pggm.nl Responsible Investment

Transcription

1 pggm.nl Responsible Investment Report 2013

2 Content Management statement 4 Foreword 5 Overview of responsible investment in Responsible investment activities 6 1. Frameworks for Responsible Investment Beliefs relating to responsible investment Developments in Implementation of responsible investment activities Outlook Investment processes Developments in Outlook Investing in solutions for sustainable development Developments in Outlook Voting Figures and developments in Outlook Engagement Engagement figures for Corporate Governance Social Environment Outlook 41 2 PGGM

3 6. Legal proceedings Developments in Outlook Exclusions Developments in Outlook 49 Outlook 50 Implementation of responsible investment activities 51 Use of responsible investment instruments 52 Appendix 1. Governance and accountablity 53 Appendix 2. Independent assurance report 56 Colophon 57 3 PGGM

4 Management statement As the management of PGGM Vermogensbeheer B.V., we provide an annual account of our Responsible Investment activities during the past year in our annual report. We have a responsible investment framework which takes our clients policies as its starting point. This responsible investment framework seeks commonality within the PGGM funds while providing scope to meet clients specific policy requirements through internal and external management. That means the activities we describe in this report are not always applicable to all clients. In compiling the 2013 PGGM Annual Responsible Investment Report we have adhered to the international reporting principles of the Global Reporting Initiative. We have assessed the 2013 Annual Responsible Investment Report and declare that, to the best of our knowledge and belief, the information contained therein presents a true and fair view of the reality. This 2013 Annual Responsible Investment Report has been assessed and provided with an independent assurance report by KPMG Sustainability, an independent external auditor. This assurance report is included as appendix 2 to this 2013 Annual Responsible Investment Report. Zeist, 31 March 2014 Management of PGGM Vermogensbeheer B.V. 4 PGGM

5 Foreword To our clients and stakeholders: PGGM Vermogensbeheer B.V. (hereinafter PGGM) is an asset manager whose clients comprise a number of pension funds. Each client has its own policy with particular emphases in the field of responsible investment. Last year we worked with our clients to draw up a new responsible investment framework, taking our clients policies as the starting point. This new framework seeks commonality within the PGGM funds while providing scope to meet clients specific policy requirements through internal and external management. During the past year a great deal of attention was devoted to advising clients on the continued shaping of their responsible investment policies and our Implementation Framework in order to be of service to our clients. This process, aimed at building a new framework with clients, gave rise to both tension and shared insights. To give participants a greater voice in the PGGM funds, we decided to hold participants meetings at least once a year from 2014 onwards. As an asset manager for pension funds, we support our clients in their objective of providing a stable, high-quality pension, now and in the future. Our clients attach great value to responsible investment. We are pleased to support our clients in this regard because we firmly believe that a sustainable world contributes to a valuable future for pension beneficiaries. Responsible investment is integrated in all our investment activities, from policy advice through to implementation. Together with our clients we aim to invest in solutions to create a better world. For example, we seek to contribute to a viable and resilient ecological system based on the preservation of natural capital. We work together with other parties to promote a circular economy. A circular economy is one in which all materials used are recycled or biodegraded. We also aim to contribute to a society in which economic development is not at the expense of vulnerable groups or future generations. We therefore maintain a dialogue with companies on employees rights, a company s impact on the local population and improving access to healthcare. Good corporate governance and the proper functioning of markets worldwide are important for PGGM. Seven years after the financial crisis erupted, the financial sector still has to contend with a lack of confidence. The problems of bank capitalisation, financial stability, lack of transparency and undesirable behaviour are still live issues. PGGM actively pursues dialogue with clients and institutional investors in the Netherlands and abroad with the aim of working together to build a sustainable financial system. There are continuing concerns about the vulnerability of the Dutch economy. This has an impact on our clients beneficiaries. Together with other institutional investors and pension funds, PGGM took part in government consultations on plans to deploy pension assets to support the Dutch economy, without making concessions in terms of pension ambitions. These consultations led to a joint statement of intent to establish the Netherlands Investment Institution (Nederlandse Investeringsinstelling - NII) and the National Mortgage Institution (Nationale Hypotheek Instelling - NHI). This will potentially increase the possibilities for providing scarce long-term financing. As in previous years, a great deal of energy has been devoted to ongoing compliance with new legislation and regulations, in particular the Alternative Investment Fund Managers Directive (AIFMD). This requires managers of an investment institution to apply for a licence and to register the funds they manage with the regulator. One of the services we offer our clients is the possibility of investing in the PGGM funds. We therefore applied for a licence on the basis of the AIMFD in mid This directive brings higher standards in terms of transparency, remuneration policy and risk management. We are delighted with the external recognition which we and our clients received last year for responsible investment. There is still a long way to go, however, and in this report we detail not only our past activities but also the issues and obstacles that lie ahead. In 2014 we will continue the activities and dialogue in relation to responsible investment and, together with our clients, seek to contribute to sustainable development. Eloy Lindeijer Chief Investment Management 5 PGGM

6 Overview of responsible investment in 2013 We support our institutional clients in providing a stable, high-quality pension for their beneficiaries, now and in the future. We are convinced that contributing to a sustainable world helps create a valuable future for our clients beneficiaries. Responsible investment is therefore an integral part of the investment approach of PGGM Vermogensbeheer B.V. (hereinafter: PGGM). Responsible investment means that we consciously take account of environmental, social and governance (ESG) factors in our investment activities. Through our activities in the field of responsible investment, we seek to contribute to responsible, stable and good investment results for clients. This objective is based on the following beliefs: Responsible investment pays off: We firmly believe that sustainability factors materially influence the risk-return profile of the investments and that this influence will steadily increase in the future. No good and stable return in the long term without sustainable development: We firmly believe that sustainable development is necessary in order to generate stable, and good investment returns for our clients in the long term. The driving force of capital: We firmly believe that in addition to providing a stable, good pension for our clients beneficiaries, we also have to consider how we can make a positive contribution to sustainable development through our investment decisions.this can be achieved, for example, by investing in solutions which contribute to sustainable development, such as investments in renewable energy. Responsible investment activities PGGM is an asset manager whose clients comprise a number of pension funds. Each client has its own policy with particular emphases in the field of responsible investment. We have a responsible investment framework which takes our clients policies as its starting point. This framework seeks commonality within the PGGM funds while providing scope to meet clients specific policy requirements through internal and external management. We seek to provide customised solutions for our clients, some of whom also make use of the possibility of managing mandates externally. Hence, in responsible investment too, it is possible to depart from the funds managed by PGGM and segregated mandates managed internally by PGGM. This also means the activities we undertake in the field of responsible investment do not always apply to all clients. References to policy frameworks in this report refer to the framework of PGGM and those of one or more of our clients. References to the PGGM policy framework, PGGM Beliefs and Principles or the PGGM Implementation Framework refer to the specific PGGM documents on responsible investment. Frameworks for responsible investment We further developed the responsible investment framework in This new framework shows the developments in our insight and innovations in the responsible investment activities. The new framework is based expressly on our clients policies. In line with the changes in the new framework, we initiated new projects in We are looking particularly at our own conduct, for example at our role in the financial sector. We are doing this internally, but also in dialogue with a group of Dutch chief investment officers. Our aim is to play a part in preventing future abuse in the financial sector and to 6 PGGM

7 win back the trust of society. We have also become a member of Circle Economy. This platform encourages a circular economy in which all materials used to make a product are recycled or biodegraded. Finally, PGGM took part in government consultations with institutional investors and pension funds, leading to a joint statement of intent to establish the Netherlands Investment Institution (Nederlandse Investeringsinstelling - NII) and the National Mortgage Institution (Nationale Hypotheek Instelling - NHI). The aim of these institutions is to match supply and demand for long-term finance and achieve more stable mortgage issuance, thereby contributing to the Dutch economy. After all, our clients beneficiaries benefit from a strong and sustainable economy. Investment processes Climate change, water scarcity and safety on the shop floor are examples of factors which can pose a risk to our clients investment returns. We see taking these factors into account in our investment decisions as a natural part of good risk management. This can lead to a positive contribution to the investment return, but also to an improvement in the sustainability performances of the investments. In 2013 we implemented the ESG index for the first time, applying ESG to the passively managed equity portfolio (beta equities). The ESG index consists of a selection of companies drawn from the FTSE All-World Index on the basis of their ESG performances. The ESG model gives us a better idea of what we are investing in on behalf of our clients in the entire universe within the FTSE All-World Index. This is also important in the light of the revised Guidelines for Multinational Enterprises of the Organisation for Economic Co-operation and Development (OECD). Investors are expected to engage with companies in their portfolio which breach the relevant OECD guidelines, to use their influence to change undesirable conduct and, if unsuccessful, to disinvest from the companies concerned. We use such a process to survey our portfolio and, by means of engagement, to encourage companies to comply with the OECD guidelines. But these revised guidelines raise questions about the extent of our responsibilities. We are in discussion with OECD representatives on the issues and their practical consequences. Investing in solutions for sustainable development We invest on behalf of our clients in solutions for sustainable development. These are clearly defined investments which not only contribute to financial return, but are also intended to generate social added value. Our clients thus help contribute to the resolution of social problems around the world. Examples are investments in clean technology and sustainable energy and investments which help combat poverty. Although there is a growing demand for this type of investment, it is not easy to find investments which meet the requirements. An example of a new investment which did meet the requirements in 2013 is the socially responsible deposit account from Rabobank. The money in this account is linked to the sums Rabobank has outstanding in sustainable finance. As well as investing in solutions, we also like to measure the social impact of these investments. Using an internally developed approach, we continued monitoring the effect of investments in solutions in Such measurement will enable us to monitor the impact over the years ahead and gather evidence that the investments also genuinely contribute to sustainable development. Voting Voting is one of the most important rights a shareholder has. We therefore vote on the basis of our own judgement at shareholder meetings. In this way we contribute to good corporate governance on behalf of our clients. We also devote particular attention to resolutions in the environmental and social fields. In 2013 we submitted two shareholder resolutions to the German real-estate company GSW, when it emerged that the new CEO had not been appointed in accordance with best practice and the company was not prepared to engage in a constructive dialogue on the matter. The resolutions called on the chairman of the executive board to step down and voiced no confidence in the new CEO. The majority of shareholders voted in favour of both resolutions. To the best of our knowledge, such resolutions have never previously secured a large majority in Germany. At the end of the summer of 2013 both the CEO and the chairman resigned. A significant event in the Netherlands was the KPN takeover battle. America Movil announced its intention to launch an intended offer for KPN, which would then enable it to dominate the shareholder meeting (AGM). We considered this to be an undesirable situation; due to the low price we did not want to tender our shares, but at the same time we want to stay on as a minority shareholder while America Movil fully controls decision making process in the AGM. We joined with other investors in calling for countermeasures to be taken. The KPN Foundation then intervened to protect, among others, the interests of KPN and its shareholders. América Móvil then announced that it withdraws from launching the Intended Offer. Engagement As an investor we believe it is our responsibility to talk to companies and market participants about their policies and activities. In this way we seek to bring about improvements in the environmental, social and corporate governance (ESG) fields on behalf of our clients, in the belief that this ultimately contributes to a better social and/or financial return on our investments. We call this engagement. As shareholders, clients and business partners of banks, institutional investors have a great 7 PGGM

