Danish Pension Excludes 14 Countries for Human Rights Violations

Denmark’s MP Pension said it will exclude from investments 14 countries that it accuses of systematically violating human rights. The move includes divesting DK400 million ($61 million) worth of investments in companies that are controlled by those countries.

“With this approach, we get the financial industry’s most consistent criteria for accountability when it comes to investment in government bonds,” Anders Schelde, investment manager at MP Pension, said in a release. “It’s an area we’ve been working for a long time, but now the time has come to strengthen efforts to promote respect for human rights.”

The 14 countries the pension is excluding from investment are Bahrain, Benin, Burundi, Comoros, Congo, Ethiopia, Iran, Mozambique, Papua New Guinea, Rwanda, Saudi Arabia, Swaziland, Tajikistan, and Thailand.

The pension has fairly strict guidelines on what it can invest in, and excludes companies and countries that have had problems with human rights, labor rights, environment and climate issues, corruption, and controversial weapons. Each quarter the fund scrutinizes the inventory of listed shares, corporate bonds, and government bonds for any possible breach of its policy of responsible investments.

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“As an active owner, our focus is on targeted analysis and dialogue with improvement for purposes, rather than exclusion,” said the company. “If a company violates our policy of responsible investment, we try to influence companies in a positive direction by entering into dialogue and voting at the company’s general meetings.”

The fund added that if its efforts don’t help bring about change from a company, then it will stop the investment and exclude it from its portfolio.

“It’s really not an easy task, but we try to solve it best by being very methodical and basing our decisions on a broad set of information,” said Schelde. “We also place a lot of emphasis on the trend. We would like to support a country that is on way in a positive direction, but instead, we move faster if the level is low and the trend is pointing downwards.”

However, the fund said there are still more countries with human rights issues that it has to stay invested in because of its fiduciary responsibility to its 130,000 members. This includes countries such as China and Russia, which the fund said are difficult to divest from while still maintaining good portfolio management.

“We must accept that large issuers like China and Russia also find space in the portfolio,” said Schelde. “Therefore, we can not invest 100% in line with our accountability standards when it comes to government bonds, because we also need to consider the return. But what we can do is challenge ourselves to invest as responsible as possible—and be open about our dilemmas.”

A report commissioned by the state of Pennsylvania has identified potential cost savings of nearly $10 billion over the next 30 years for the state’s two largest retirement systems.

The Public Pension Management and Asset Investment Review Commission (PPMAIRC) was created in 2017 by state law to conduct a comprehensive review of the investment management of the Public School Employees’ Retirement System (PSERS) and State Employees’ Retirement System (SERS).. As part of its evaluation, the commission was tasked with finding $3 billion over a 30-year period—instead it found savings of close to $10 billion.

After a seven-month examination of Pennsylvania’s two retirement systems, the report found an estimated potential annual savings of $97.3 million to $116.8 million. Expressed as actuarial savings over 30 years at the 7.25% assumed rate of return, the report said estimated savings would be between $8.2 billion and $9.8 billion.

In compiling the report, the commission conducted three public hearings and received the testimony of academic experts, institutional investment professionals, state pension fund managers, and representatives from PSERS and SERS.

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The report found that both funds have underperformed relative to peers and have “consistently underperformed simple multi-asset portfolios” on a risk-adjusted basis. While costs have decreased by 50% over a 10-year period at SERS and are now approaching peer group averages, both funds have higher-than-average expenses.

The commission strongly recommended that the state maintain full payment of the annual actuarially determined contribution amount necessary to fund each pension plan “as doing so is fundamental and required to ensure the future financial viability of both retirement systems.”

It said that without full annual funding, none of the commissions other recommendations would be enough to ensure the availability of retirement benefits for future generations of public servants. The other recommendations include:

Establishing a consolidated central pension investment office that would be exclusively responsible for all investment functions on behalf of and as directed by each retirement system.
Enacting legislation mandating annual stress testing of each retirement system in a manner that is aligned with the recommendations of the Society of Actuaries Blue Ribbon Panel, and publicly reporting the findings of the tests.
Establishing policies at both system boards that favor and encourage open public reporting best practices, including, public reporting of an access to all investment costs and expenses at fund and manager level, full disclosure of all costs of private market investments, quarterly investment performance by asset class investment manager expense terms, and materials submitted to board trustees during open meetings.
Enacting legislation mandating, as well as the repeal of existing laws that “frustrate, increased public reporting” of all investment expenses, total fund, and asset class investment.
Moving to fully index all public market investments in both equities and fixed income at both retirement systems.

“The General Assembly has approved real and meaningful pension reform, but we need to do more,” State Rep. Michael Tobash, chair of PPMAIRC, said in a statement. “If these recommendations to the two public pensions systems are enacted, we will save taxpayers billions of dollars, reduce unnecessary risks and costs without compromising performance, and most importantly, keep our promise to existing retirees and system members.”

Tags: Pennsylvania Public School Employees Retirement System (PSERS), Pension, PSERS, Public Pension Management and Asset Investment Review Commission