Zwitserleven Obligatiefonds, SNS Euro Obligatiefonds, RZL Euro Obligatiefonds en Zwitserleven Credits Fonds.

8 Examples of environmental indicators that each company is assessed on when relevant are: Environmental policy, Environmental reporting, Environmental, Water, Hazardous Waste, and Air Emissions, and Other Environmental Management Systems, Biodiversity Programmes, Site Closure & Rehabilitation, Sustainability Impact Assessments, Oil Spill Disclosure & Performance, Water Intensity Forest Certifications EMS Certification Certifications (forest, EMS, suppliers, CDP participation Scope of GHG Reporting If the company makes use of the WBCSD/WRI GHG Reporting Standard or related sector guidelines, it receives full points. GHG Reduction Programme If the company has set quantitative targets at group level and has set a clear deadline for reaching these targets, it receives full points. Green Logistics Programmes Carbon Intensity The company receives full points if its carbon emissions intensity is well below the industry average. Carbon intensity Trends If the company's carbon intensity trend shows a decline of 25% or more over the last 3-5 years, it receives full points. Renewable Energy Use, If 10% or more of the company's primary energy use comes from renewable energy sources, the company receives full points. Recycled Material Use Fleet Emissions and Efficiency If the company's fleet average CO2 emissions are below 120 (g/km) and have decreased by more than 15% over the last three years, it receives full points. Green Building Investments and Share of Green Buildings, Eco-Design Environmental Fines & Penalties

9 Furthermore, a sector score is computed by ACTIAM, which looks at the sustainability of the sector. In relation to climate, a sector s carbon intensity and absolute carbon emissions on scope 1 and 2 levels are considered. The sector score can add/subtract 20 points max. to/from the ESG score. The table to the rights lists the sectors climate scores. The third component is the analyst score, which can add/subtract another 20 points max. to/from the ESG score. The analyst score is a company-per-company score, which considers the analyst s view on the company s sustainability. This also provides the opportunity to integrate qualitative information, such as the company s collaboration during an engagement process, into the ESG score. The analyst can also select so called worst offenders, for example companies with high water risks, high carbon emissions, and/or strategies that do not align with ACTIAM s energy transition policy. These companies receive a -20 analyst score and are removed from the funds to which the ESG scoring methodology is applied. Companies which have obtained more than 10% of their average revenue of the past 3 years from coal mining and utilities companies of which the energy mix consists for >25% of coal, are considered worst offenders and thus excluded from these funds. 4 Sector scores climate Score Multi-Utilities -20 Electric Utilities -20 Oil, Gas & Consumable Fuels -20 Metals & Mining -20 Chemicals -20 Construction Materials -20 Airlines -20 Food Beverage & Tobacco -10 Capital Goods 2: Building Products Automobiles & Components -10 Paper & Forest Products+ Containers & Packaging -10 Transportation & Logistics -10 Consumer Services -10 Food & Staples Retailing -10 Gas Utilities 0 Pharmaceuticals, Biotechnology 0 Capital Goods 1: Aerospace & Defense++ 0 Energy Equipment & Services 0 Commercial & Professional Services 0 Semiconductors & Semiconductor Equipment 0 Consumer Durables & Apparel 10 Telecommunication Services 10 Media 10 Diversified Financials 10 Insurance 10 Household & Personal Products 10 Retailing 10 Water Utilities 20 Banks 20 Renewable Energy 20 Health Care Equipment & Services 20 Software & Services 20 Real Estate 20 Technology Hardware & Equipment 20 Front-runners and companies with best practices are rewarded via the positive selection process. Companies which contribute to climate change solutions and/or the transition towards a low carbon economy, receive a bonus on their ESG score, makes them more appealing to invest in, because the ESG score of ACTIAM s active portfolios should be as high as possible. Climate-related criteria for positive selection are: Revenue from renewable energy generation (linear: more revenue leads to a higher bonus). Revenue from energy efficient products / products that help avoid carbon emissions such as windmills, but also products that (for example) make homes more energy efficient (linear: more revenue leads to a higher bonus). 4 As stated above, this currently only applies to Zwitserleven Europees Aandelenfonds, SNS Euro Aandelenfonds, RZL Euro Aandelenfonds, Zwitserleven Obligatiefonds, SNS Euro Obligatiefonds, RZL Euro Obligatiefonds en Zwitserleven Credits Fonds.

10 The graphs and table below give an insight in the 10 best and 10 worst performers in terms of the ESG score, how the score is constructed, and whether these companies are over weighted or underweighted in the European equity funds (SNS, RZL, and Zwitserleven), relative to the benchmark (BM). ACTIAM also reports on this in the quarterly ESG report (as of October 2016, published online but available in Dutch only). PF = 66 BM = highest ESG scores Company Total score BGP-score Sector score Analyst score Weighting GECINA SA KINGFISHER PLC GAMESA CORP TECNOLOGICA SA VESTAS WIND SYSTEMS A/S SVENSKA CELLULOSA AB SCA-B HAMMERSON PLC HENKEL AG & CO KGAA VORZUG MARKS & SPENCER GROUP PLC DEUTSCHE BOERSE AG NOKIA OYJ lowest ESG scores Company Total ESG BGP-score Sector score Analyst score Weighting Score OC OERLIKON CORP AG-REG SIKA AG-BR NESTLE SA-REG BNP PARIBAS PETROFAC LTD STANDARD CHARTERED PLC ROYAL DUTCH SHELL PLC-B SHS BARCLAYS PLC HSBC HOLDINGS PLC BHP BILLITON PLC The maximum ESG score is 100, also when the sum of the components exceeds a score of 100.

11 ACTIAM s three focus topics climate, water, and land, are integrated in the ESG score. For the future, we are focusing on improving the integration of water, land, and climate-related indicators even further in the ESG score. This would entail setting more specific and measurable objectives for those subjects and integrating clearly linked indicators in the model to be able to steer the portfolios and to report of progress and impact. We expect to see next steps to become effective during the first six months of Moreover, ACTIAM is seeking to improve its positive selection criteria for companies contributing to climate change solutions and/or the transition towards a low carbon economy. Our criteria for positive selection are continuously evolving. We anticipate to be able to further benefit from the combined knowledge of our analysts and portfolio managers about sustainable investments and their respective financial and extra-financial returns. We are anticipating a continuation of improving indicators and selection criteria. The ESG team and the Equity portfolio management team are jointly responsible for managing the integrated strategy. ESG included in the remuneration The remuneration of the employees working at the Front Office of ACTIAM, consists of a fixed and variable pay. The variable payment is related to so called KPI (performance targets). Performance targets for each employee are set in the first quarter of a performance period (a calendar year). After the performance period has ended, the extent to which the performance targets have been achieved are used as a basis for determining whether an employee is eligible for variable remuneration. Part of the KPIs is the ESG score. The higher the ESG score, the higher the variable payment. There is also a minimum level of the ESG score required (1 point above the benchmark score). This is part of the restrictions of our mutual funds and a knock out criteria for the variable payment. How this tool helps us achieve our goal: the ESG score helps us (1) decrease carbon-related risks and (2) stimulate investment in frontrunners regarding climate change. Although the ESG score helps us decrease exposure to carbon intense sectors or companies, it does not withdraw our investments completely (except for so called worst offenders in the specific funds). This means that we will still be a partial owner of or lender to entities, maintaining the opportunity to influence these companies through active ownership and work towards behavioural change.

