ABN AMRO's strategy is to integrate sustainability into day-to-day banking, an aim that sometimes gives rise to discussion. Not about printed account statements, which nobody expects to receive in this digital day and age. Sustainable investment, however, is a totally different issue.
Should we invest in shares that produce the highest returns, or in shares of sustainable companies?
Andius Teijgeler Director Communications and Sustainability
Sustainable investment - better returns?
ABN AMRO has offered sustainable investment services for many years. We have provided sustainable asset management services since 2005, we now offer sustainable investment funds and we also have a sustainability indicator for many equities.
But here’s a dilemma: should we invest in shares that produce the highest returns, or in shares of sustainable companies? And are the two mutually exclusive? Sustainable investment leads to better returns in the long run, but that’s not necessarily true in the short term. And who decides what ‘sustainable’ shares are? Should we make this decision for our customers, or should we let them decide?
Consequences for choice of fund houses
Under Dutch law, it is illegal to invest in companies that are involved in the production of cluster munitions. To comply with this law, customers have had to sell off certain investments, which they were willing to do once we’d explained the situation. We reimbursed them for the selling costs.
Investment funds are still allowed to invest in companies that are involved in the production of cluster weapons, though this is limited to 5% of the portfolio. We have explored whether this limit can be reduced to 0% for the funds we offer, but that wasn’t feasible. ABN AMRO has asked all fund houses to sign a document stating that they will not exceed this 5% limit. Many were willing to sign this statement; we met with the most resistance from US fund houses, who said that their primary responsibility is to provide returns with appropriate risk and that excluding investments is in conflict with this duty.
One of the fund houses suggested warning us if more than 4% of the portfolio consisted of investments in companies involved in cluster munitions. That way, we could take customers’ investments out of the portfolio in order to comply with the law. We discussed this proposal in our Investment Engagement Committee, but we rejected it because we would have to unexpectedly force our customers to sell off investments in certain funds after having put the very same fund on the recommendation list a week earlier. This conflicts with our aim to always put our customers’ interests first.
We have therefore decided not to offer any funds from this fund house and to close our existing positions. This was a good but painful decision: thousands of our customers are now required to sell off these funds. Needless to say, we will reimburse selling costs and buying costs for a replacement fund. We’re talking about hundreds of millions of euros in portfolio investments – and that affects a lot of customers. We are eager to hear their reactions.