8 interest in the stability of the financial sector and can help rebuild trust in the financial system. We therefore have an engagement programme for the financial sector. Our focus is on changing the risk culture and ethics, remuneration policy, corporate governance, ESG integration and transparency. As a member of the EDTF (Enhanced Disclosure Task Force), PGGM has developed a range of initiatives aimed at improving transparency in banks and achieving more uniform reporting on bank risk management in annual reports. We also look at executive pay in the banking sector. Bank of New York Mellon, for example, now bases its long-term variable pay 100% on performance criteria and has limited the use of the company aircraft to business trips. Good corporate governance in companies enables us additionally to promote social and environmental objectives. In the dialogue with the mining company Barrick Gold it emerged that, despite a best practice policy, serious environmental and human rights incidents were occurring regularly in the company, probably due to inadequate supervision. We therefore called for the executive board members who had been in office for a considerable time to be replaced by new members with relevant experience, including in the environmental and social field, to tackle the existing problems. Our endeavours were successful; the board members are being replaced. Since Barrick Gold is an important player in its sector, we are thus also sending a signal to other companies in the sector. One of the responsible investment objectives is to bring about a viable and resilient ecological system based on the preservation of natural capital. Palm oil production is a major and visible cause of deforestation and loss of biodiversity. Wilmar is one of the largest companies in the palm oil sector and has featured in the media following allegations of deforestation and land grabs. We called on Wilmar to make improvements. The company has drawn up a new policy and given a commitment with regard to its own plantations, joint ventures and suppliers: no deforestation, no use of peat soils (due to the high associated greenhouse gas emissions) and no exploitation of employees and the local population. As a major company in the sector, Wilmar is thereby setting a standard for competitors. Legal proceedings PGGM conducts legal proceedings on behalf of its clients where necessary to recover investment losses and enforce good corporate conduct. We do that as a shareholder in listed companies, both in the Netherlands and abroad. In 2013 we were appointed as lead plaintiff in the case against Hewlett Packard (HP) in the United States. HP made misleading announcements about the acquisition and integration of Autonomy. HP had filed an application to suspend the case. The court rejected HP s application and the proceedings are being continued in PGGM

9 Exclusions We wish to prevent investments managed by PGGM from contributing financially to practices that are incompatible with our identity and that of our clients and their beneficiaries. When taking decisions on exclusions, PGGM goes through an extensive process that takes account of clients considerations, usually through an opinion issued by the Advisory Board Responsible Investment. Clients can keep track of PGGM s funds policy and the resulting exclusions. They can also opt to give PGGM an assignment or mandate to implement their own exclusions policy. Clients can also decide independently to exclude certain entities. In the case of individual mandates, PGGM will implement such decisions on behalf of the client as soon as is reasonably possible. Where such exclusions apply to the PGGM funds, PGGM will first seek to achieve a common position among the participants in the PGGM funds through the participants meeting and take this into account in any implementation when deciding whether to implement it in the PGGM fund. Tobacco producers were placed on the exclusions list in For a long time we tried to encourage tobacco producers to maintain better working conditions in the industry. We also spoke out against marketing practices and advertising by tobacco producers targeted at underage people. The dialogue did not have the desired result. Combined with the fact that tobacco was no longer seen as a suitable product by a large proportion of the rank and file among PGGM s pension fund clients, this prompted several of our clients to add tobacco producers to the exclusions list. responsible investor we find it important that investee companies comply with international agreements. Finally, the American supermarket group Walmart was added to the exclusions list in Walmart s policy in the United States limits the right of employees to organise themselves in trade unions. This contravenes not only international labour guidelines (ILO) but also the codes which Walmart has drawn up for its own suppliers. Moreover, the company s board is not prepared to engage in constructive dialogue with shareholders on this matter. This decision followed a lengthy period in which we raised this matter frequently with the company. In 2013 we concluded the dialogue which we had been conducting for some years with a number of Israeli banks. The banks are involved in financing the expansion of settlements in the Palestinian territories. There were concerns on this matter, because the settlements are seen as illegal under international law and constitute a major obstacle to a peaceful (two-state) solution to the Israeli-Palestinian conflict. This interpretation of the application of international law is disputed in Israel. These discussions revealed that the banks have little or no scope to end their involvement in financing settlements in the occupied Palestinian territories. Since there is no prospect of change in the near future, we are currently no longer investing in the banks in question through the PGGM-managed funds. There were suggestions in the media that this was a politically inspired decision. That is not the case and we are not boycotting Israel. As at 31 December 2013, we had investments in almost 100 Israeli companies. We regret that, partly as a result of the media representation, disquiet also arose among some of our clients beneficiaries and that beneficiaries may thus have been offended. The exclusion accords with the responsible investment policy frameworks and shows that as a 9 PGGM

10 1. Frameworks for Responsible Investment 10 PGGM

11 We support our institutional clients in fulfilling their task of providing a stable, high-quality pension for their beneficiaries, now and in the future. We firmly believe that contributing to a sustainable world is part of building a valuable future for those beneficiaries. Responsible investment has therefore been integrated into all the investment activities of PGGM Vermogensbeheer B.V. (hereinafter: PGGM). Responsible investment means that we consciously take account of environmental, social and governance (ESG) factors in our investment activities. We continued to develop the responsible investment framework in This new framework reflects the developments in our insight and innovations in responsible investment activities. It also fits in with the changing context in which we, as an asset manager, implement the policies of the various institutional clients. The new framework is based expressly on our clients policies. With our clients we sought to identify the beliefs we share with them with regard to responsible investment. We then explicitly defined the principles governing our fulfilment of responsible investment. These principles are consistent with our clients common interests while providing scope to fulfil individual policy requirements. In the PGGM Beliefs and Principles for responsible investment, we set out our ambition of making a positive contribution to sustainable global development through the investments on behalf of our clients. This document replaces the Responsible Investment Policy and also includes a minimum standard. This document has been supplemented with an Implementation Framework, which contains more detailed implementation guidelines for the various activities in the field of responsible investment. Our responsible investment activities do not always apply to all clients. 1.1 Responsible Investment Beliefs Responsible investment pays off: We firmly believe that sustainability factors materially influence the risk-return profile of the investments and that this influence will steadily increase in the future. No good and stable return in the long term without sustainable development: We firmly believe that sustainable development is necessary in order to generate stable, and good investment returns for our clients in the long term. The driving force of capital: We firmly believe that in addition to providing a stable, good pension for our clients beneficiaries, we also have to consider how we can make a positive contribution to sustainable development through our investment decisions.this can be achieved, for example, by investing in solutions which contribute to sustainable development, such as investments in renewable energy. In this chapter we describe the main elements of the resulting frameworks and explain a number of new developments. 11 PGGM

12 What are our focus areas in responsible investment? Through our investments or other responsible investment activities we seek to reduce the negative aspects of the footprint and make a positive contribution to sustainable global development on behalf of our clients. This is a development which meets the needs of current generations without compromising the needs of future generations. We believe that three important conditions must be in balance in order to bring about a more sustainable world. These are: A viable and resilient ecological system based on the preservation of natural capital A society in which economic development is not at the expense of vulnerable groups or future generations Good corporate governance and well functioning (financial) markets. In order to achieve this in a targeted way, we have specified a number of focus areas in consultation with our clients. These are subjects which our clients and their beneficiaries consider important and developments which materially affect the investments made on behalf of our clients. These are: Climate change and reduction of pollution and emissions Water scarcity Health(care) Food security A stable financial system which serves the real economy Good corporate governance Safeguarding human rights. 1.2 Developments in 2013 Our own behaviour Financial and economic crises have taken a heavy toll on investment portfolios, and on society s trust in the financial sector. That also affects us. Not only are we, just like our clients, players in this sector, but we also have a major involvement in the financial sector, both as a shareholder and as a client or business partner of major financial institutions. To win back society s trust and prevent further abuse, we believe the sector must be reformed. Together with our clients, who are situated at the beginning of the financial chain, we have a sense of responsibility for contributing to this. We critically assess our own behaviour and that of parties in the sector with which we co-operate or in which we invest. At the end of 2013 a Behaviour working group was established to undertake this work. Various subjects are due to be investigated by this working group in We are looking among other things at the role of benchmarks, socially acceptable pay structures and how we can foster more long-term thinking and action among the parties with which we co-operate. 12 PGGM