12 Scope of the policies The scopes of the climate related policies and tools differ because some apply only to specific asset classes, specific funds or specific clients (further outlined below). This table is aimed at providing an overview of the scope of the policies that are relevant for climate change. Climate-related policy Fundamental Investment Principles and subsequent exclusions Energy transition policy and subsequent exclusions Green bonds policy Investment policy for the extractives sectors ESG score, positive selection, worst offenders (negative selection) Engagement Voting Carbon footprinting ASN policies Scope All of ACTIAM s investments, including externally managed funds through mandates. Assets managed externally through mutual funds where we cannot enforce our ESG policy are an exception. All of ACTIAM s investments, including externally managed funds through mandates. Assets managed externally through mutual funds where we cannot enforce our ESG policy are an exception. All fixed income investments managed by ACTIAM, with the exception of externally managed funds. All of ACTIAM s investments, including externally managed funds through mandates. Assets managed externally through mutual funds where we cannot enforce our ESG policy are an exception. Currently apply to the following funds: Zwitserleven Europees Aandelenfonds, SNS Euro Aandelenfonds, RZL Euro Aandelenfonds, Zwitserleven Obligatiefonds, SNS Euro Obligatiefonds, RZL Euro Obligatiefonds en Zwitserleven Credits Fonds. All investments All internally managed equity investments and externally manages assets through a mandate are subject to ACTIAM s voting policy, except for ASN funds, where the ASN voting policy applies. In case of externally managed mutual funds, we expect the manager to vote and take ESG and climate criteria into account but cannot enforce our own voting policy. Applies to all investments, however due to methodology limitations we currently measure our equity funds, credits funds and sovereign bonds funds. Apply to all ASN investments. In the future, this will also apply to SNS investments. Please see below for more information. Client Mandates For mutual funds, climate, and general ESG issues are integrated in investment decisions based on ACTIAM s policies and clients cannot enforce custom policies. In case of a mandate or a client-specific fund, clients can determine their own climate strategy in consultation with ACTIAM. This would be in close collaboration with ACTIAM s ESG-team. ACTIAM s partners expect a pro-active stance on climate change as it is a focus topic for most of them. We are in continuous dialogue with our clients to ensure that their expectations regarding climate

13 change and other ESG issues are met. We strive for a high standard of transparency regarding the limitations and benefits of certain products regarding climate change. For example, the ability to steer investments (invest/divest) differ per product; there is more opportunity for this in active funds than passive (index) funds. The ESG team is often part of the sales pitches and meetings with clients to ensure that the information about responsible investment is up to date and well-understood. Clients and beneficiaries who have intentions to shift their investments towards products aligned with the energy transition are: A bank with primary focus on climate and a long-term goal regarding climate change and investments. The bank drafts its own ESG policy. ACTIAM currently manages seven funds for this bank, all of which are sustainable. SNS recently decided to adopt a new sustainability policy for its investments. The bank has the target to be climate neutral by SNS is currently also working on making its mortgage and mutual fund portfolio more sustainable. Our client Zwitserleven, a pension insurer, focuses on Aging in a liveable world. Climate (change) is an important theme for Zwitserleven. Due to its investments and investment strategy, Zwitserleven has been #1 in the VBDO Benchmark on Responsible Investment by Insurance Companies in the Netherlands. for four consecutive years. VBDO is the Dutch Association of Investors for Sustainable Development which gathers institutional and private investors that want to contribute to sustainable development. Climate change is one of the issues that Zwitserleven raises awareness on. The company has communicated the wish for a new responsible investment fund. The criteria for the new fund were to follow the benchmark, outperform the benchmark s (MSCI World Index) ESG-Score, and have a lower carbon footprint than the benchmark. ACTIAM presented different scenarios, which allow a carbon footprint reduction of up to 75% and a tracking error of less than 1%. At present, the fund is not yet implemented. Pensioenfonds SNS REAAL expects 100% coverage of ESG policies. In case of externally managed assets, the third parties framework applies. ACTIAM and Pensioenfonds SNS REAAL are currently collaborating in a working group to make its investments more sustainable. Similar to Zwitserleven, one of Reaal s key performance target for ACTIAM is doing well in the VBDO Benchmark on Responsible Investment by Insurance Companies in the Netherlands. This research looks at many different aspects of ESG and ESG integration and is therefore a good reflection of the sustainability approach. In 2015, Reaal ranked second in the Benchmark, after Zwitserleven.

14 Green bonds ACTIAM actively invests in green bonds and works on the development of the market through several initiatives such as the Green Bond Principles and the Climate Bonds Initiative. Green bonds can contribute to the energy transition, as they (give investors the opportunity to) specifically finance climatefriendly investments. Given there are no internationally accepted standards to define what is green enough to be labelled a green bond, ACTIAM drafted its own green bonds policy in 2014, and an update followed in Bonds that are labelled green by ACTIAM s ESG-analysts receive a bonus on their ESG-score and are thus considered positive selection, making the bonds more attractive for investments in portfolios where the ESG score and ESG target apply. A partial bonus will be given in case of doubts about the existing transition strategies and investments which are necessary for the transition to a business which is less dependent on fossil fuels and water. In case of a partial bonus, after the relevant bond is released and purchased, ACTIAM will start an engagement process, which should indicate if the publisher is capable to dissolve any doubts ACTIAM has with regard to their transition strategy. If indeed, the publisher does play an active role in the transition towards more sustainable business practices, only then will the publisher still get the maximum bonus of +20. In case there has been no improvement, then the bonus will remain at +10. For further information, a detailed green bond policy is added to the appendix. How this tool helps us achieve our goal: green bonds provide a way for ACTIAM to invest in climate-friendly activities and the energy transition on behalf of its clients. It thus helps us achieve our goal in a positive way: investing in those activities that are needed to facilitate the energy transition, such as renewable energy, energy-efficient housing and low-carbon transport. Active Ownership Activities On behalf of its clients, ACTIAM uses its position as a partial owner of or lender to an entity to stimulate behavioural change and strive for a reduction in companies carbon footprint. We will address some sectors, activities or products with more scrutiny, as they are exposed to higher climaterelated risks. Our assessments of these risk-risk categories relies on the following questions: Does the asset class or sector have a high carbon intensity? Does ACTIAM have (relatively large) investments in this asset class or sector? Is it possible to exert influence on the entities in which we invest? We divided the carbon footprint of our equity funds into different sectors. As shown in the figure, the sectors Materials, Utilities, and Energy account for 78% of the carbon footprint of our equity funds.

15 Based on this division, we selected hotpots, which we focus our engagement on: Energy, Materials, Utilities and Food & beverages. Though only 2% of our carbon footprint stems from the Food & beverages sector, the sector has a large carbon footprint through its Scope 3 GHG emissions and close relation to ACTIAM s focus theme Land. We believe that we can have the greatest impact by particularly engaging with companies in these sectors. Within the chosen sectors we make a selection of industries, individual companies, and activities (e.g. Artic oil drilling, coal mining, coal power generation, shale oil/gas, tar sands, meat production) that are vulnerable to the risks in the area of climate change. For engagement, we look at the 4 pillars which are necessary to achieve the 2- degrees scenario, namely: renewable energy, energy efficiency, reduction of greenhouse gas emissions from sources other than fossil fuels and CO2 storage in or underground. Engagement To achieve behavioural change towards more climate-friendly business conducts, we conduct engagements with companies. This means we enter into a dialogue with the management and communicate which goals we would like to company to achieve. Engagement is one of the tools we use to decrease our own carbon footprint. ACTIAM makes a distinction between responsive and proactive engagement. Responsive engagements are a reaction to violation of our principles and can lead to exclusion, as described above. Proactive engagement is undertaken to highlight possible risks and areas of improvement for companies. In case of proactive engagement, we engage with a company before problems arise. It often concerns companies that face certain risks due to the nature of their business, but have limited or no policies in place or have yet to implement them effectively. Here we seek to give companies an extra boost to develop policies and management systems in order to prevent such incidents from happening in the first place. On average, 51% of our engagements are proactive, 9% are positive selection, and 35% are collective engagements where we collaborate with other investors. 5% are responsive engagements. During a proactive engagement process regarding climate change, we can ask companies to: To implement concrete, measurable and time bound reduction targets for greenhouse gasses that are in line with the Paris Agreement. o Reduce greenhouse gas emissions in absolute and relative terms (per unit) o Reduction of both indirect and direct emissions of greenhouse gases

