Exclusion is commonly cited as THE solution for investment in the defense industry. But where do you draw the line? Companies that produce or maintain weapons for peace keeping? Or even companies that produce probiotic drinks?
To broaden our understanding of these, and other complex issues facing investment decisions in sensitive industries, and to consider the impact on our investors returns, society, shareholders and other stakeholders, Aegon regularly sits together with individual companies and organizes round tables. Last month, Aegon invited a group of external experts, to an open discussion on investment in the arms industry.
Guests included representatives from the peace organization PAX, MSCI – a provider of investment decision support tools, including Environmental, Social and Governance (ESG) Research, Dutch defense and security foundation the NDIV, the Stockholm International Peace Research Institute (SIPRI), the Dutch Ministry of Foreign Affairs, regulatory and legislation advisory Philip Sidney, members of Aegon management and the Aegon Asset Management-responsible investment team. The event was moderated by Rob Lake, a former Director of Strategy at the UN-supported Principles for Responsible Investment (PRI) and former head of pension fund ABP's Responsible Investment team.
The complexity of one of the most debated topics for institutional investors is perhaps best highlighted by one example shared at the roundtable. Delegates heard that, up to January of this year, probiotic milk company Yakult was banned from exporting its product to Iran because the live bacteria strain earned it the label of potential 'biological weapon'.
While anecdotal, this example sheds some light on the grey area that exists even in determining what constitutes a 'weapon' in the first place.
Pieter Wezeman of SIPRI said global military expenditure amounts to $1,700 billion, $600 billion of which relates to the US alone. However, he said that discounting salaries, pensions, operations, etc., the figure spent on actual hardware was closer to $500 billion.
Pieter added that guidelines, which can be followed by Aegon investors, such as the Arms Trade Treaty (ATT), would help to prevent that, for example, arms being sold where they are likely to be used in serious violations of international human rights, fuel conflict, or where they impair poverty reduction.
Speaking for PAX, Frank Slijper said the ATT and similar treaties leave much room for interpretation. "Companies who adhere to the ATT, adhere to minimum standards, not necessarily the highest standards," he said, adding: "Logically Aegon's policy specifically excludes companies producing certain weapons banned under international treaties, such as landmines and cluster munitions, and it's very good to see producers of controversial depleted uranium (DU) munitions being excluded by Aegon," but he pointed to research commissioned by PAX showing that 66% of Dutch people surveyed said it was 'unacceptable' or 'very unacceptable' for their insurer to invest in companies that supply military equipment to 'controversial destinations'.
Of this group, he said, 81% would be willing to change to another insurer for this reason. Dutch industry stated its policy that no export from the
will take place without an ex ante obligatory license of Dutch government.
Eric Rutten, CEO of Aegon bank, pointed to the significant differences in fiduciary requirements between, for example, the US and the Netherlands. "Large parts of our assets are mandates from customers who dictate what we can and cannot do with the money," he said.
"Outside the Netherlands, it is also fairly uncommon for asset managers to impose their ethical views on their clients, by way of excluding certain companies from investment, for example," he said.
There was animated discussion about the concept of following stakeholders' views in determining which industries or companies to exclude from investment. Generally, NGOs would like Netherlands-based companies to apply exclusions to all of their investments globally, regardless of local stakeholder sensitivities in other markets.
In closing the workshop, moderator Rob Lake said, "as one of the few truly global financial services companies in the Netherlands Aegon clearly needs to find a delicate balance between taking a consistent global approach to Responsible Investment that reflects its own values and purpose, while respecting the differences in values and regulations in the different markets it operates in."
As a token of appreciation to participants attending the roundtable, Aegon made a contribution to the War Child charity in lieu of hospitality gifts.