13 These subjects are also being addressed in a structural dialogue which we are conducting with a group of Dutch chief investment officers on a sustainable financial system and the necessary changes. This dialogue, initiated in part by PGGM, will also be continued in Investing in the Netherlands With regard to our own role in the financial sector, we do not only look at international markets; the consequences of the financial crisis are also evident in the Netherlands. On Prinsjesdag (Budget Day in the Netherlands) the government and institutional investors issued a joint statement of intent to establish the Netherlands Investment Institution (Nederlandse Investeringsinstelling - NII) and the National Mortgage Institution (Nationale Hypotheek Instelling - NHI). The statement of intent was co-signed by PGGM. The NII has the primary task of matching supply and demand for long-term finance and to increase the attractiveness of potential investments in the Netherlands. The establishment of the NHI follows previous exploratory work by the committee on Alternative Financing Arrangements for the Housing Market and aims to narrow the funding gap for Dutch banks, stabilise mortgage issuance and reduce mortgage interest rates. Under the leadership of the quartermaster appointed in November, PGGM was closely involved in designing both the NII and the NHI, on the basis of a conviction that pension funds and their cooperative pension fund service provider have a social responsibility. After all, pension fund beneficiaries benefit from a strong and sustainable economy. Additional investments in the Netherlands, provided they are carefully selected and structured, can contribute to this without having to make concessions in terms of financial objectives. NII and NHI can play an important role in this regard. The Netherlands faces major issues surrounding social investment. Tens of billions of euros will need to be spent in the years ahead to modernise infrastructure, make the housing stock and power generation sustainable and provide protection against the consequences of climate change. The implementation of the Energy Accord of the Social and Economic Council of the Netherlands itself will require an estimated investment of 13 billion to 18 billion up to Pension funds are ideally placed to finance such projects, which are very long-term and usually feature remuneration with an inflation component. Partner of the Circle Economy platform We see the transition to a circular economy as an important contribution to a more sustainable world. We have therefore become a member of the Circle Economy. This platform encourages a circular economy in which all materials used to make a product are recycled or biodegraded. In order to examine how this can be implemented through investments, we will work with Circle Economy to develop a method for assessing the circularity of companies. Such information can assist us in identifying suitable investments in solutions which contribute to a more circular economy. The current investments in clean technology are an example of this. 1.3 Implementation of responsible investment activities PGGM is an asset manager whose clients comprise a number of pension funds. Each client has its own policy with particular emphases in the field of responsible investment. We have a responsible investment framework which takes our clients policies as its starting point. This framework seeks commonality within the PGGM funds while providing scope to meet clients specific policy requirements through internal and external management. That means the activities we undertake in the field of responsible investment do not always apply to all clients. PGGM invests and advises its clients as follows: (1) PGGM manages various mutual funds in which multiple clients participate. (2) PGGM manages segregated mandates for individual clients. (3) PGGM advises clients on investments through external mandates or funds. The Beliefs and Principles for Responsible Investment apply to all of PGGM s investment and advisory activities which fall within these three categories. The Implementation Framework applies to the PGGM mutual funds, to segregated mandates managed internally by PGGM and to the activities of PGGM Treasury B.V. When taking decisions on and within the Implementation Framework, PGGM goes through an extensive process that takes account of clients considerations, usually through an opinion issued by the Advisory Board Responsible Investment. Clients can opt to apply the PGGM funds policy on responsible investment. Requests from clients to amend the responsible investment framework for the PGGM funds are submitted by PGGM to the participants meeting for its consideration. PGGM takes account of the outcome of the participants meeting with regard to such requests when deciding whether to apply this policy framework. Within their segregated mandates clients can also instruct PGGM to implement their own responsible investment policies or can opt to take their own decisions on questions concerning the implementation of responsible investment. In the case of segregated mandates, such instructions or decisions must be carried out to the extent that they are possible and appropriate. Clients report separately on their own decision-making processes. 13 PGGM

14 The assets which PGGM has under management and advice on behalf of its clients amount to 154 billion, including 141 billion within the (1) PGGM mutual funds and the (2) segregated mandates managed internally by PGGM (as at the end of 2013). This report covers only the responsible investment activities carried out by PGGM Vermogensbeheer in respect of this 141 billion (total of 1 and 2 in the illustration below). Responsible Investment Policies of Clients PGGM Beliefs and Principles PGGM Implementation Framework Responsible Investment (implementation and advice) Responsible investment advice PGGM funds 1 PGGM internally managed segregated mandates 2 Externally managed mandates & funds 3 Participants meeting Roles and responsibilities for responsible investment The responsibilities for responsible investment are clearly defined by the organisation. Three PGGM committees and the participants meeting play an important role: Investment Policy Committee: This committee takes decisions on the policy aspects of responsible investment, such as providing policy advice for clients or the PGGM Beliefs and Principles. Investment Committee: This committee takes decisions on individual investment proposals of a particular nature, on exclusions of individual companies and conducts annual reviews of the PGGM investment teams ESG processes. Advisory Board Responsible Investment: This advisory body consists of five independent external experts from whom PGGM Vermogensbeheer and its clients can obtain advice and with whom they can discuss issues relating to responsible investment. Participants meeting: The participants meeting gives the various clients participating in a particular PGGM fund the opportunity to discuss or take decisions on fund-specific subjects, including responsible investment, with the manager and the other participants. factors. The department also provides support for internal and external communication on responsible investment and advises clients on their policies in the field of responsible investment. Responsibility for integrating ESG factors in investment decisions lies with the various investment departments. 1.4 Outlook The Beliefs and Principles for responsible investment and the underlying implementation framework are being implemented in 2014, for example by applying greater focus in the engagement programme. A number of clients will continue to develop their responsible investment policies over the coming year, with PGGM playing an advisory role. In addition, the Responsible Investment (RI) department co-ordinates and oversees activities within the Responsible Investment Implementation Framework. It also conducts the engagement and voting activities and legal proceedings as a shareholder. RI also takes part in deal teams where there is a medium or high ESG risk and helps investment teams to develop tools to integrate ESG 14 PGGM

15 2. Investment processes 15 PGGM

16 Climate change, water scarcity and safety on the shop floor are examples of factors which can pose a risk to our clients investment returns. We see taking these factors into account in our investment decisions as a natural part of good risk management. This can lead to a positive contribution to the investment return, but also to an improvement in the sustainability performances of the investments. Taking account of the effect of ESG factors on the investment risk and return is a process we call ESG integration. We look, for example, at the effect of water scarcity on a beer brewer and the costs which a beer brewer has to incur to secure access to water because this can also have consequences for the investment. Specifically we define ESG integration as the structural and systematic incorporation of material ESG factors in existing investment processes. Material ESG factors are those which have such an impact on the underlying investment that it can reduce the risk or improve the return on the investment. 2.1 Developments in 2013 Status of ESG integration In 2009 we initiated a project to integrate ESG factors in investment decisions in a more structured way in order to manage the associated risks more effectively and exploit opportunities. The approach consists of three phases which take place in each investment category. The phases represent the degree of implementation of ESG factors in the investment decisions and the monitoring of existing investments. They do not show the extent to which exclusions or other restrictions to the investment universe are applied. Table 1.1 shows the status of each investment category. Monitoring of implementation We periodically engage in discussions with internal and external investors on the way in which they implement ESG factors in new and existing investments. The internal investment teams also monitor how external asset managers integrate ESG factors in their processes. The way in which this is done differs in each investment team, and this is a point we aim to improve in In 2012, we conducted a review of our own internal procedures, the outcome of which led to changes to the investment process in The Responsible Investment department s position in the procedures for various new investments was consequently strengthened. In the case of investments with high ESG risk, input from the RI department is required and RI takes part in the deal teams. We have also worked with other investors to develop general control measures for ESG implementation. An example is the ESG Disclosure Framework for Private Equity. This document sets out the objectives and basic questions which investors can ask during the due diligence and the monitoring phase of the private equity funds in which they invest or wish to invest. That makes the extent to which fund managers actually integrate ESG factors more transparent for investors. In 2014 we aim to work with other investors in order to define further details of the framework. A number of investment categories recorded progress compared to Responsible Equities, for example, established its process for integrating and monitoring ESG factors. Private Equity and Infrastructure also applied the integration of ESG factors in their investment process, as set out in their responsible investment implementation framework in ESG factors are now also incorporated as standard in company analyses in the Corporate Bonds segment. In addition, Treasury has introduced an ESG risk-rating system in which it can monitor counterparties and screen new parties for ESG risks. 16 PGGM

17 ESG integration phases Investment category* 1. Survey ESG framework 2. Implementation Integration in investment decision Monitoring and reporting tools 3. Internalisation Continuous improvement Equities Beta equities Responsible equities Private equity Real Estate Listed real estate Private real estate Fixed-income securities Corporate bonds Emerging markets credits Emerging markets debt High-yield corporate bonds Structured credit Rates & Inflation (including European government bonds) Cash Commodities Beta commodities Supplementary Infrastructure Real assets Insurance Hedge funds Trading & Execution Others Table 1.1 Legend Started Completed / Continuous (for phase 3) Not applicable Comments Beta equities: Investments are made on the basis of a share index or quantitative model. It is not possible to integrate ESG factors in individual investment decisions. Structured credit: The CSR policy of the counterparty, the bank, is taken into account, but it is not possible to take account of ESG factors in the credit risk. Rates & Inflation (including European government bonds): These portfolios comprise interest rate swaps and a limited range of European government bonds. Adding ESG factors to the investment processes yields no added value. Others: These include portfolios which are being run down. Process definitions ESG framework Integration in investment decision Monitoring and reporting tools Continuous improvement n/a In this phase an ESG framework is drawn up for each investment category. We examine and record which, and to what extent, environmental, social and corporate governance factors affect the financial performance of underlying investments. On the completion of the phase, it has been determined how financial ESG factors play a role in the investment selection. Elements of this are the development of policy or tools to assess external asset managers or incorporate ESG in valuation models. On the completion of the phase, processes have been established in which it is determined how ESG factors are regularly discussed with external managers, assessment criteria have been established for external managers, reporting requirements and KPIs have been established and/or the ESG performances of the underlying investments are monitored. ESG factors are a natural part of the overall investment process. This means among other things that ESG factors play a part in the normal routine of the investment process, are periodically evaluated and, if necessary, adjusted. The Investment Committee evaluates the ESG integration each year. If the inventory phase shows that ESG cannot be integrated in a financially material way because ESG factors have no material financial effect on the investments, as may be the case with derivatives, the subsequent phases do not take place.