16 To take energy efficiency measures To choose renewable energy sources for energy supply To achieve breakthrough technologies To report risks and opportunities in climate change (such as to test reserves of fossil fuels at a 2 and/or 1,5 degrees scenario) Support for (under)expertise incentives for board members regarding successful climate strategy Transparency to increase lobbying with governments on climate policy To make a constructive contribution to the achievement of global climate objectives To develop products that are energy efficient during use (e.g. electric cars instead of petrol vehicles) To apply Best Available Techniques To realize breakthrough technologies (such as green concrete consisting of recycling materials instead of regular concrete based on cement) However, this list is not exhaustive: proactive climate change engagements can include other objectives than mentioned above. Impact of our Engagement Progress of ACTIAM s engagement activities is collected and published on a quarterly basis. During the reporting year 2015, ACTIAM engaged with 74 companies itself, of which 34 were comprehensive, meaning there was extensive contact with the companies on a continuous basis. Of these 74 engagements, 41% were related to environment and 50% were overlapping ESG issues; the remaining 9% of individual engagements were related to social or corporate governance issues. As a result of ACTIAM s engagement efforts, five companies committed to a change, and three companies demonstrated change. Further, ACTIAM engaged with 271 companies through collaborative engagements. Examples of positive engagement results are: - In a collective engagement with CDP and other investors in Q3 in 2015, major global auto manufacturers were asked for climate change related disclosure. We asked for their assessment of the material risks and opportunities presented by climate change, both in their direct operations and throughout the value chain. A first letter was sent to 17 target companies and conversations were held with Daimler, Suzuki, Honda, BMW, and Volkswagen. As a result of an engagement with Suzuki, the company started reporting of its impact on climate change. As a result of Volkswagen s engagement, the corporation became more aware of the importance of supervision and had a change in structure. Furthermore, ACTIAM supported a collective engagement on carbon disclosure through PRI, which currently engages with 125 companies. - As a member of the PRI Steering Committee on Fracking, ACTIAM has been actively engaging with companies that are involved in fracking activities for several years. In 2016, proactive engagement efforts included 26 oil and gas exploration and production companies and 4 oilfield services companies. The engagement was aimed at pushing companies to strengthen their disclosures in the area of air emissions, raising awareness regarding water quality risks, promoting accountability to communities, and encouraging enhanced integration of fracturing and sustainability management into governance systems. Findings showed that disclosures on air emissions increased, on average, from 14% to 35% between 2013 and 2016.

17 - As a result of Wärtsilä s engine-fraud scandal earlier in 2016, a conversation was held with Wärtsilä s CEO. As a result, internal procedures were changed, the company s code of contact updated, and guidance to employees was improved. - As a result of our energy transition policy, current engagement efforts focus on oil and gas, mining, and utility companies with the aim of encouraging companies to divest in high carbon fossil fuels and align their strategies with the 2-degree scenario. Letters were sent out to four oil and gas companies and eighteen utilities companies. First conversations with respondents are scheduled for September A meeting with Shell is scheduled for the end of Previous engagements with oil and gas companies focused on drilling for oil in the Arctic. A letter was sent out to companies, and details of the engagements were discussed in more detail. How this tool helps us achieve our goals: behavioural change is the only way to decrease carbon emissions in the real economy, and engagement is one of an investor s main tools to achieve this. Decreasing companies carbon emissions through active ownership thus not only decreases the carbon footprint of our investments, but also the actual carbon emissions, which is our ultimate goal. Voting ACTIAM uses its voting right as shareholder, on behalf of its clients, to push companies to become more sustainable. This can be achieved through voting on proposals of the board, on proposals of other shareholders, or by filing our own proposals. We do so based on our own voting policy, which extensively addresses ESG-related (shareholder) resolutions. We expect high risk companies, or in other words companies within sectors that are considered to be high risk within our focus themes, to have a strategic long term vision. As mentioned above, for climate we consider the Energy, Utilities, Materials and Food & beverages sectors to be of high risk. The risk management strategy should be sufficiently integrated in the responsibilities and remuneration of the management, internal controls and annual reports. These expectations are integrated into our voting policy. We will assess these companies with more scrutiny when deciding how to vote on management and shareholder resolutions. In the End of September 2016, ACTIAM s voting policy was updated. The new policy will be uploaded to our website in the upcoming weeks. A new climate guideline has been added to request financial institutions to report on GHG emissions and climate change risks. Moreover, our fundamental investment principles (Human Rights, Fundamental Labour Rights, Corruption, The Environment, Weapons, and Client and Product Integrity) are better aligned with our focus themes climate, land and water. In regard to climate change, ACTIAM tends to vote for shareholder proposals that: Report on the risks and opportunities related to climate change, including but not limited to physical risks, policy risks, supply chain risks, legal risks and market risks such as technology shifts; Request quantitative and/or qualitative reporting on environmental and social impacts of shale energy operations, or on efforts to mitigate methane emissions resulting from such operations; Request quantitative and/or qualitative reporting on the environmental and social impacts of other operations exposed to significant climate change risk;

18 Request that the board or member of the board is responsible for climate change management policies; Request the adoption and implementation of policies regarding the prevention of climate change. This may include (absolute or relative) science-based or other goals to reduce direct and indirect greenhouse gas emissions, adopt measurable energy use reduction targets and energy efficient practices, in line with the ambitions set out in the 2015 Paris Agreement; Request reporting on the company s energy management policies, practices and metrics in line with the GRI; Request reporting on the consistency of company capital expenditure strategies with policymakers goals to limit climate change, including analysis of risks and opportunities associated with high-cost low-demand scenarios; Request that companies integrate a robust carbon price into their capital expenditure approval process; Request increasing climate-friendly investments or dividends rather than using capital on high-cost, high-carbon fossil fuel projects with a high risk of stranding; Request the adoption of climate change criteria in procurement policies; Oppose public corporate lobbying that aims to prevent legislation addressing climate change, deforestation or renewable energy. Request that financial institutions report on GHG emissions and climate change risk linked to financed activities, including exposure to fossil fuel activities. During the first half of 2016, ACTIAM voted on approx. 48 shareholder proposals regarding climate and energy issues. Likewise to last year, ACTIAM supported several Aiming for A resolutions at AGMs in The Aiming for A investor coalition is currently undertaking indepth engagement with the ten largest UK-listed extractives and utilities companies, alongside expanding to become Pan-European. As a result of the shareholder proposals the coalition filed, Anglo American, BP, Glencore, and Shell agreed to increase transparency and disclose their strategy on the risks and opportunities posed by climate change. Another example of our active ownership is the Shell shareholder resolution by Follow This urged Shell to become a renewable energy company by investing the profits from fossil fuels in renewable energy. Though the resolution did not pass (it received 2.78% of the votes), ACTIAM voted in favour of and publicly endorsed the shareholder proposal and was the only institutional investor to do so. During Suncor Energy s Annual General Meeting in April 2016, ACTIAM voted in favour of NEI Investments proposal to urge Suncor to report on its climate change related initiatives and strategies. The shareholder proposals received 98.18% support.

