A story of how to do good ánd do well
In January 2018, the Dutch pension fund ABP decided to start excluding all companies involved in the production of nuclear weapons. It recently published research showing this decision has meant an improved return-risk profile for ABPs investment portfolio.
ABP was by no means a frontrunner in making this decision: by then dozens of other pension funds from the Netherlands and globally had already excluded nuclear weapons companies. But the decision by ABP was still highly significant, for a number of reasons. First, it is among the 5 largest pension funds in the world. It has EUR 454,8 billion in assets under management, and is responsible for the pension savings of almost 3 million Dutch civil servants.
Second, the decision to divest was heavily informed by the adoption of the Treaty on the Prohibition of Nuclear Weapons in July 2017. ABP uses a list of 4 criteria to decide on the exclusion of companies involved in a specific product: (a) the product is by its nature harmful to humans (b) ABP cannot change that through shareholder engagement (c) there would be no negative consequences if the product no longer existed and (d) there is an international treaty that aims to eradicate the product. The adoption of the TPNW meant all of these criteria were met for nuclear weapons.
Early 2020, ABP introduced a new sustainability policy framework. It also used this opportunity to evaluate the impact of its previous policy framework and to commission scientific research to investigate the relationship between responsible investment and financial performance in general. A team of scientists performed a meta-analysis of over 3000 scientific publications on the issue and concluded that sustainable and responsible investment has a neutral or positive effect on the return-risk profile of an investment portfolio.
The impact of the different sustainability tools that were part of the previous policy framework was also investigated. This showed that the exclusion of companies involved in nuclear weapons and tobacco had a positive effect on the return-risk profile of ABPs portfolio.
Of course there are a number of caveats to be made with this conclusion, including the relatively short time frame of the analysis and the problems associated with extrapolating this finding to the future. However, the fact that it is in line with the outcome of the broader and much more long term research on the impact of sustainability policies, means it is a strong indication that excluding nuclear weapons producers is not bad for business, it might actually be a smart investment choice.