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Socially responsible investment


The FDC was created with the mission to safely manage the reserve of the general pension insurance scheme and to draw an effective yield while diversifying risk. Thus, article 248 of the Social Security Code provides that:

"The compensation reserve is placed in order to ensure the sustainability of the general pension insurance scheme. In order to ensure the security of investments, account is taken of all assets and liabilities, the financial situation, as well as the structure and foreseeable development of the insurance scheme. Investments must respect the principles of appropriate risk diversification. To this end, the available assets must be distributed between different asset classes as well as between different economic and geographic sectors."

Consequently, during the set-up of FDC's investment strategy, a particular attention was paid to all criteria listed above. Other restrictions or limits not arising from FDC's legal mission were not considered.

Nevertheless and since 2010, the FDC has continuously analysed how a socially responsible policy could be incorporated within its investment strategy, whilst complying with the current legal framework. At the beginning of 2011, the set up and implementation of an exclusion list, based on international conventions signed by the Grand Duchy of Luxembourg, was decided. On top of that, it was retained to put in all requests for proposal launched by FDC more focus on the sustainable and socially responsible investment criteria applied by tendering companies .

Since then, the scope and the relevance of the given policy has regularly been reviewed and the FDC decided to further strengthen its socially responsible policy which was carried out in the context of a planned investment strategy review in 2017.

Indeed, part of this review specifically concentrated on substantially deepening the consideration of sustainable and socially responsible investment criteria, on an analysis of the commitments taken by the Grand Duchy of Luxembourg in connection with the ratification of the agreement of the Paris Climate Conference (COP21) and the 2030 Agenda for sustainable development of the United Nations as well as the creation of new sub-funds dedicated to investments with positive impact.

The key concept of the revised socially responsible policy is set out in FDC's directive dated January 2018.

FDC's exclusion list

Since 2011, the FDC is committed to ensure that its investments through its SICAV comply with the international conventions signed by the Grand Duchy of Luxembourg. More precisely, the implementation of such a principle was put into practice through a normative exclusion of companies and firms not complying with international conventions ratified by the Grand Duchy of Luxembourg in the fields of environment, social responsibility and solidarity as well as institutional responsibility, the latter including human and labour rights.

In this context, FDC's Board of Directors mandated in 2011 the Scandinavian company GES to analyse the authorised investment universe of the SICAV in order to identify all companies and firms not complying with the above mentioned international conventions.

In addition to the exchanges of views that the FDC has with GES, the latter provides every six months a report highlighting companies which violate these conventions and which show no willingness to change their policy and their mode of governance. As a result, FDC's Board of Directors excludes these companies from the SICAV's authorised investment universe. Besides this confirmed violations report, the FDC also receives a second report. The report of indication of violations is listing companies that may have violated one or more of these conventions, but with which GES has already started negotiations to stop the condemned practices. Depending on the outcome of these negotiations, the companies in question either are put onto FDC's exclusion list or are taken off the report of indication of violations. By doing so, the FDC supports with its financial weight an engagement process with the aim to change the policy and the mode of governance of the companies in question.

The latest exclusion decision is dated 23 May 2019 and cancelled the previous decision dated 23 November 2018. With regard to the previous decision:

  • companies Akbank, Innophos Holdings, Kasikornbank, Lumber Liquidators, Nutrien Ltd, PTT PCL, Siam Commercial Bank, Turkiye Garanti Bankasi and Wesfamers have lost their exclusion status;
  • the excluded company Rockwell Collins has been acquired during 2018 by the company United Technologies Corp and is henceforth listed under this name on the exclusion list;
  • the excluded company Posco Daewoo is now listed under the name of Posco International Corporation on the exclusion list;
  • companies Danske Bank and Vale SA have been added to the exclusion list.

As GES has been acquired beginning 2019 by the Dutch company Sustainalytics, screening services are currently assured by the latter.

Consideration of sustainable and socially responsible investment criteria and implementation of sub-funds with positive impact

Since 2011, any new request for proposal concerning portfolio mandates on behalf of the SICAV has been including questions about the socially responsible investment or sustainable development policy applied by the tendering companies.

In this context, it can be highlighted that a global equity mandate awarded to NN Investment Partners in 2012 is exclusively managed by considering ESG criteria. The respective sub-fund has been labelled consequently for the third time with the ESG label from the Luxembourg Fund Labelling Agency (LuxFLAG) since 2015. LuxFLAG is a Luxembourgish independent non-profit making association created in July 2006 that aims to promote the mobilisation of capital for the responsible investment sector by awarding a recognisable label to investment funds. The main objective of LuxFLAG's ESG label is to reassure investors that their assets are invested by an investment fund integrating ESG considerations throughout its whole investment process.

In addition, the two fund managers in charge of the global real estate sub-funds since 2015 integrate significant environmental, social and governance considerations in their global investment process. This is implemented as well at the level of due diligence prior investment, at the investment selection and decision itself or at the ongoing management and monitoring process after investment. In practical terms this means that the given fund managers ensure that the invested underlying real estate funds have implemented the necessary procedures, systems and expertise to be able to integrate environmental considerations in their real estate investment decisions and real estate detention activities, that they do not engage in socially irresponsible activities and that their rules of governance comply with best practices. In addition to that, the two fund managers have an active voting rights execution policy in place and participate actively in a large number of initiatives, notably by being themselves a GRESB ("Global Real Estate Sustainability Benchmark") member. In this context, the two funds managers are also asking the invested underlying real estate funds to participate in the annual GRESB survey.