19 In 2016, ACTIAM expanded its voting activities and is actively seeking conversations with other shareholders to co-file shareholder proposals. Together with Walden Asset Management as the co-filer, ACTIAM pressed ConocoPhillips to disclose on their climate lobbying during this year s Annual Meeting. The aim of the shareholder proposals is for ConocoPhillips to evaluate if their public policy advocacy and lobbying is consistent with positive climate solutions or if their funds are used to oppose climate legislation or regulation. The lobbying by oil and gas companies on climate policy is increasingly under scrutiny globally. This resolution received 25% voting support in ACTIAM committed to co-filing this shareholder resolution in 2017 as well. How this tool helps us achieve our goals: Likewise to engagement, actively voting at shareholder meetings or filing resolutions for these meetings helps us achieve behavioural change of the companies that we invest in, which could lead to a decrease of carbon emissions in the real economy. Memberships and Partnerships Collaboration with other organisations and other investors can increase our effectiveness. Whenever possible, we will try to collaborate with other parties to increase our impact. Below are some examples of our partnerships. ACTIAM is a member of the Carbon Disclosure Project (CDP). CDP is a collaboration between international investors such as ACTIAM. The CDP collects relevant information on companies by sending them an annual questionnaire, which looks at CO 2 emissions and broader effects of climate change. Furthermore, the protection of natural resources like water and forests is an important topic. This information helps investors to make more sustainable choices. In fact, our energy transition engagement with companies in the fossil fuel industry is based on CDP data and questionnaire answers. Since 2004, ACTIAM supports the CDP forests program and water program. ACTIAM is an active member of the Climate Bonds Initiative since January 2015, which is investor-focused and the only organisation in the world working solely to mobilize the largest capital market of all, the $100 trillion bond market, for climate change solutions. Besides being a member, ACTIAM is co-organiser of investor statements regarding climate bonds and participates in the Climate Bonds Standard Industry Working Group. This working group develops criteria, which securities must meet to qualify as climate bonds. This contributes to the trustworthiness and sustainability of the climate bonds market. The Green Bond Principles are voluntary process guidelines that recommend transparency and disclosure, and promote integrity in the development of the Green Bond market. Especially now that the market is growing fast, it is good to set up such guidelines. ACTIAM is a member of the Green Bond Principles and a member of the executive committee, because of its position in the climate bonds market. ACTIAM is currently active in the following working groups of the Green Bond Principles: Defining green, Impact reporting and Social bond. The UN-supported Principles for Responsible Investment (PRI) is an international network of investors. The aim of this initiative is to integrate sustainability in the investment process. ACTIAM signed the PRI and is an active member since its establishment in ACTIAM is a member in several steering committees and is active in several joint initiatives. In the annual PRI investor

20 evaluation, ACTIAM consistently scores highly across all categories. We have achieved the highest possible score for active ownership, an A+, positioning us among the top 10% of investment managers worldwide. We are an active member in the Steering committees on Palm Oil, Fracking, Fixed Income Workstream (and Advisory Group member), and are a founding signatory sponsor of the Principles for Investors in Inclusive Finance. The steering committee on fracking is a collective engagement to address social and environmental aspects of fracking. Managing methane emissions is an important aspect of the engagement. Collective engagements are made through The Collaboration Platform (formerly the Clearinghouse). It is a unique private forum that allows signatories to pool resources, share information, and enhance their influence on ESG issues. Furthermore, ACTIAM is one of the eleven Dutch financial institutions, which jointly established the platform naming Platform Carbon Accounting Financials (PCAF). The initiative was founded by our client ASN Bank and is focused on developing a standard method for the calculation of the carbon footprint of investments. In 2015, ACTIAM set up a partnership with FSC Netherlands, focusing on deforestation challenges. FSC is a global, not-for-profit organization dedicated to the promotion of responsible forest management worldwide. During the partnership, ACTIAM can deliver responsible investment tools and FSC Netherlands can deliver knowledge. ACTIAM is the first fund and asset manager to enter into a partnership with FSC Netherlands. As part of the partnership, FSC and ACTIAM focus on two new engagement projects, entering into a dialogue with companies: one focused on increasing the use of certified wood and one focused on haltering deforestation through commodities cultivation. The international, independent FSC-label ensures that resources for wood and paper products come from responsibly managed forests, with consideration of the people that are dependent on the forest. ACTIAM is an active member of GRESB. GRESB is an industry-driven organization committed to assessing the sustainability performance of real assets around the globe, including real estate portfolios (public, private and direct). ACTIAM uses the information provided by GRESB to better understand immediate climate change risks (e.g., flooding, energy efficiency regulations), engage with the management of our real estate holdings and take advantage of sustainability-related investment opportunities. Moreover, ACTIAM participates in the GRESB Green Bond Working Group to share information, evolve best practices, and drive greater adoption of green property bonds. Studies ACTIAM studied the possibility of integrating climate change at a more strategic level. Our study examined the possibilities and outcomes of reducing emissions at asset class, sector, and company level. Reducing emissions at company or sector level is quite common, but approaching it at the level of asset classes is in its pioneering phase. However, the results showed that reducing the carbon emission by 25% at an asset class level leads to a 10% loss on return. The study concluded that it is more efficient to approach climate change risks at a company or sector level thus within the asset class - than between asset classes. The carbon emission turned out to be very concentrated within an asset class: about 80% of the emission is caused by 20% of the companies. The utilities industry is responsible for a very large amount: 55% of the carbon footprint researched in the study. Thus, by excluding the most polluting companies or sectors, we could notably reduce our carbon footprint. However, ACTIAM aims to reduce its carbon footprint on a company/sector level through active ownership with companies and pushing them to align their activities and strategies to the 2-

21 degree scenario. It is therefore a last resort to exclude these companies in order to reduce our carbon footprint. However, ACTIAM aims to reduce its carbon footprint on a company/sector level through active ownership with companies and pushing them to align their activities and strategies to the 2-degree scenario. Reducing CO2 emissions As a Montréal Carbon Pledge and Paris Pledge for Action signatory, ACTIAM has committed to measure and publicly disclose the carbon footprint of its investment portfolio on an annual basis and to reduce the carbon footprint of all investments by at least 25% by 2025 and by at least 40% by 2040 (compared to 2010). To align ourselves to the 2-degree scenario, our own carbon footprint (buildings, operations, and management) is of importance, which we try to reduce as much as possible and compensate for via Gold Standard certified activities to stay climate-neutral, but more so companies and other entities carbon footprint, which ACTIAM is a partial owner or lender of. Hence, we differentiate our GHG emissions reporting in two sections: Measuring our own footprint VIVAT, ACTIAM s parent company, measures and reports its GHG emissions in accordance to the principles of the Greenhouse Gas Protocol. This means that we report per scope: Scope 1: report on CO2 emissions as a consequence of our direct energy consumption (e.g. gas); Scope 2: report on CO2 emissions as a consequence of our indirect energy consumption (e.g. electricity); Scope 3: report on our indirect CO2 emissions (e.g. due to commuting, air travel, leased cars, etc.). In 2015, VIVAT set itself several ambition targets to reduce energy consumption of at least 3% annually, for owner, occupant, and suppliers to choose only sustainable and energyefficient materials for building management purposes, for our buildings, operations, and management to be fully climate-neutral, and 100% of energy to be generated from renewable sources. Besides purchasing green energy directly from the source (Dutch wind and Dutch biogas), we offset our remaining CO2 emissions from our internal business operations and mobility by purchasing credits that are at least Gold Standard (GS). As a result of this, our buildings, operations, and management is fully climate-neutral. Energy consumption of offices (in gigajoules) Energy consumption kwh per FTE 1,833 2,148 Energy consumption kwh per m