18 Implementation & Measurement PREF PREF 2012 GRESB Global Average 2013 GRESB Global Average Figure 2.1 GRESB scores GRESB survey Green Walk Green Stars Green Starters Green Talk Management & Policy Another example is the Global Real Estate Sustainability Benchmark (GRESB). Every year we request the external real estate fund managers to complete an extensive GRESB questionnaire. This helps us to compare realestate funds in terms of ESG policy, management, implementation and ESG performance. In 2013 we received a completed survey for 93% of all investments in the Private Real Estate Fund. Figure 2.1 shows the accumulated scores of the Private Real Estate Funds (PREF) in 2012 and It shows that the PREF scores are better than the overall GRESB average. The PREF scores also improved in 2013 compared to In 2014, on the basis of our acquired historical knowledge, we will contact the lagging real-estate funds to discuss possible sustainability improvements. Research into ESG risks among investment categories In addition to the ongoing focus on integrating ESG factors within the various investment categories, we continued the project aimed at clarifying and comparing differences in ESG risk among the investment categories in In order to determine the ESG risk in each investment category, we identified the sector and country risks in the investment category concerned. As well as investigating the ESG risks of the sectors and countries, we will examine the control measures required to reduce these risks. An investment category in which there is extensive scope to reduce the ESG risks may have a high gross risk but may limit this risk to a large extent, leaving a low net risk. This project answers the question of whether all ESG risks can be mitigated in the current investment mandates and whether ESG opportunities are being exploited. This insight can be incorporated in future investment plans. In 2014 we will present our quantitative approach and the results achieved so far to a panel of experts in order to assess how we can continue this research. OECD & UN guiding principles, expectations for minority shareholders The revised Guidelines for Multinational Enterprises of the OECD (and the UN Guiding Principles on Business and Human Rights, to which the OECD guidelines refer) may have far-reaching implications for institutional investors who are minority shareholders. Investors are expected to engage with companies in their portfolio that breach the relevant OECD guidelines, to use their influence to change undesirable conduct and, if unsuccessful, to disinvest from the companies concerned. That is asking a lot of investors with large, widely diversified passive equity portfolios. Although we have a robust process for surveying such risks in the portfolio and encouraging companies to change by means of engagement, these expectations also give rise to issues such as the extent of our responsibilities. We are in discussion with OECD representatives on these issues and their practical consequences. 18 PGGM

19 We also conduct a review of our procedures and assess whether they comply with the OECD Guidelines for Multinational Enterprises. Application of ESG factors in index investments We have developed and implemented an ESG index based on the FTSE All-World Index in order to apply ESG factors in the passively managed equity portfolio (Beta Equities). The ESG equity index consists of a selection of companies in the FTSE All-World Index based on their ESG performances. This means we divest shareholdings in companies which score relatively poorly in their sector for environmental aspects, social policy and corporate governance. The ESG model gives us a better idea of what we can invest in on behalf of our clients within the entire FTSE All-World universe. It also sends an important signal to the market: investors take account of individual companies ESG performances in passive investment strategies. The ESG index helps with prioritising engagement with companies. For example, we now also focus on (previously unknown) laggards in terms of ESG. The information provided by the ESG model and the risk analysis also enables us to tackle companies on specific aspects in which they are underperforming: inadequate ESG policy, management and/or results. The initial analyses of the impact of the ESG Index in 2013 points to a slight improvement in the average ESG scores of the companies in the ESG index, which are higher than those in the FTSE All-World Index and, what is more, have risen compared to We implemented the ESG index for the first time in the first quarter of The ESG index is renewed annually. The 2014 ESG index was compiled in November Investing in food derivatives A great deal of attention was devoted again in 2013 to the debate on the possible effects that investment in food derivatives could have on real food prices. We organised a meeting jointly with a number of NGO s, which was addressed by various experts with different visions, including market participants (such as food manufacturers and investors), government authorities and scientists. The aim of this meeting was to gain greater insight into market mechanisms and thereby ascertain whether investors influenced real food prices in the derivatives market. of liquidity, efficient pricing) are outweighed by negative effects such as excessive volatility? Can such a point also be predicted and integrated in the investment policy? The problem of stranded assets The Unburnable Carbon report was published by the Carbon Tracker Initiative in 2013 and delivered an important message. If global warming is to be limited to 2 Celsius, it will not be possible to exploit proven reserves of fossil fuels. Companies are currently valued on the basis of the availability and expected saleability of these reserves. If companies are no longer able to exploit them, these companies valuations will be adjusted downwards. In recent years various experts have cited the risk of stranded assets investments which, due to physical limitations (such as water scarcity) or laws and regulations (due to climate or air pollution) could rapidly lose their value. Since we also have investments which could potentially be stranded assets, this is an important subject. In 2014 we are investigating the possible impact of stranded assets on the portfolio. 2.2 Outlook The aim is to have all investment categories in the continuous improvement phase in In most cases investment teams are already implementing ESG in investment decisions and it is a question of structurally recording and monitoring such implementation. After four years the existing phasing is no longer particularly meaningful. In the years ahead, rather than describing processes, we aim to present more results, for example the reduction in CO 2 emissions within an investment portfolio. The meeting produced a lively debate but no clear answer on the effect of investments in food derivatives on real food prices. It was therefore decided to conduct more detailed research in 2014 into the effect that different types of investors have on the market (for example the distinction between active and passive investors), also covering the size of financial operators in the food derivatives market. Is there a point at which the advantages of having investors in the market (provision 19 PGGM

20 ESG integration Results and targets for quantitative indicators (at year-end) 2012 outcome 2013 target* 2013 outcome 2014*** target* Completed in phase 1 Inventory (as % of total assets under management) (millions of euros) Started in phase 2 Implementation (as % of relevant investment categories)** Completed in phase 2 Implementation (as % of relevant investment categories)** 100% n/a 100% n/a 100% n/a 100% n/a n/a n/a 21% n/a * No targets are applicable for some of these components. These components have nevertheless been included in this table to show the outcomes of the various responsible investment activities. ** See table 1.1 for the investment categories in which phase 2 is relevant. *** We will no longer report on these quantitative indicators in 2014, because they are no longer relevant. 20 PGGM

21 3. Investing in solutions for sustainable development 21 PGGM

22 We invest in solutions for sustainable development on behalf of our clients. These are clearly defined investments which not only contribute to financial return, but are also intended to generate social added value. Our clients thereby contribute to the sustainable solution of social problems around the world. Examples are investments in clean technology, sustainable energy and investments which help combat poverty. 3.1 Developments in 2013 The Responsible Investment Implementation Framework was drawn up in The name targeted ESG investments was then changed to Investing in solutions for sustainable development. The term targeted ESG investment often led to confusion and to a belief that sustainability factors were only applied to these investments, whereas they are in fact applied to all investment activities. Investments in solutions amounted to approximately 4 billion in The target of 500 million of new investments in solutions was not attained in the year under review. We were unable to find sufficient new investments in solutions which met all our requirements in This sometimes happens because existing mandates do not yet offer scope for new types of sustainable investments or because the potential investments in the market are still too small. Investments in solutions still account for a limited proportion of the overall investment portfolio. We are working internally and with our clients in order to assess our own and external restrictions. We also became a member of the Circle Economy (see page 13), contributed to a World Economic Forum publication on promoting mainstream acceptance of impact investments and the PRI published a case study on how PGGM measures impact. The current overview of all investments in solutions, including new investments, can be found in table 3.1. For each of the new investments there was a prior determination as to whether they fulfilled the requirements of the investment in solutions label. Green deposits and bonds New possibilities for larger-scale sustainability investments are becoming available in the money markets. Following discussions with Rabobank, for example, we placed money in a Rabo socially responsible deposit in This deposit is linked to facilities which Rabobank has granted for sustainable energy, the provision of social services, sustainable real estate and loans to agricultural and other businesses with one or more sustainability labels. Another emerging instrument is investment in green corporate bonds. The French energy company EDF, for example, launched its first green bond. We purchased this bond, the money raised from which can only be used to finance new projects for clean energy, principally in Europe and North America. The selected projects must fulfil criteria relating to environmental and social effects. Institutions such as the World Bank and the European Investment Bank are also currently issuing green bonds. We are examining ways of purchasing green bonds of these supranationals. Measuring social impact Social impact is rarely measured in the investment world at present, and not at all for investments made in multinational companies. Such measurement is important in order to be able to focus actively on social added value, to communicate clearly with stakeholders about these investments and to work with fund managers to find possible ways of further increasing the effect of their investments on sustainable development. Since the measurement of such factors in investments is still in its infancy, we have developed our own approach to track the social effect of an investment in solutions. Measurement enables us to monitor the impact over several years and gather evidence that the investments are genuinely sustainable. In that way we, and our clients, can be certain that these investments also fulfil the sustainability objective. After a pilot phase in 2011 and 2012, in which we devised and set up the measurement process, we have now carried out the baseline measurement and have begun periodic measurements for a large proportion of 22 PGGM

23 the investments in solutions in the real assets and infrastructure investment categories, the responsible equity portfolio and the microfinance portfolios. As a result, we can now measure the added social value of part of our investments. We have created a template to monitor the social impact of the investments in solutions each year. For each investment in solutions we finally draw up our own fact sheet, which includes: 1. The challenges: these are the social themes to which the investment contributes. 2. The solutions: the way in which the investment contributes to these themes. 3. The indicators: a quantitative substantiation of the contribution based on indicators. 4. The objectives: any specific long-term objectives pursued by the respective company or project. 5. The broader impact: any positive impact which the company or project has on the sector, region or value chain. 6. The additional positive impact: any positive impact which is not being specifically pursued. 3.2 Outlook In 2014 we will also measure the impact of new investments in solutions and of existing investments in solutions whose impact has yet to be measured. This will pose a particular challenge in the case of private equity investments, because these are based on different types of underlying investments. In the case of investments in which the impact is being measured for the second or third time, we will determine what insights they provide and how we can use such insights. The aim in 2014 is also to find new investments in solutions. Various investment teams are conducting research to that end. Complexity in green investments Investments in solutions can be complex. For example, the Mexican Mareña Renovables wind farm in which we invested has not yet been built, whereas it was due to start supplying green electricity last autumn, including to Femsa, a Mexican listed company and subsidiary of Heineken. It was to be the largest wind farm in Latin America, contributing to Mexico s clean energy targets. However, the project encountered social and political resistance. Building work has consequently been postponed for several months, because access to the construction site is being blocked and employees are being threatened by opponents. It is not clear whether the project will be built at the initially planned site near San Dionisio del Mar. In consultation with the federal and local authorities, the project team has worked hard over the past months to develop an alternative site. All stakeholders are closely involved in this process. The feasibility of the alternative site should be clearer by mid PGGM

