In a recent article in Dutch newspaper Het Financieele Dagblad, two Dutch professors argue that pension scheme members’ returns are at risk because pension funds are increasingly viewing sustainability as part of their core remit. Their arguments echo the usual criticisms levelled at pension funds’ sustainability efforts:
- It would undermine their fiduciary duty.
- Exclusion would prevent them from exerting influence.
- A “politically neutral” investment portfolio would better represent participants.
Sustainability is a core responsibility
Critics of sustainable investing often emphasise pension funds’ fiduciary duty, framing it narrowly as delivering an adequate pension through an optimal risk-return ratio. In their view, this is incompatible with a more focused investment portfolio aimed at positive impact. This is an outdated perspective.
First, sustainability is not optional; it is a legal requirement under the Dutch Pension Funds Code, which mandates that funds must have an investment policy “in which environmental, climate, social and governance factors form an explicit and identifiable part.”
Secondly, the assumption that thousands of investments are needed to achieve sufficient diversification and returns is unfounded. Research shows that a smaller, carefully selected portfolio is more than adequate. Moreover, a compact portfolio makes it easier to play an active role as a shareholder: to better understand of companies, hold them to account and steer them in the right direction.
And let’s be clear, leaving aside all legal and investment-related arguments: a good pension has little value in an unliveable world.
Exclusion sets the standard
Critic’s second argument – that exclusion of companies or sectors is pointless because other investors will snap up the shares anyway – also falls short. According to this logic, exclusion does not have financial impact, as it does not affect share prices or company profits. Worse, it supposedly removes any incentive for the excluded companies to improve, as they face no opposition at shareholders’ meetings.
This argumentation misses the point. Exclusion is not about delivering a direct financial blow, but about drawing a moral line. Over time, it erodes a company’s “social licence to operate”. This is a gradual but undeniably powerful process. Companies feel the pressure through critical media coverage, conscious consumers and employees, and ultimately, stricter legislation. Setting standards is an effective way of exerting pressure.
No such thing as political neutrality
The third argument – that participants do not truly support sustainable investing – is equally flawed. Surveys by major Dutch pension funds, such as PFZW and ABP, consistently show that a large majority of members want their money invested sustainably. Critics dismiss these findings, claiming that participants either do not fully understand the questions or give socially desirable answers. Their proposed solution? A so-called politically neutral approach, where no company is excluded.
But investing without restrictions is not neutral. By continuing to invest unreservedly in all companies and sectors without distinction, you implicitly accept the existing economic structures and their societal consequences. Not choosing is still a choice.
Moreover, the argument that participants are not voluntary customers and generally cannot opt out of a fund, cuts both ways. If most participants consider sustainability important, pension funds would fail to reflect their preferences by ignoring sustainability criteria in their investment policy.
Echo from the past
Seen in this light, resistance against sustainable pension investing is not really about potentially lost returns. It is about clinging to an outdated worldview – one in which social responsibility is secondary. Three years ago, the Sustainable Pension Investment Lab (SPIL) already concludedthat nothing stands in the way of pension funds adopting more concentrated, sustainable portfolios. It merely requires a “slightly different way of thinking”.
It is precisely this courage that an increasing number of pension fund executives are showing. They are listening to their members and making their investment policies future-proof. The repetitive criticism they face stands in stark contrast to this progress. Above all, it reflects a vision of pension investment that is increasingly out of step with the challenges of our time.
A slightly different version of this article was previously published in Het Financieele Dagblad.