22 Share of green energy offices (% of total) % Green electricity 100% 100% % Green gas 100% 100% Carbon emissions (in tonnes) Business travel and commuting 5,086 5,416 Operations Net emissions 5,254 5,727 Gross emissions 8,315 9,327 More information is available in the attached annual report of VIVAT. Measuring our investment portfolio s carbon footprint ACTIAM invests in companies that emit greenhouse gases through their activities. By measuring the carbon footprint of the companies we invest in, we can calculate the carbon footprint of our investment funds. For our active ownership, on a line by line level, carbon footprint data are indicators of (carbon) efficiency of a given company and a metric to compare companies within a peer group or over time. This information can be useful for engagement purposes, among others. From an asset management perspective, insights in a company s carbon footprint are vital for assessing our risk exposure: a high carbon footprint implies a potentially high risk, for instance if a significant carbon tax is imposed on polluting industries in line with the social cost of carbon or, if technological developments reduce the demand for fossil fuels (in case of energy companies). What funds have been measured so far and what are the results? ACTIAM has published the carbon footprint of all of its equity and one credit fund. The methodology has been rolled out for fixed income classes (corporates, sovereigns, regions, supranational, covered bonds, agencies, guaranteed financial, public banks, ABS, RBS, and small other investments) and equity classes. The methodology applied to all asset classes can be found in the appendix. Though we measure our impact through investments in green bonds, we do not include GHG avoided into our carbon accounting model yet. This is due to fundamental differences between absolute carbon emissions polluted and carbon emissions avoided. The impact and recent developments of our green bond investments is communicated about in our quarterly reports. The first results have been calculated and published (see quarterly sustainability report). Every six months, we report our carbon footprint in the ESG quarterly reports and on our website. These results in the attached table are compared with the carbon footprints of the relevant benchmarks. In this way, we can understand the performance of our investment funds. In total, the listed equity and credit funds carbon footprint is 13.32% lower than the respective portfolio benchmark. The Zwitserleven Europees Aandelenfonds, RZL Europees Aandelenfonds, and SNS Europees Aandelenfonds carbon footprint is approx. 40% lower than the respective portfolio benchmark. Besides negative selection, positive selection has also contributed to this. Companies like Amer Sports and Nordex have for example, since 2013, been added to the investment universe by positive selection. The reduction in carbon intensity between the second quarter of 2016 and the measuring point before that, has taken place due to the new investment policy of European Equity Funds, where through ESG-integration, the theme Climate is targeted.

23 + The carbon footprint of the ACTIAM Responsible Index Fund Equity Europe has decreased as well, due to ArcelorMittal being excluded 6 months ago. ArcelorMittal has a high carbon footprint. Because this firm is not in the portfolio of ACTIAM anymore but is still present in the relative benchmark, a relative and absolute improvement has taken place. As of January 2017, ACTIAM s carbon footprint for all funds with publicly listed equities, credits or sovereign investments will be made public. Equity Fund Relative Absolute Emissions of the Emissions of the relative Absolute CO2 emissions Assets under management in difference difference Portfolio (in ton CO2 benchmark (in ton CO2 equal to driven km s with the fund (per 30/06/2016) portfolio portfolio equivalent) equivalent) passenger car benchmark benchmark Zwitserleven Vastgoed Fonds ,39 543,57 0,15% 0, Zwitserleven Europees Aandelenfonds ,73% ACTIAM Responsible Index Fund Equity Europe ,50% ACTIAM Responsible Index Fund Equity Pacific ,93% ACTIAM Responsible Index Fund Equity North America ,55% RZL Europees Aandelenfonds ,73% SNS Europees Aandelenfonds ,72% RZL Amerika Aandelenfonds ,59% SNS Amerika Aandelenfonds ,62% Zwitserleven Credit Fonds Total ,89% % , That s over 7,000 times around the world! 40% 30% 20% 10% 0% -10% Q % -30% The above figure displays the carbon intensity of ACTIAM s active European equity funds (Zwitserleven Europees aandelenfonds, RZL Euro Aandelenfonds, SNS Euro Aandelenfonds). With carbon intensity we refer to the amount of CO 2 (equivalent) emitted per invested Euro. The purple line in the figure displays the path that must be taken to achieve ACTIAM s target: at least 25% less CO 2 intensity by The red line displays the CO 2 intensity of the managed funds. 6 This target does not only count for the active European equity funds, but also for ACTIAM s other investment categories.

24 In 2013, ACTIAM invested in 6 out of the 31 most carbon intensive companies, which represented merely 2% of the total portfolio. As a result of ACTIAM s investment in these 6 carbon intensive companies, our portfolio was not in line with the reduction target path of - 4,69%; instead the realised increase was +35%. In 2014, ACTIAM only invested in 1 out of the 31 most carbon intensive companies, and excluded five companies. Further, ACTIAM started investing in more energy-efficient companies, which lead to a large decrease in the CO 2 intensity of ACTIAM s active European equity funds and a reduction target of -21% comparing to 2010 levels. Compared to the data point in 2015, there has been an improvement in the CO 2 intensity and it is currently even below ACTIAM s target. For Q2 2016, a reduction target of -9% was planned and a reduction target of -14% was realised. Part of the reduction between 2015 and 2016 can be explained by the implementation of the improved ESG score. As a result, worst offenders (high carbon intensive companies) are no longer part of our active investment funds. Instead, positive selections with higher ESG scores are made more attractive to invest in. The table of best and worst performers in regard to ACTIAM s ESG score, shows that relative to the portfolio benchmark, 9 of 10 best performers are overweight. As our carbon reduction target applies to all investments, we are currently in the process of making these intensity pathways for the other assets for which we are able to calculate the carbon footprint. There are several limitations with the following climate reporting. At present, it is only backwards looking (starting from 2010) and catches merely a moment in time. Hence, the methodology does not consider a company s (long-term) strategy. Despite having a high carbon footprint at the moment, a company might have clear strategies to significantly reduce its carbon footprint, thus being exposed to lower risks in the long-term. That s why ACTIAM is currently considering the possibility of conducting a scenario analysis to assess which companies strategies are aligned with the Paris Agreement to collective limit global warming to well below 2 C. Further, the methodology only looks at a company s absolute carbon emissions, and does not compare the company to its peer group. A company might have a high carbon footprint, and as such be eliminated from our portfolio. However, when comparing the company to its peers, it might have a lower carbon intensity. Moreover, an aggregate number like this does not give an indication of the company s underlying assets. As such, it is difficult to assess its asset-related carbon risks. ACTIAM decided to only to use scope 1 and scope 2 carbon emissions, because information for scope 3 carbon emissions is not as reliable yet. As a result, one ignores a company s risks related to its scope 3 carbon emissions, the emissions in its supply chain. More importantly, it is easy to reduce one s portfolio s carbon footprint by merely excluding carbon-intensive companies (or sovereigns, for which we have also developed a carbon footprint methodology). However, this does not reduce the absolute carbon footprint. This is not ACTIAM s aim. ACTIAM aims to reduce companies carbon footprint through its active ownership activities (especially through engagement). In order to properly value risks and opportunities however, it is still of importance that the quality of scope 3 emissions data increases. Choices made when calculating ACTIAM s footprint The carbon footprint of an investment fund can be calculated in different ways. The result depends on the calculation method used, but also, for example, on the values that are used. Therefore, we find it important to be transparent about our methodology of calculating our carbon footprint. Thus, ACTIAM made the following choices:

25 We look at the absolute carbon emissions of the company Only by reducing absolute carbon emissions, can the effect on climate change be restricted. ACTIAM does not use relative carbon emissions. Despite relative emissions being a good indicator of the efficiency of the company, a small number does not per se mean that the effect on climate change is also small. We look at scope 1 and scope 2 carbon emissions of the company Reasons for not including scope 3 carbon emissions is that there is less reliable information available and if there is information available, there is a chance of double counting. The carbon emissions of a company that are considered as scope 3 emissions might be the same carbon emissions as another company s scope 1 and 2 carbon emissions. Scopes Advantage Disadvantage Scope 1 No double counting. Too little data. Scope 1 & 2 Scope 1 & 2 & 3 Data available; market standard; relative little double-counting. Progressive image; using all data. Double counting in Utilities. A lot of double counting; very little reporting done. As such, the choice was made to currently use scope 1 and 2 carbon emissions: Because it is easy to implement, there is fewer double counting, and it is the market s standard. We look at our ownership and/or the value of our loan in relation to the enterprise value of the company To calculate the carbon emissions of a company that ACTIAM is responsible for, one has to know the value of the company. This is often determined by the value of listed shares on the basis of market capitalisation. This presents a problem for companies that are not publicly traded. The enterprise value of the company does not only consider the company s assets, but also debt. This allows us to value both, listed and non-listed, companies. The disadvantage is, however, that the numerator (from which we divide the carbon emissions) can get bigger when we only look at the market capitalisation, and the carbon emissions per unit thus smaller. We limit this disadvantage by formulating our target as a relative decrease over time. EV = Current Market Cap + Short Term Borrowings + Long term Borrowings 7 We retrieve the carbon information from Bloomberg Within the model, external data is used. For companies that are publicly traded, data is provided by Bloomberg. For non-listed companies, we look at the companies annual reports. Carbon footprint of sovereign bonds is based on data provided by Eurostat (more information available in the appendix). Within ACTIAM, the choice was made to receive the carbon data from an external data point. As a result of outsourcing the data acquisition, ACTIAM is entirely dependent on the input data. Besides manually looking at annual reports for non-listed companies, ACTIAM has no influence on the data it receives. When the data is not correct, it is only possible to give feedback to Bloomberg. Thus ACTIAM is entirely dependent on Bloomberg with respect to data delivery. 7 For banks, postal deposits are also included