24 Table 3.1 Overview of investments in solutions Mandate or investment portfolio (* New in 2013) Investment category Description Hg Renewable Power Fund Hg Renewable Power Fund The fund invests in sustainable energy projects and companies in Europe. Ampere Fund Infrastructure The fund invests in sustainable energy projects in Europe. Glenmont Clean Energy Fund I and II* Infrastructure These funds invest in sustainable energy projects in Europe. Dong Energy/Walney Infrastructure This investment concerns an offshore wind farm in the Irish Sea. Mareña Renovables Infrastructure This investment concerns an onshore wind farm in Mexico. Shenyang Shengyuan Water Company Ltd* Infrastructure This investment concerns a wastewater treatment plant and the supply of drinking water in China. Warmtenetwerk Essent* Infrastructure This concerns an investment in a heat grid in the Netherlands and three cogeneration plants connected to heat networks in Helmond, Eindhoven and Enschede. GMEF Microfinance The fund invests through funds in the equity of local banks - microfinance institutions (MFIs) - in emerging markets. SIMF I & II Microfinance The fund invests in the equity and debt capital of local banks - microfinance institutions (MFIs) - in emerging markets. Albright Capital Management Private Equity ACM invests in (public and private) equities, bonds, loans, currencies and currency derivatives, interest rate swaps and credit derivatives in emerging markets. The fund uses political analyses and local expertise of the Albright Stonebridge Group. Alpinvest Clean Tech PE Private Equity AlpInvest invests worldwide in private equity funds which focus particularly on activities and technologies which improve the sustainable and efficient use of natural resources and reduce the ecological impact. IFC African, Latin American and Caribbean Fund Private Equity The fund co-invests with IFC in a range of sectors in Sub-Saharan Africa, Latin America and the Caribbean. Black River Food Fund Private Equity The fund invests in private capital in the food sector, principally in Asia. Black River selects companies in the following sectors: i) food production (such as milk, chicken, fish), ii) food processing (e.g. baby milk powder), iii) the logistics sector, particularly cold logistics such as the transportation of chilled and frozen products. Tsing Capital Private Equity The fund focuses on cleantech and environmental investments in China. VenturEast Life Fund III LLC Private Equity VenturEast invests in small and medium-sized companies in the Indian Life Sciences sector. It offers these companies growth capital and knowledge to stimulate their continued development. Climate Change Capital Real Assets The strategy is to earn carbon credits by investing in clean technology in developing countries and to sell these carbon credits forward on CO 2 exchanges. GMO / Renewable Resources Real Assets GMO invests in forestry worldwide by directly or indirectly purchasing land with forestry resources or land on which trees can subsequently be planted. The main fundamental source of return is the growth of trees and the sale of wood. Conservation Forestry Fund II-B Real Assets Conservation Forestry invests in forestry in the United States. In this investment institutional funds are combined with funds from nature conservation organisations. The main fundamental source of return is the growth of trees and the sale of wood. RaboFarm Real Assets The fund focuses on the purchase of agricultural land in Eastern Europe. The land is leased to operational partners who produce for worldwide markets. BlackRiver Real Assets The fund invests worldwide in agricultural land and operational agriculture activities. * New in PGGM

25 Adecoagro Real Assets Adecoagro operates in the production of food and renewable energy in South America. In Argentina, Brazil and Uruguay, the main activities are the production of grain, rice, oilseeds, dairy products, sugar, ethanol, coffee and cotton. NCH Real Assets The fund focuses on the purchasing and/or leasing and subsequent exploitation of agricultural land particularly in Ukraine and Russia. The consolidation of small plots of land and the use of modern agricultural techniques allow relatively cheap production for worldwide markets. Triodos Strategic Relations Triodos Bank is one of the most sustainable banks in the world. Its mission is to make money work for positive social, ecological and cultural changes. REP REP Investments are made under this mandate in stable, profitable, listed companies which are strongly positioned in terms of ESG (Environment, Social & Governance) factors. The investment universe comprises European countries and North America. EDF Green Bond* Investment Grade credits EDF invests the money raised exclusively in future sustainable energy projects, principally in Europe and North America. Rabobank green deposit* Treasury The money raised is linked to sustainable finance facilities granted by Rabobank. Investments in solutions Outcome s and targets of quantitative indicators (at year-end) 2012 outcome 2013 target 2013 target 2014 target Outcome s and targets of quantitative indicators (at year-end) New investments in solutions / commitments ( million) 4,219 n/a 4,121* n/a** n/a 500m new 331m new n/a** * PGGM calculates the investments in solutions on the basis of market value and commitments. Some investments have already been running for several years and the commitment period has elapsed. For these investments we therefore now use the market value, whereas for newer investments we report the total commitment as we previously did for all investments. This explains why the total volume of investments in solutions has declined even though new investments have been added. ** For 2014 we are currently still in discussions with our clients concerning possible targets. 25 PGGM

26 4. Voting 26 PGGM

27 Voting is one of the most important rights a shareholder has. We therefore vote on the basis of our own judgement at shareholder meetings. In this way we contribute to good corporate governance on behalf of our clients. We also devote particular attention to resolutions in environmental and social areas. We firmly believe that co-determination, in both the short and long term, contributes to the creation of shareholder value. High attendance at shareholder meetings also promotes stability in decision-making, ensures broad support for resolutions and prevents small groups of shareholders from taking control of the meeting. Exercising voting rights is no longer without obligations, particularly in the Dutch context. The Dutch Corporate Governance Code, for example, states that institutional investors must publish their voting policy and report on their voting activity. We publish voting figures every quarter and have a voting website that clarifies our voting. You can read more about our voting in 2013 in this chapter. 4.1 Figures and developments in 2013 In 2013 we voted at 3,155 shareholder meetings on a total of 33,121 agenda items. The tables below provide more information on how we voted, i.e. for, against or abstention, with examples. It is important to bear in mind that on average we hold only 0.2% of a company s issued shares in our portfolio. With such percentages we can rarely determine the outcome of the vote. Voting policy We have tailor-made voting guidelines, the PGGM Investments Global Voting Guidelines, which are updated annually. As far as possible these specify how we will vote on a large number of subjects that are liable to arise on the agendas of shareholder meetings. The vote we actually cast on resolutions at shareholder meetings and the grounds on which we vote against the management on a particular agenda item are published on our website. Our objective is to vote on all shares of all companies in the portfolio. We have outsourced part of the voting to the proxy service provider ISS. But we always make our own assessments. The votes which ISS casts on our behalf are based on our policy and therefore regularly differ from the standard advice issued by ISS. In addition to ISS, we obtain voting advice from another voting advisor, Glass Lewis. Voting at all meetings is not always possible. Voting in blocking markets is excessively complex for investors. Finally, errors may occur in the voting chain, making it impossible to cast votes. We have a Voting Focus List comprising companies with the Dutch market listing or background, companies in which we hold relatively large interests (> 3%), companies in which we have a relatively large holding in the portfolio (top 10 holdings), companies in the fundamentally managed portfolios and companies on which we focus particularly due to ongoing engagement activities. 27 PGGM

28 Management resolutions Resolution Number of resolutions on this subject (% of total) Example Result of vote on agenda item Anti-takeover-related 293 (1%) We voted AGAINST a number of resolutions at meetings of the Belgian supermarket chain Colruyt which could block a takeover without shareholders being consulted. FOR Director-related 18,473 (58%) At the Swedish clothing chain Hennes & Mauritz, all candidates were proposed for reappointment in a single agenda item. Because two of the candidates were not independent, which would result in an insufficiently independent audit committee, we voted AGAINST all reappointments. FOR Capitalisation 2,554 (8%) At the shareholder meeting of the Dutch company DSM, we voted FOR an authorisation to issue shares because it was within our 20% limit (10% for normal purposes and 10% for acquisitions). Remuneration 2,634 (8%) We voted FOR the pay resolution at the US bank BNY Mellon because, partly after discussions with PGGM, it made pay 100% performance-based. Mergers and acquisitions 1,337 (4%) We voted AGAINST the acquisition of Douwe Egberts, partly because of the way in which the acquisition took place (threeway merger), with minority shareholders being sidelined. Others 6,879 (21%) The Finnish paper producer Upm-Kymmene sought consent to donate up to 500,000 to a good cause of its choice. Given the modest size and the good intentions, we voted FOR the resolution. FOR FOR FOR FOR Total 32, PGGM

29 Shareholder resolutions Resolution Number of resolutions on this subject (% of total) Example Result of vote on agenda item Remuneration 126 (13%) At McKesson, an American company focused on healthcare, we voted FOR a shareholder resolution calling for a tightening up of clawback arrangements (enabling bonuses to be reclaimed if they were found retrospectively to have been granted on the basis of incorrect information). The company was requested to tighten up the implementation conditions and to report on any clawbacks that had taken place. Corporate governance 43 (5%) At the shareholder meeting of the Swedish investor Kinnevik, we voted AGAINST a shareholder resolution calling for the company to be split up. FOR AGAINST Director-related 445 (47%) Nabors Industries, a Bermuda-registered US supplier to the oil sector, faced a shareholder resolution calling for 'proxy access' (the possibility for shareholders to nominate candidates for the board). Many shareholders, including PGGM, supported this resolution. AGAINST Health and environment 89 (9%) One of the shareholder resolutions at the McDonald's shareholder meeting called on the company to report on its initiatives to promote healthy nutrition and combat obesity among children. We voted FOR this resolution. AGAINST Social conditions 23 (2%) At the US company Family Dollar Stores we supported a shareholder resolution calling for a code of conduct to be drawn up in accordance with the standards of the ILO (International Labor Organization). AGAINST Others 225 (24%) The Accenture consulting firm, which has its registered office in Ireland, had a shareholder resolution on its agenda calling for public reporting of political donations made by the company. We believe companies should be transparent on this matter and therefore voted FOR the resolution. AGAINST Total PGGM

30 Breakdown of voting instructions in % 19% For Against Abstention 79% Breakdown of shareholder meetings by region in % 19% 18% Netherlands Europe (excl. Netherlands) North America 21% Asia Rest of the world 41% Breakdown of voting behaviour by agenda items in % Votes on agenda items in line with management recommendation Votes on agenda items management recommendation 78% 30 PGGM