The GRESB organisation was launched in 2009 with the purpose to provide pension funds with more information on the "greenness" of their investments in real estate. Today, the GRESB survey is de facto used as standard by institutional investors to measure and benchmark the sustainable performance of their real estate portfolios. On annually basis, this survey collects and gathers building related information within seven different categories including more than 50 performance indicators including, among others, energy, greenhouse gas emissions, water or waste. Thus, the mentioned questionnaire provides critical data on ESG and sustainable development. In 2018, the overall scores assigned to the SICAV's two real estate sub-funds of 72% each allowed to beat the overall score assigned to the benchmark associated to the given asset class. 

FDC's revised investment strategy of 2017 intensifies and expands the consideration of such sustainable and socially responsible investment criteria. This means that for all future requests for proposal regarding actively managed mandates, tendering companies must provide evidence that a sustainable or socially responsible approach is implemented in their offered investment strategy and decision-making processes, this throughout a specific section in the tendering questionnaire with significant weighting. The type, extent and scope of such an approach are not predefined by the FDC and thus it is up to the mandated fund manager to decide which form of sustainable or socially responsible approach they wish to follow (positive or negative screening, thematic investments, engagement approach, etc.).

Thus, in the context of a request for proposal launched in 2017, fund managers Amundi AM, Allianz GI, AXA IM and HSBC have been selected to manage five sustainable sub-funds of the SICAV. These sub-funds hold since October 2018 also LuxFLAG's ESG label. In addition, fund manager Robeco was awarded in October 2018 a mandate to manage a sustainable equities sub-fund. The initial subscription in the given sub-fund of 750 million euros has been done in March 2019. Since October 2019, the given mandate is also certified with LuxFLAG's ESG label.

FDC's revised investment strategy of 2017 foresees the implementation of new bond and equity sub-funds dedicated to make investments creating a positive impact. More specifically, it is planned to launch a sub-fund exclusively investing in EUR denominated green bonds and a sub-fund only investing in equities from listed companies that intend to generate next to a financial return also a social or environmental impact. The investments of the given second sub-fund need to cover at least 5 of the 17 sustainable development goals of the Agenda 2030 for sustainable development of the United Nations. The request for proposal related to these new mandates has been launched on 10 April 2018 and in late October 2018, the mandate related to the green bonds sub-fund has been awarded to Allianz GI whereas the mandate related to the equities sub-fund has been entrusted to BNP Paribas. The initial subscriptions in the given sub-funds for a total amount of 300 million euros have been realised during the month of March and April 2019. 

As of 30 September 2019, the above mentioned labelled sub-funds, together with the sub-funds managed by CBRE, LaSalle and KBI, who recently decided to also integrate ESG considerations into the management of the portfolio entrusted to him and certified since October 2019 also with LuxFLAG's ESG label, as well as the sub-funds with positive impact, more than 7.4 billion euros representing nearly 75% of the overall actively managed assets of the SICAV are administered according to sustainable or socially responsible investment criteria.

The FDC, shareholder of the Société nationale des habitations à bon marché

To honour its social commitment in Luxembourg, the FDC is, apart from the Government, the largest shareholder of the Société nationale des habitations à bon marché (SNHBM). The SNHBM is a social property developer specialised in constructing single-family homes and apartment buildings via the acquisition of construction land rent through a long-term lease over a period of 99 years. Upon FDC's initiative and in order to ensure the continuity of the activities of the SNHBM, respectively even to expand its social property developer functions, the shareholders of the SNHBM decided in 2017 a capital increase as it is inconceivable to finance the acquisition of building land exclusively via bank loans over such a long period. FDC's share in the mentioned capital increase amounted to 2.25 million euros.

FDC's direct property assets

Since 2010, all new buildings and all refurbishments initiated by the FDC must be BREEAM ("Building Research Establishment Environmental Assessment Method") compliant and need to achieve at least an energy performance class B. The BREEAM certification is worldwide the most used method to measure and improve the environmental performance of buildings. Indeed, it evaluates the performance of buildings based on management system, energy, health, well-being, pollution, transport, land use, biodiversity, materials and water. Credits are awarded on each of these aspects based on the achieved performance. A weighting system allows an aggregation of the obtained credits and to have an overall score granted in the form of a certificate. In this way, FDC's buildings "IAK" and "Carrefour" are certified "BREEAM Excellent".

In addition, the electricity supply for all buildings directly held and managed by FDC is restricted to renewable energy.

Finally, in the agricultural and forestry sector, the FDC owns 691 hectares of forests. These forests are subject to the PEFC label. The "Pan European Forest Certification" label is a forest certification guaranteeing a sustainable, environmentally friendly, socially beneficial and economically viable forest management.

The consideration of environmental and sustainable criteria in terms of direct real estate management have also been set out in FDC's directive 2018.