26 When carbon data is unavailable, the choice was made at ACTIAM to still gave the company a value. If this is the case, we take a proxy. This estimation is based on the GICS/Iboxx subsector average value, in which the company operates in. If the company s sales are known, you can multiply the sector s average carbon emissions/sales by the company s sales to get a carbon value estimate. carbon emissions per industry Proxy per industry = Sales per company per industry When carbon data is estimated, sales per company per industry is used due to its lowest standard deviation. We compared actual and estimated carbon values of companies reporting their carbon footprint using the following variables for size of venture to see which variable comes closest to the reported carbon value: Sales, three year average sales, employees, total assets, book value equity, market capitalisation, proxy enterprise value, and total value. By looking at the standard deviation, it is possible to see which variables comes closest to the actual reported carbon value. Hereby counts: the lower the standard deviation the closer the estimated value is to the actual numbers. Standard Deviation Variable Tonnes CO 2 Eq Sales Sales average 3-year Employees Total Assets Book value Equity Market Capitalization Total Market Value Proxy Enterprise Value It is important to note that there are 4 sectors that significantly push up the standard deviation. These are: Standard Deviation Variable Tonnes CO 2 Eq Metals & Mining Multi-Utilities Construction Materials Electric Utilities The conclusion made from this is that sales give the best predictable value to use as a rescaling value for missing carbon values in our portfolio. When we look at the relative difference, instead of absolute, then it is predominantly companies with a lower emission output who dominate. Currently, when we look at the names where value are missing, then these are not in high emitting sectors. Thus it is currently not necessary to do further research into better explainable values.

27 Communication Communication Strategy ACTIAM has fully integrated ESG and the focus themes climate, water and land in its communication plan. ACTIAM uses a segmented approach in its communication. This means that different target groups are identified and the type of information and media used are specified for each target group. We will, for example, rather use social media for communication to retail clients, press releases for official and newsworthy communication, columns for an audience with some level of investment knowledge, etc. However, some key points of ACTIAM s ESG / climate communication strategy are: o o o o o Thought leadership: we want to be a thought leader on the combination of financial return and ESG, as well as our focus themes climate, water, and land, and inclusive finance based on our microfinance activities. Close by: when communicating about ESG and climate change, which can be quite technical, we make sure to add examples that are nearby for the reader. For example, when we communicate about a green bond in our portfolio, we will try to find examples of projects financed by the green bond that are physically close by, such as renewable energy projects in the Netherlands. Our Q2 Sustainability Report, for example, we reported that by investing in KfW s green bond, ACTIAM s customers can avoid round 6800 tons GHG emissions and compared it to the average emissions of Dutch households. Simple: we try to use straight-forward examples and understandable language to explain complex issues like climate change. Recognisable: when communicating about climate change, we try to use brands, companies, or labels that retail clients know to make it recognisable. Solution-oriented: we try to limit communicating about problems and use solutionoriented language. We also translate problems into actions that the reader can actually take.

28 Media ACTIAM uses different media for its communication about ESG and climate related activities. The below table is aimed at giving insight in the different media/tools and the frequency of use: Medium / tool ACTIAM website Social media Quarterly ESG report Columns Presentations Intranet Press Frequency of use Ad hoc news messages; quarterly update of exclusions and engagement overview; ad hoc updates on investor statements. Should be accessible and understandable for all visitors, but we expect that mostly proactive visitors, benchmark researchers and clients of our funds visit the website. Some planned and some ad hoc communication. Short news messages that we sometimes use to link to longer messages on our website. Targeted mainly at retail investors. Published every quarter. Contains information about engagements, voting and other ESG activities. Different central theme every quarter (e.g. climate change, green bonds, deforestation). Readers are mostly institutional clients or proactive readers, however we try to re-use the content in a more accessible way, for example through social media. Targeted at retail clients but with basis knowledge of investing. Planned monthly. Targeted mainly at institutional investors or retail investors with advanced investment knowledge. Ad hoc basis. Messages on an ad hoc basis. Target audience are ACTIAM and VIVAT employees. Used mainly to create awareness of trends and developments and the ESG activities. Ad hoc, as this requires press interest. Target audience depends on the platform and can range from an uninformed retail audience to advanced retail investors or institutional investors. Much of the communication is ad hoc because the reason for communication cannot be planned (e.g. a new green bond bought, an engagement success). However all communication is preceded by a plan where the target audience and media to be used are set out. In addition, there are different unique selling points that ACTIAM identified and that we refer to in most of our communication: ESG integration, impact measurement, active ownership, green bonds and impact investing. The focus themes climate, water and land are also structurally used as a framework to communicate about ESG activities. For example, when communicating about climate-related news, we will refer to climate change being our focus theme, why it is an important challenge, what the main drivers are and how the news fits into our strategy.

29 External Communication Communication is aimed at informing (potential) clients about climate related developments, risks, opportunities and how these factors are integrated into ACTIAM s responsible investment activities. It is ACTIAM s mission to be fully transparent to its clients, beneficiaries, and affiliates about its ESG integration and its approach to the issue of climate change. As such, ACTIAM uses many channels of communication. On social media, ACTIAM is a responsible asset and fund manager who you follow, because it represents what you stand for. ACTIAM uses Twitter and LinkedIn to interact with its target groups and to share relevant information on products, services, and (international) developments. Our social network accounts inform our retail clients about ACTIAM s ESG activities and raise awareness on relevant global ESG issues. ACTIAM continues its Thought Leadership marketing strategy to inform its followers. In addition to this, ACTIAM publishes quarterly ESG reports to give clients a profound insight of ACTIAM s ESG progress and integration. Quarterly ESG reports are published on our website (in Dutch) and also written on a client-to-client base. From insight to impact ACTIAM strives for transparency and wants to give insight in the funds investments. Ultimately we want to report on impact, but the first step is reporting about the outcomes of investment decisions. One example is the latest quarterly ESG report, where we report on the percentage of companies in a specific fund (European equity fund) that have a climate, water, waste and biodiversity policy, versus the percentage of companies in the benchmark with a such policies. We also mention the relevant Sustainable Development Goal. Below is the chart that provides insight into companies with a climate policy. The outer ring represents the percentage of companies with a climate policy in our portfolio; The inner ring represents the percentage of companies with a climate policy in the benchmark.