31 The above tables show that we voted in favour of 79% of the resolutions. However, this figure gives no indication of the intention behind our voting instructions. For example, a vote in favour may also concern a shareholder resolution. The charts explaining our voting behaviour show whether we voted in line with the management recommendation. On average we voted against the management recommendation on 22% of resolutions, and on those items we stated our disagreement with the management. These percentages show that we do not automatically follow the recommendations of the companies, but make our own assessment. A total of 85 meetings took place in blocking markets in In accordance with our policy we did not vote at these meetings. We refrained from voting at four meetings due to the absence of ballots, incorrectly lent positions or other reasons. These cases thus involved deficiencies which we endeavour to minimise by monitoring the process. In 2013 we voted at 99.9% of all annual and extraordinary general meetings of shareholders. The target of voting at more than 98% of meetings was therefore attained. We voted at all meetings of companies on the Voting Focus List, which comprised 81 companies at the end of Attendance at meetings In 2013 we personally attended the shareholder meetings of four companies in the Netherlands and two meetings of trust offices. The Netherlands is the home market for us and our clients, so we devoted relatively more attention to Dutch companies. We opt for personal representation if there are agenda items on which we wish to explain our position during the meeting or require more information. At some meetings we also represent a group of shareholders on behalf of Eumedion. On this basis we attended meetings of KPN, ING, Akzo Nobel and Unilever. We also issue speaking and/or voting proxies in some cases. At DE Masterblenders, for example, another Eumedion participant attended partly on our behalf. The subjects arising included remuneration policy, the composition of the executive board and certification. KPN takeover battle On 9 August 2013 KPN became the subject of a takeover battle. It was on that day that the major shareholder América Móvil announced its intention to launch a public offer for KPN. What made the bid unusual was that América Móvil explicitly stated its desire to acquire the majority of KPN shares, but not necessarily all KPN shares. In the Netherlands, the usual practice when a public offer is made for all shares is that 100% of the shares are ultimately acquired, directly and/or by means of a minority shareholder buy-out procedure, after which the company concerned disappears from the stock market. That was plainly not the case here. After reading the offer announcement we had two major objections: (1) the corporate governance and the position of minority shareholders after the bid and (2) the bid price, because América Móvil would then be able to dominate the shareholder meeting, since KPN s articles of association state that all shareholder resolutions can be adopted on a simple majority (>50%) of the votes cast. We consider this to be an undesirable situation. Combined with the bid price, it posed a dilemma for us: due to the low price we did not want to tender our shares, but nor did we want to remain as a minority shareholder in a listed company while America Movil fully controls the decision making in the AGM. Under the Eumedion arrangements, PGGM is the lead investor for KPN and therefore took the lead in discussions with KPN s executive and supervisory boards. We joined with other institutional investors in calling for appropriate measures to be taken to mitigate the corporate governance objections identified in the bid. Our efforts to enter into consultations with América Móvil remained unsuccessful. We also shared our concerns with the board of the KPN Foundation. After our discussion it became known that the Foundation had decided to become an almost 50% shareholder in KPN. The Foundation acted in this way to protect the interests of KPN and its stakeholders, including its shareholders. On 16 October 2013 América Móvil announced that it would not proceed with the intended offer, even though the AFM had already approved its offer document. This document suggested that many of our corporate governance concerns would have been borne out had the bid gone ahead. The KPN share price showed a marked improvement after it was announced that the bid had been defeated. Powerful voting result at GSW real-estate company In March 2013 it was announced that GSW, a German real-estate company, intended to appoint a new CEO. This announcement came a week after it was reported that the former CEO had left the company. As well as doubts about the extremely short timelines, we had some other concerns about this appointment. The proposed candidate lacked relevant experience and in his previous post had been the senior financial officer of a real-estate company which had incurred large debts with negative consequences during his tenure. Moreover, he had worked with the chairman of the GSW supervisory board for several employers. We believe that a sound and independent selection process must be adhered to for appointments of executive and supervisory directors, with the best candidate being chosen from a shortlist. We were not confident that the appointment process had been conducted in accordance with these requirements. Contact was therefore sought with the chairman on several occasions, with requests to discuss the selection process and his role in it. However, the chairman was 31 PGGM

32 unwilling to clarify the situation. This refusal to enter into a constructive, open dialogue reinforced our concerns. It was therefore decided to submit two shareholder resolutions in which we called for: (1) The removal of the chairman; and (2) An expression of no confidence in the new CEO. Investors in Germany have the right to submit resolutions for the removal of the chairman. In the case of GSW, 75% of votes had to be cast in favour in order to make the result binding. Shareholders in Germany do not have the right to dismiss (or appoint) the CEO, so the presentation of a no-confidence motion was the most serious resolution possible. At the shareholder meeting in Berlin it became clear that we had achieved a unique result by securing a large majority in favour of the resolutions for the first time in Germany. The resolution calling for the removal of the chairman received 69% of the votes and the resolution on confidence in the CEO drew 63%. By comparison, the only two CEO confidence resolutions known to us in the past two years garnered an average of 3% support. Although not formally obliged to stand down, it was quite clear that the chairman and CEO had lost the confidence of the vast majority of GSW shareholders. At the end of the summer of 2013 both the CEO and the Chairman resigned, partly at the request of the works council. The GSW case demonstrated that there was still much room for improvement in the dialogue between companies and shareholders in Germany. Although in the Netherlands (and many other countries) it is usual for such dialogue to take place with members of both the executive and supervisory boards, supervisory directors in Germany are much more reticent in terms of both availability and the matters considered. We believe that supervisory directors must also be available to shareholders. It was therefore decided jointly with another major institutional investor and the German supervisory directors association (VARD) to draw up guidelines on communication between supervisory boards and shareholders. These guidelines will contribute to a better and broader dialogue and are expected to be completed in Outlook We will continue our endeavours to improve the voting chain in The current voting process is unnecessarily complex. The casting of a vote at a shareholder meeting requires many steps and the company provides no subsequent confirmation that it has received and counted the voting instructions correctly. PGGM believes that the parties involved in the voting process should introduce such a vote confirmation. This could improve transparency in the chain so that investors have greater insight and confidence in a smooth voting process. Voting Outcomes and targets of quantitative indicators (at year-end) Outcome 2012 Target* 2013 Outcome 2013 Target* 2014 Number of shareholder meetings (AGMs) at which votes were cast 3,106 n/a 3,155 n/a Number of votes cast 33,276 n/a 33,121 n/a Number of AGMs at which votes were cast as % of total number of AGMs** 99.7% 98% 99.9% 98% Number of AGMs at which votes were cast as % of Voting Focus List 100% 99% 100% 99% * No targets are applicable for some of these components. These components have nevertheless been included in this table to show the outcomes of the various responsible investment activities. ** The 2014 target and the 2012 and 2013 outcomes concern the number of meetings at which votes were cast excluding blocking markets. 32 PGGM

33 5. Engagement 33 PGGM

34 As an investor we see it as our responsibility to talk to companies and market participants about their policies and activities. In this way we endeavour to bring about improvements in the environmental, social and corporate governance (ESG) field on behalf of our clients, in the belief that this ultimately contributes to a better social and/or financial return on our investments. We call this engagement. Our engagement activities are intended to deliver a demonstrable change, for example in the behaviour and/ or activities of a company or party with which a dialogue is maintained. The illustration below shows the type of changes we aim to bring about through engagement. We focus not only on controlling reputation and other risks and implementing best practice, but also on opportunities for creating financial and social added value (shared value). We invest worldwide. The risk and return of the investments are highly dependent on efficient markets, economies, sectors and companies. Efficient markets are therefore immensely important to us and our clients. We see shareholders as co-owners of the listed companies in which they invest. Such ownership entails rights and responsibilities. Engagement is one of the activities through which we fulfil the rights and responsibilities associated with listed equity ownership. Illustration 5.1 Sustainability stairway Opportunity Compliance and risk management Operational efficiency Strategic value Shared value Voluntary standards Process efficiency Product sustainability Legal compliance Exclusion Risk Reputation management Value creation 34 PGGM

35 Good corporate governance is necessary in order to exercise our rights and responsibilities. We define good corporate governance as an appropriate and coherent system of checks and balances in the relationships between the executive board, the supervisory board and shareholders with a set of standards governing conduct, the exercise of powers and the associated accountability. Good corporate governance also enables us to promote social and environmental objectives in companies as an active shareholder. 5.1 Engagement figures for 2013 Our focus areas in 2013 were health, human rights, climate change and good corporate governance. In 2013 we maintained a dialogue with 673 companies as part of our engagement. We carry out part of these engagement activities ourselves. We have also outsourced part of the activities to the specialist British asset management company F&C. F&C s engagement activities on behalf of PGGM cover a wider range of themes and sectors. That enables us to reach a broad range of the companies in the portfolio. The stated figures refer to the combined activities of F&C and PGGM. This chapter and the figures are broken down by subject into corporate governance, social (human rights and health) and environment (climate change). This breakdown enables us to report additionally on the activities which do not fit within the focus areas but are nonetheless relevant. We achieved a total of 194 milestones with the 156 companies engaged with in The total number of milestones in 2012 was 225. Milestones are specific steps taken by companies with the aim of ESG improvement. Our engagement activities and the milestones achieved are worldwide and cover the various subject areas (for a breakdown see the charts under the engagement figures heading). In addition to engagement focused on companies, we seek a dialogue with market participants such as legislators and regulators. We also initiate and support initiatives aimed at raising standards on certain subjects and/or in certain sectors, for example by encouraging the endorsement of voluntary codes. In 2013 we conducted 31 engagement projects with market participants, including many targeted at improving corporate governance standards in markets in which we invest. In our engagement activities we often work with partners such as like-minded institutional investors and interest groups. By working together we can increase our impact and share knowledge. Breakdown of company engagement activities by subject in % Environment Social 53% Governance 28% 35 PGGM

36 Geographic spread of company engagement activities in % 14% 22% 41% 21% Netherlands Europe North America Asia Rest of the world Theme breakdown of milestones 14% 15% Environment Social Governance 71% Regional breakdown of milestones 2% 15% 27% Netherlands Europe North America Asia 32% Rest of the world 24% 36 PGGM

37 5.2 Corporate Governance With regard to corporate governance we assess whether a company is managed well, efficiently and responsibly, and whether it reports to its stakeholders, including shareholders, on the conduct of its policy. The focus points of our corporate governance activity in 2013 were greater insight into risks and risk management, better reporting by supervisory board members, the corporate governance code in the United States, the one share - one vote principle and independent executive directors and audit committees. Sustainable financial system With their role as shareholders, clients and business partners of banks, institutional investors have a great interest in the stability of the financial sector. Institutional investors can help win back stakeholders trust in banks and the financial system. We therefore have an engagement programme for the financial sector. We focus on changing the risk culture and ethics, remuneration policy, corporate governance, ESG integration and transparency. As a member of the EDTF (Enhanced Disclosure Task Force), PGGM has developed various initiatives aimed at improving transparency among banks and achieving more uniform reporting on bank risk management in annual reports. The first user review of annual reports took place in 2013, in which the EDTF investigated the extent to which banks had implemented its recommendations. PGGM contributed to this user review and advised banks on the implementation of the recommendations. The Financial Stability Board embraced the EDTF s proposals in 2013 and called on regulators to expand their knowledge of the EDTF s recommendations and their importance at national level. PGGM is delighted that the Dutch banks are aiming to implement the EDTF recommendations and are being supported in this task by DNB and the AFM. The necessary progress is also being made at international level with regard to transparency concerning bank balance sheets, although the picture is still very mixed. In November the Dutch Banking Association organised a seminar on the EDTF, in which PGGM participated as one of the speakers and explained the importance of transparency from the investor s perspective. Variable remuneration at Bank of New York Mellon One of the financial sector operators we spoke to was Bank of New York Mellon. We want companies to base their remuneration entirely on their performance and results. Variable remuneration schemes can have a motivating effect on directors and employees and establish a link between performance and pay. However, variable remuneration schemes can also incentivise undesirable and in some cases irresponsible risks. This type of remuneration can also encourage actions which conflict with the interests of the company and the client. 37 PGGM