30 Presentations and publications ACTIAM organises conferences, seminars, and presentations regarding responsible investment, impact investing, ESG, and other topics. During the first half of 2016, ACTIAM gave 13 presentations, joined 9 panels and 2 round tables, and published 11 articles about responsible investment, green bonds, ESG integration in fixed income portfolios, deforestation, water and carbon risks, and the antibiotics use in the meat industry. In June, for example, ACTIAM joined a panel discussion together with Aegon, ABN Amro, and Oekom Research to discuss carbon risks. Topics that were discussed during the panel, were companies climate approach, positive and negative selection, green bonds activities, stranded assets, and carbon footprinting. The Head of the ESG Team, Dennis van der Putten, regularly writes columns for Fondsnieuws.nl, aimed at raising awareness regarding ESG related issues and responsible investment. Fondsnieuws.nl is an independent journalist platform, which focuses on investment professionals. Columns published in Feburary 2016, Waar is hier de nooduitgang? (Where is the exit?) and Klimaatverandering ook risico voor financials (Climate change also a risk for financials) discuss how the financial sector faces risks as a result of the energy transition and stranded assets. The financial sector plays an important role in facilitating investment needed for the energy transition. However, financial corporations could face significant risks if CO 2 -related assets were to depreciate as a result of stricter climate policies. The column Trump is the bomb, published in September 2016, discusses the Paris Agreement, the requirements for the agreement to enter into force, countries carbon reduction targets, and the how the election of a new President in the United States can influence the Paris Agreement. Besides raising our direct clients awareness about climate risk, we actively seek to raise our clients employees and beneficiaries awareness as well. Together with our client, Zwitserleven, we use presentations and publications as means of communication. The latest brochure Puur voor later (English: Pure for later) aims at raising readers awareness in regard to responsible investment and green bonds (see attachments). During this year s Pension Event 2016, the Head of ACTIAM s ESG Team, Dennis van der Putten, gave a presentation (see link) about the need for responsible investment and climate risk. Topics that were discussed during the presentation are countries reduction objectives, recent media attention in the Netherlands, and its impact on industries and investment returns. As part of employee training, Zwitserleven s new employees must pass an online training. PRI, VBDO, Montréal Carbon Pledge, and the Paris Pledge for Action are some of the topics that employees are trained and examined about.

31 ACTIAM also organises its own seminars. In July 2015, for example, ACTIAM organised a roundtable discussion about the climate, environmental, and financial risks associated with offshore oil drilling in the Arctic. Participants included other investors, NGOs (for example, Greenpeace and Follow This), clients, representatives from the oil sector, academics and other experts. During the debate, the individual weighting of these risks and the best approach to reduce these risks was discussed. Some of the key discussion points and findings were that investors generally find engagement a good tool to influence companies behaviour; the risks of Arctic oil drilling over the medium to long term are not well outlined and academics knowledge is not sufficiently incorporated into investor studies; there was no unanimous opinion about the acceptability/manageability of risks; in the context of the 2 degrees scenario, there are serious concerns about Arctic oil exploration. Internal Communication To improve internal communication on ESG, ACTIAM introduced an internal ESG newsletter, which is sent to all employees every 2-3 months, improved ESG communication on the intranet, and informs employees on updates relating ESG integration during quarterly employee meetings. ESG is a fully integrated aspect of board meetings. Further, board members are educated on responsible investing with focus on climate change. Furthermore, joining initiatives such as the Montréal Carbon Pledge and the Paris Pledge for Action were communicated extensively to ACTIAM s employees. An infographic (see attachment), with the aim of raising awareness on ACTIAM s focus topics water, land, and climate and its strategy From Insight to Impact was created. The infographic will be shared on the website, with employees and clients, and hung up around ACTIAM s buildings in the near future.

32 Future Looking forward, ACTIAM will continue to contribute to the Paris Agreement to collectively limit global warming to well below 2 C. Further, ACTIAM is going to continue to collaborate with other investors and regulators/policy makers to improve the sector s approach to climate change. Collaborative engagements will be mainly through the PRI Collaboration Platform. Future efforts will aim at improving ESG communications internally. Wishes to integrating the whole company and establishing climate-related discussions were raised. Besides measuring our portfolio s carbon footprint, ACTIAM intends to improve its current impact measurement. A possible indicator to measure on, for example, the amount of renewable energy generated by companies that we invest in. This would especially be interesting for green bond projects, which often disclose information on its social impacts as well. At present, we disclose information on our equity funds carbon footprint and try to visualise it by comparing the absolute CO 2 emissions to km driven with a passenger car, wishes by a client was raised to disclose information on a client-per-client basis. Additionally, ACTIAM is considering the possibility of conducting a scenario analysis to assess which companies strategies are aligned with the Paris Agreement to collective limit global warming to well below 2 C.

33 Appendix Methodology: Measuring our Carbon Footprint Methodology for Equity and Corporates (FI) Proper consideration is necessary to determine which CO 2 data provider to use. Three parties (Trucost, Southpole, and Bloomberg) were contacted. During the assessment, we looked at the coverage and quality of data provided. A fictional portfolio was sent to all three parties with +/- 90 companies of different sectors, size, and availability of CO 2 data. This made it possible to look at differing outcomes in a fair manner. The conclusions were as followed: 1. Data provided by Southpole and Trucost relatively correspond the most 2. Per provider, the biggest polluters, measured in CO2t-equivalent, are situated relatively close to each other (less than 20% relative difference) 3. Biggest differences lie in the moderate chosen CO2 model, with relatively low emission 4. Total CO 2 emissions of the requested portfolio are very similar CO 2 Party Advantage Disadvantage Bloomberg No extra costs; fast to implement; known data provider; great coverage When no benchmark is purchased, then a lot of data is missing/ Only Scope 1&2; less coverage on water and land; little historical data Trucost Clearly defined data. In addition to Scope 1 and 2 CO 2 data, it also includes water and land variables. Great historical coverage Includes costs. Data quality is another point. Additional actions are necessary to organise the data Southpole Has a tool in Bloomberg; great coverage Includes costs. Data quality is another point. Additional actions are necessary to organise the data. Data is focused on sales As the most differences in the data are incorporated in the model, no additional costs apply, and our acquaintance with the use of Bloomberg, the choice was made to keep Bloomberg. Carbon-data Methodology Bloomberg for Equity and Corporates The CO 2 emissions is based on data found and formulated by Bloomberg. The following methodology is applied: a. Bloomberg-collected Total GHG emissions; if not available - b. Bloomberg-collected Total CO 2 emissions; if not available - c. CDP collected Total GHG emissions; if not available - d. Estimated data; Total GHG is here defined as Scope 1 + Scope 2 emissions. Total CO 2 emissions are a subset of GHG emissions and for most companies CO2 will compose >90% of Total GHGs. By using the above methodology, it is possible to obtain the value for CO2 for all businesses. When a business calculates its emissions using point d, one makes use of statistical data from an external

34 source. Here we look at similar companies (same size, same industry etc.) to assess the CO2 value. The model identifies which companies this applies to. The information provided by Bloomberg concerns CO 2 equivalents. This means that emissions of different greenhouse gases of a company are converted to the climate impact of CO 2. Thereby, it is possible to work with one digit rather than a number for each greenhouse gas. To ensure data quality, Bloomberg indicates that data evaluations are done on a company-percompany base. Evaluations are based on indicating: 1. Errors in point/comma; 2. Is there any major change on an annual basis in the figures? If so, the company will be contacted 3. When comparing the data with the median of the industry, which the company operates in, it is not allowed to be double the standard error 4. Bloomberg makes a conversion to CO 2 t-equivalent 5. The model indicates the percentage of companies for which data is calculated using models The following steps are required: 1. Collecting data 2. Cleaning up data Within Bloomberg, the data points for the securities are delivered in the currency in which the company reports. That is why all data must be converted into Euro, in order for all data to be comparable with each other. The reason that it is converted into Euro s is because ACTIAM s funds are presented in Euro s. The following steps must be taken. i. Note currency of the company (CRNCY) ii. In the conversion table, search for the correct conversion value iii. Apply the conversion to the following variables: - Current Enterprise Value - Long Term Borrowings - Current Market Cap - Short Term Borrowings - Sales This can be achieved by using of the following formula: Conversion = Variable Conversion Rate 3. Calculate Enterprise Value EV = Current Market Cap + Short Term Borrowings + Long term Borrowings 8 4. Calculate CO2 emissions To calculate the carbon emissions of funds, the following formula can be used: Carbon Emissions = Absolute CO2 Emissions per company Where, per company, the variables can be calculated in the following way: Absolute CO2 emissions = % ownership CO2 emissions (scope 1&2) % Ownership = ACTIAM total equity value Enterprise value 9 8 For banks, postal deposits are also included 9 In the case of banks/insurers: long-term borrowings + market capitalisation

35 ACTIAM total equity value = AuM Fund weight As previously mentioned, it is possible that data is not available. The choice has been made at ACTIAM to still gave the company a value. If this is the case, we take a proxy. This proxy is based on the GICS/Iboxx sector average value, in which the company operates in. If the company s sales are known, you can multiply the sector s average CO 2 /sales by the company s sales to get a CO 2 value estimate. Proxy per industry = CO2 emissions per industry Sales per company per industry 5. Comparing CO2 Emissions with the Benchmark: In order to make a good comparison with the benchmark, the choice has been made to obtain the weights of the benchmark from Dimension. Subsequently, the same calculation is made as with our own portfolio only this time with the weightings of the benchmark. The AuM of the portfolio is kept the same. Thus by only changing the weightings of the positions, we only look at what the absolute CO2 emissions of the portfolios were if we invested according to the benchmark. Hereby it is possible to face off the benchmark in the right way against our own portfolio, we thus can compare apples with apples. A benchmark can best be described as a standard on which investors want to compare the performance of their own portfolio. An overview of the used benchmarks per fund can be found below: ACTIAM Funds ARIFEE ARIFENA ARIFEEA ARIFEPA ARIFENAB ZL VASTGOED RL EURO SNS EURO ZL EURO ZL NL SNS NL RL NL Benchmark MSCI Europe MSCI North - America MSCI Europe MSCI Pacific MSCI North - America GPR250 - Europa UCITS MSCI Europe MSCI Europe MSCI Europe AEX AEX AEX The reason that these benchmarks are used is because the names which are in ACTIAM s funds have the most similar composition as the names which are in these funds. The reason for this is that ACTIAM funds are based on the corresponding benchmarks. This makes it possible to be determine in a fair way whether ACTIAM performs better than the comparable list. The benchmark in this case only has an influence on the CO2 emissions data Calculating 2-degree progression Within ACTIAM, a commitment has been made to contribute to the climate problem. Hereby we aim for the 2-degree scenario. Which for ACTIAM comes down to the following. ACTIAM strives towards a 25% reduction in CO2-equivalent emissions of the total portfolio in 2025 versus To not be

36 dependent on an in- and outflow of capital in our investment portfolios, this reduction target has been converted into invested Euro. In 2040, this percentage must rise towards 40%. The conclusion of the IPCC, an international network where climate scientists from all over the world work together, serves as building blocks for the chosen percentages. The IPCC states that if the concentration of greenhouse gases in the atmosphere stabilise at around 450ppm by 2100, then there is a chance of more than 66% that the rise in global temperature stays below 2ºC. To reach a concentration level of 450 ppm in 2100, the global greenhouse gas emissions must be 40% to 70% lower in 2050 than in ACTIAM uses the minimum value of 40% for the year Methodology Hereby it is necessary to address how ACTIAM was looking back in From this point we can keep track on a biannual basis how ACTIAM progresses in comparison to the base year. For the following equity funds, there has been a calculation made since 2011: ZLNL / ZL Europees Aandelenfonds / ZL Vastgoed / ARIFEE / ARIFEPA / ARIFENA / RLNL / RL Europees Aandelenfonds / SNSNL / SNS Europees Aandelenfonds. Currently, a calculation is being set up for Zwitserleven Credit and the bond portfolios. The reason that measurement takes place since 2011 is that that was the first point of which Bloomberg had CO2 data. ACTIAM does choose to uphold their chosen reduction targets, so as to maintain a progressive stand point. From this checkpoint onwards, we look at how carbon-intensive our portfolios are. This means that ACTIAM looks at how carbon intensive each Euro invested is. The reason that this was chosen, is that ACTIAM is of the opinion that when AuM rise, we are also allowed to emit more in absolute terms. Here we take the position that we want to see a reduction on the basis of how carbon intensity of our portfolios. To measure the points, by the end of each year, each time the positions of the portfolios are requested. The end of the year here refers to the data 31-12, where the following years have been included: 2011, 2012, 2013, 2014 and It was decided to keep the same methodology retroactively as how a normal CO2 calculation would be made. By applying the same methodology we can, over the years, compare portfolios with each other. During the calculation, large variations within the portfolios became visible, causing a meeting to be planned with the equity and fixed income team. The conclusion was made that a large influence is made on AuM by market movements in our portfolios. When for example a positive market movement takes place, our AuM will proportionally rise with it. However, the CO2 emissions of the company will stay the same. Hereby our investments will become less CO2 intensive (less CO2 per million euro market value), while nothing happens to the CO2 emissions and pursuits of the company. Because of this, it has been chosen to not include market movements (or profit from the concerned portfolio) in the calculation. This leaves us with the pure value of the made choices, where the inand outflow are also taken into account. The following calculations are made, per portfolio, to be able to compare the correct carbon intensities with each other. Step 1: Search for the return at year end Step 2: Add the percentages from 2011 cumulatively Example year 2013: (1 + % return 2011) * (1 + % return 2012) * (1 + & return 2013) -1 Step 3: AuM year / percentage step 2 Step 4: Calculate carbon intensity for the concerned year: Absolute CO2 emissions portfolio / AuM step 3 Step 5:Compare carbon intensity over the years (Carbon intensity year / base year carbon intensity) 1

37 Methodology Sovereigns: The following formula has been formulated: Proxy Government Bond = Direct emissions: State institutions Scope 1 emissions Indirect emissions: State institutions Scope 2 emissions Government debt: Government s debt at the end of the year Direct Emissions + Indirect Emissions Government Debt Calculation of indirect emissions (Scope 2): To calculate Scope 2 emissions the following methodology is applied: Step 1: Calculate government presence in the energy sector CF Government to Energy sector CF Energy sector Step 2: Calculate the energy sector s total CO2 emissions: - Energy available for final consumption per kwh x Ton CO2-eq/kWh per country - gco2/kwh, taking into account: - The country s energy mix - Import and export of export Data provider To calculate the above formula, information is needed. The following parties were analyised: Eurostat Advantage Data is available for all aspects of the calculation, publicly available, independent party Disadvantage Last availableco2- data is 2012, data is only available for Europe GTAP Global coverage Outdated data, new data is only available upon payment EDGAR RE-DISS Emissions of a complete country, data available from Import and export is included; measured and monitored annually No division of scope, industry Only includes Europe It was decided upon to use the data that is available on Eurostat and include RE-DISS residual mix data. This is for the completeness of the available data and the inclusion of the country s energy import and export. The following data points are retrieved from Eurostat:

38 NACE-classifications: After looking at this sector description, the conclusion was made that NACE Rev.2 section O Public administration and defence; compulsory social security should be used as the correct sector. For the calculation of Scope 2, the classification D Electricity, gas, steam and air conditioning supply is used. Economic denominator: To determine what the correct economic denominator is, the following were considered: Economic denominator Advantage Disadvantage Gross Debt Includes government bonds Does not include all government income GDP Balance Sheet Includes the entire government s ability to raise capital This is the entire value of a country and not just the investment that can be made through bonds ACTIAM does not invest in equity Within ACTIAM, the choice was made to use the gross debt indicator. The most important reason being that this the capital that ACTIAM as an investor can invest in. Gross debt: to get to the key figure per country, it is necessary to offset the found CO2-eq emissions against the economic value of a government. For this, it was chosen to use the gross debt per government. This data point is also available on Eurostat. The description is as followed: The indicator is defined (in the Maastricht Treaty) as consolidated general government gross debt at nominal (face) value, outstanding at the end of the year in the following categories of government liabilities (as defined in ESA 2010): currency and deposits, debt securities and loans. The general