38 We called on Bank of New York Mellon to base its long-term variable pay 100% on performance criteria, as only half of its long-term variable pay had been linked to such criteria. We also requested it to introduce an upper limit on remuneration, as it was unlimited. Finally, we called for restrictions on other benefits such as private use of the company aircraft, because these were excessive on top of regular pay. The bank has recently changed its long-term variable remuneration, basing it 100% on performance criteria. The additional benefits have also been cut and the business airplane can now only be used for business purposes. We will continue to monitor remuneration at Bank of New York Mellon. We will also continue to call for the introduction of a limit on long-term variable remuneration. We are continuing our engagement activities targeted at the financial sector in Call to Oracle shareholders concerning remuneration policy We also talk to other companies about their in some cases excessive remuneration policies. We made our concerns known to the IT company Oracle, partly by voting against the Say on Pay resolution. A Say on Pay resolution enables shareholders to cast an advisory vote on the company s remuneration package. We also sought contact with the board, but to no avail. The Say on Pay resolution was rejected by the majority of shareholders in Although the company is not obliged to amend its remuneration policy on this basis, it is concerning that the company is doing nothing to address the dissatisfaction on pay felt by the majority of shareholders. We therefore submitted to the SEC (the Securities and Exchange Commission of the United States) a letter to shareholders proposing to vote against the Say on Pay resolution again in We also stated that we would vote against the reappointment of board members because they refused to assume their responsibility on this matter. Securing a majority of votes at the shareholder meeting was a challenge, since the CEO himself holds around 25% of the shares. Nevertheless, the majority of shareholders ultimately voted against the Say on Pay resolution. Our vote against the reappointment of board members unfortunately failed to attract majority support. We nevertheless got our message across clearly, namely that this remuneration policy and the lack of responsibility in the respective companies was unacceptable to us, particularly in a large international company such as Oracle. Shareholder rights in the United States One of the subjects we are actively considering is shareholder rights in the USA. Jointly with the institutional investor RPMI Railpen, we published a paper entitled A Call on US Independent Directors to Develop Shareholder Engagement Strategies, recounting our experiences of engaging with board members in the United States. The paper was published on a website of the Harvard Law School. We also organised a round table meeting with RPMI Railpen on this subject in New York, in which other institutional investors and independent board members of companies also took part. We seek to work with companies to develop a model for optimum communication between the board and its shareholders and to encourage company boards to actually make use of the model. The participants appreciated the positive dialogue during these consultations and acknowledged the clear need for such dialogue. Finally, we remain in active discussions with various parties on the development of a voluntary corporate governance code in the United States. Corporate governance codes based on principles and executive best practice provisions give parties a degree of organisational freedom, whereas laws and rules are usually mandatory. Diversity on company boards for Hong Kong stock exchange In markets which already have corporate governance codes we seek to improve these where possible. For example, we expressed our support for the changes proposed by the Stock Exchange of Hong Kong Limited ( HKex ) to the exchange regulations and the Hong Kong Corporate Governance Code to stimulate diversity on company boards. Diversity can contribute to the independence of the supervisory board and risk management. We emphasised that diversity should be seen in a broad context. We believe relevant factors include not only gender, but also, for example, experience, ethnicity, character traits, cultural and social background and age. Diversity on company boards is important because research has demonstrated that it leads to improved performance, a better competitive position and economic benefits for companies. We responded through partnerships in which we were actively involved with this issue. These were the Asian Corporate Governance Association (ACGA), a not-for-profit organisation which works with investors, companies and regulators to implement effective corporate governance in Asia. We also discussed diversity within Eumedion, an organisation which represents the interests of all Dutch institutional investors and is an opinion former in the field of corporate governance. In December HKex announced that the proposals would be implemented without amendment. The changes apply to all companies listed on HKex. Continuing social and environmental problems at Barrick Gold We have been in dialogue with the mining company Barrick Gold for some years. Although the company has drawn up an extensive policy in line with best practice in the sector, serious incidents arise regularly. It is alleged, 38 PGGM

39 for example, that the discharging of waste from production processes into water in Papua New Guinea is harming the environment and the local population. There have also been accusations of criminal acts by the company s security employees. We concluded that the continuing problems were due to deficient supervision. We talked to the board of the Canadian mining company about the lack of supervision and the persistence of social and environmental problems. The discussions were arduous. We have major questions with regard to the composition of the executive board. A lack of objectivity and specific experience impedes its effective operation. The co-founder is the co-chair and several board members have been on the Barrick Gold board for many years. We therefore requested Barrick Gold to replace the long-standing board members with new members with relevant experience, including in the environmental and social fields, to tackle the existing problems. The letter we sent to Barrick Gold jointly with other institutional investors attracted a great deal of attention, particularly in the foreign press. Our efforts were rewarded. The co-founder and co-chairman will step down in 2014, along with three long-serving board members. Four new board members with relevant experience have been appointed. This result is not only important for the investment in Barrick Gold, but also sends an important signal to other companies in the sector. As a major player in its sector, Barrick Gold serves as an example to other companies. We are continuing the dialogue on environmental and social matters with the new board. 5.3 Social Companies respect for human rights is an important part of our engagement programme in the social field. Health is also an important focus area in view of our background and that of some of our clients in the care sector. On the themes of human rights and health, PGGM devoted particular attention to the following focus points in 2013: companies involved in violations of human rights (including labour rights); companies operating in high-risk areas (for example as a result of a conflict or the presence of a repressive regime); implementation of UN human rights guidelines for businesses and access to medicines. Restrictions on trade union activities Since 2011 we have been in dialogue with Ahold due to indications from trade union circles that union activities at the group s US subsidiary Giant/Martin s were being restricted. This not only violates fundamental labour rights, but also runs counter to the company s global policy. The company has always stated that employees are free to join a trade union. Various messages sent to employees in the US chain nevertheless presented an entirely different picture. In some cases it was even explicitly stated that employees were not permitted to sign up as union members. Such intimidating communication seriously impeded employees right to exercise free choice on union membership. We joined with other investors, including at the shareholder meeting, in urging Ahold board members to ensure that a clear policy was conducted worldwide. We asked them to change the intimidating communication on trade union membership sent to the Giant/Martin s employees. The Ahold subsidiary published its new Employment Principles at the beginning of These five principles explicitly recognise the right of trade union freedom. This important step is backed up by an amended employer handbook and training for managers and employees. The US trade union UFCW and the new COO of Ahold USA discussed the implementation of these guidelines. The Ahold management in the United States had not previously been open to such a discussion. The trade unions are appreciative of our dialogue on this matter. We have told Ahold that we very much welcome the explicit recognition of the trade union rights of Giant/Martin s employees and that we will monitor its implementation. Our discussions with Walmart on the right to join a trade union were less successful. The company has not made any changes and is not open to dialogue. This ultimately led to the exclusion of Walmart. More information on this can be found in chapter 7, Exclusions. Access to good healthcare One of PGGM s focus points is access to good healthcare. We believe this is important due to our historical background in this sector, but also because we believe good healthcare can deliver not only social, but also financial returns. There are many countries in which a substantial part of the population suffers severely as a result of illnesses which are readily treatable. We believe improving access to good healthcare in these countries leads to faster and more stable economic growth. Companies which focus on improving access to medicines and healthcare fulfil their social role well. Moreover, they will ultimately be well positioned when economic growth gathers pace. In the pharmaceutical sector there is increasing pressure on the traditional blockbuster earning model which aims to generate income from a number of expensive, innovative medicines. The pursuit of larger volumes to offset lower margins may therefore be a wise strategy. We focus not only on companies which form part of the Access to Medicine (AtM) index (a twice-yearly ranking of 20 pharmaceutical companies assessed on the basis of AtM), but also on companies which are not in this index. In 2013 we spoke with poorly performing AtM companies (including the Japanese companies Astellas, Eisai, Takeda and Daiichi Sankyo) and had contact with 39 PGGM

40 generic medicine manufacturers which are not yet included in the index (such as Hospira of the USA and Valeant of Canada). We call on companies to develop a strategic vision of AtM which will have broad support in the company. The focus is on gearing prices to local incomes, sharing patents and researching and developing medicines to treat tropical diseases. In addition to AtM we discussed Access to Healthcare subjects more broadly with various manufacturers of medical appliances. Our aim is thereby to encourage companies to consider both their responsibilities and the potential available to them in developing countries. 5.4 Environment We want a viable and resilient ecological system, based on the preservation of natural capital. On the environmental theme, PGGM devoted particular attention to the following focus points in 2013: strategic opportunities and threats of climate change and risks of water scarcity and biodiversity. Dialogue on oil and coal in China The energy sector has a major impact on climate change, particularly through the use of fossil fuels. China is a major consumer of coal. The country has large stocks of coal and an increasingly large number of coal-fired plants. This has a major impact on local air quality and water supplies, as well as major consequences for the global climate. We held talks with China Coal and China Shenhua, the largest Chinese coal mine operators, with a number of ancillary suppliers and various oil companies. The processes in these Chinese companies, such as the processing of coal to produce gas and raw materials for the petrochemical industry, are highly energy- and water-intensive. These processes could certainly be made cleaner and more efficient, particularly by using the residual heat released by the turbines. But such plants are expensive, and there is only one known project involving such a clean coal-fired plant in China. Discussions have also taken place with coal companies on initiatives to reduce water consumption, end sulphur and nitrogen emissions and invest more in clean energy. Major advances have been made particularly in the field of water consumption, mainly as a result of ever stricter regulations. Discussions have also taken place on carbon capture and storage (CCS). We believe coal companies in particular must play a pioneering role in the development of this technology. Only one company, however, has begun trials of CCS and is also investing in wind energy. We are continuing the discussions in 2014 to press for strategic developments to promote clean energy, more initiatives to reduce negative environmental effects and greater transparency on environmental impact. Technological innovation in power generation We also focus our engagement activity on power producers (particularly coal-fired plants), because these companies are the biggest cause of climate change. 40 PGGM

41 Positive developments are also under way: on a recent, windy Sunday, Denmark was able to meet 92% of its energy requirement with wind turbines. This is good news, but it poses major challenges for established power producers in Europe. The economic crisis and the installation of wind farms and solar panels, in some cases with subsidies, have led to a sharp fall in electricity demand, and hence also in the previously secure income from coal- and gas-fired plants. We talked to power producers such as Enel and RWE on a possible fundamental shift in their business model from power generation to energy services, such as efficiency improvements, transmission and distribution and storage of sustainable energy. These discussions gave us a great deal of information, on the basis of which we can continue this engagement project in the year ahead. New palm oil policy at Wilmar The production of palm oil is an important and visible cause of deforestation and loss of biodiversity. In addition, the sector is often involved in conflicts with local population groups, including on land ownership. The Netherlands has many large buyers of palm oil, such as Unilever, and many NGOs covering this sector. We therefore have an engagement project focused on this sector in which we involve producers, traders and customers. We are involved, for example, in the Round Table on Sustainable Palm Oil (RSPO). We also talk to NGOs on the steps we are taking in this area. Wilmar is one of the largest companies in the palm oil sector and has featured in the media on several occasions due to allegations of deforestation and land grabs. This matter has also been addressed repeatedly in the Dutch parliament. We have asked Wilmar to make various improvements, including: RSPO certification, including for joint ventures and suppliers reduction of deforestation and peat bog burning prevention of conflicts with local populations increased yields from existing plantations transparency relating to concessions (and where these conflict with land rights or land use). Wilmar has drawn up a new policy and has given the following commitments with regard to its own plantations, joint ventures and suppliers: no deforestation no peat bog burning (due to the high associated greenhouse gas emissions) no exploitation of employees and the local population. Wilmar is going further than the RSPO criteria with this policy. We worked with customers, NGOs and other investors in persuading Wilmar to announce this policy. As a major company in the sector, Wilmar sets a standard for the competitors. We will monitor the implementation of this policy and keep a close watch on ongoing problems and allegations by NGOs concerning deforestation and land grabs. 5.5 Outlook In consultation with our clients we are adopting a more focused approach in our engagement activities in the forthcoming year. The emphasis will be on making a positive contribution to the new and existing focus areas as formulated in our Beliefs and Principles. We will focus our engagement activities primarily on improving standards with regard to these focus areas at market level. We will do so, for example, by entering into a dialogue with legislators and regulators or pushing for the development and implementation of voluntary best practice standards. In this context, the dialogue with companies is focused particularly on those companies which have a halo effect in the market. In other words, companies in which the changes we are able to bring about can serve as examples to other companies in the respective region, sector or chain. These companies may be leaders or laggards. Engagement Outcome s and targets of quantitative indicators (at year-end) Outcome 2012 Target* 2013 Target* 2013 Target* 2014 Outcome s and targets of quantitative indicators (at year-end) Number of companies engaged with directly** 560 n/a 446 n/a Number of companies engaged with indirectly (through F&C)** 51% n/a 51% n/a * No targets are applicable for some of these components. These components have nevertheless been included in this table to show the results of the various responsible investment activities. ** Global Reporting Initiative indicators from the Financial Services Sector Supplement (2008 version). The GRI is a worldwide standard for companies reporting on ESG factors. 41 PGGM

42 6. Legal proceedings 42 PGGM

43 PGGM conducts legal proceedings on behalf of its clients where necessary to recover investment losses and enforce good corporate conduct. We do so as a shareholder in listed companies, both in the Netherlands and abroad. PGGM pursues the following objectives by conducting litigation: Financial proceeds to limit damages: recovering investment losses resulting from fraud, corruption, embezzlement or other forms of misconduct by listed companies. Contribution to the risk-return profile: improving the corporate governance and continuity of activities of the company concerned and long-term value creation. Prevention: setting standards to prevent undesirable conduct such as fraud, corruption and deception. PGGM monitors new and ongoing legal proceedings throughout the world on the basis of active share ownership. Our systems provide the information to enable us to decide whether we wish to assume an active role on behalf of our clients. There must be clearly demonstrable grounds for instituting legal proceedings. That may be the case, for example, if a company has committed fraud or other forms of evident misconduct leading to losses for shareholders. We prefer to work with other investors with common interests. Legal proceedings can be brought in various ways. The main forms are direct action, i.e. bringing independent legal proceedings against a company, or a form of collective action, such as a class action in the United States. A class action is the American name for a lawsuit brought by an entire group (class) of misled investors sharing a common interest. This class action system makes it relatively easy to secure damages for the class as a whole. When a settlement is reached in a class action, investors who have suffered losses must register with the claims administrator, who is responsible for distributing the settlement amount. Investors who have played no active role in the proceedings but who belong to the class defined by the court are entitled to damages. In most cases our involvement in class actions is only passive. We participate in the legal proceedings, in some cases automatically, but our role is limited to submitting a form to claim damages for our clients. The amount involved in 2013 was approximately 1.5 million. 6.1 Developments in 2013 PGGM appointed as lead plaintiff in class action against Hewlett Packard in the USA In August 2011 the US company Hewlett Packard (HP) acquired the technology company Autonomy for over US$10 billion. Barely a year later, US$8.8 billion of this amount had to be written off. The announcement of this write-off in November 2012 led to a sharp fall in the share price, causing losses for our clients. As well as recovering the financial loss, our aim with these proceedings was to improve HP s corporate governance structure. After all, as an institutional investor with a long-term horizon, we want to continue to be able to invest in this company. In January 2013 we joined with pension funds in the American states of Oregon and Oklahoma in filing an application with the court in San Francisco to be appointed jointly as lead plaintiff. The lead plaintiff takes a leading role in the proceedings on behalf of all misled investors who find themselves in the same position. On 6 March 2013 the court surprisingly appointed PGGM as the sole lead plaintiff. PGGM was deemed the most appropriate party to conduct this type of case due to the scale of our losses and our other qualifications as an institutional pension investor with a proven track record. From our perspective the proceedings concern not only the company but also a number of individual executive directors who were responsible for the acquisition. These include the current CEO Whitman and the former CEO Apotheker, who had already been dismissed before the Autonomy acquisition was completed. The management situation at HP had been unsettled for some time. Over a period of three years, the strategy had been constantly adjusted or overturned by three successive CEOs. The acquisition of Autonomy was intended to dovetail with the new strategy, but it failed completely, with serious consequences for investors. They therefore held a number of directors responsible by voting en masse against their reappointment at the shareholder meeting in Three executive directors, including the chairman, then resigned. 43 PGGM

44 The reason for the enormous write-down of almost 90% of Autonomy s purchase price largely related to accounting irregularities at Autonomy in the period before the acquisition. As a result, Autonomy was substantially overvalued at the time of the acquisition and HP therefore paid far too high a price. This was despite serious warnings both from analysts who openly raised critical questions about the software segment growth reported by Autonomy and from Autonomy s employees. At that time CFO Lesjak already considered the acquisition to be too expensive and against the company s interests. The misleading results of the pre-acquisition Autonomy were then incorporated in the figures in HP s 2011 annual report and various quarterly reports in 2012, as a result of which investors gained a false impression. Following an internal investigation, HP instructed the auditing firm PwC in May 2012 to conduct a forensic audit. After the findings of the audit became known, Mike Lynch, the previous CEO of Autonomy and member of HP s board, was summarily dismissed, even before the acquisition was completed. The seriousness of the case is borne out by the fact that the SEC, the FBI and the UK s Serious Fraud Office were informed at an early stage and launched their own investigations. HP has publicly admitted that Autonomy s financial results and historical growth were based on numerous accounting irregularities, but states that it itself was a victim of fraud by Autonomy. The fraud apparently only came to light as a result of reports by a whistleblower at Autonomy. In PGGM s view, however, HP failed to conduct a proper due diligence, relying instead on the unqualified reports by Autonomy s external auditor, conducting only a limited examination of the accounts and ignoring warnings from analysts and Autonomy employees. HP kept the disappointing results of this acquisition to itself for many months without public disclosure. This contravenes the applicable laws and regulations. The court issued its first important judgement in November We had to demonstrate that HP s statements on the acquisition of Autonomy and its consequences were misleading and thereby harmed investors. The court largely agreed with our reasoning, although it specified that the class period, the relevant period in which investors acted on the basis of incorrect information, would be limited to the period from 23 May The acquisition process and the acquisition itself thus remain outside the range for the time being, but may be included in the proceedings again if relevant facts come to light during the discovery phase. Individual executive directors have also been indemnified against further proceedings. Only CEO Whitman will be required to explain in the ongoing proceedings why, after May 2012, she failed to inform investors of the fraud being investigated by HP at Autonomy as a possible cause of Autonomy s disappointing profit contribution. 44 PGGM

45 The discovery phase will begin in the first half of All parties involved are required to provide documentation on events in the relevant period and PGGM also has to account for its decision to invest in HP shares and its underlying investment strategies. 6.2 Outlook The proceedings against HP will require a great deal of attention in It is also intended to complete the September 2012 Bank of America settlement in 2014, with pay-outs expected to be released in the course of The Vivendi case in France, the Olympus case in Japan and the case against the former Fortis and a number of its executive directors in the Netherlands will also be pursued. Legal proceedings concerning share ownership Outcomes and targets of quantitative indicators (at year-end) Outcome 2012 Target* 2013 Outcome 2013 Target* 2014 Active proceedings 5 n/a 5 n/a Proceeds of passive legal proceedings 825,977 n/a 1,510,164 n/a * No targets are applicable for some of these components. These components have nevertheless been included in this table to show the outcomes of the various responsible investment activities. 45 PGGM

46 7. Exclusions 46 PGGM

47 PGGM seeks to prevent that investments managed by PGGM contribute financially to practices incompatible with our identity and that of our clients and their beneficiaries. Exclusion by PGGM comprises two elements: 1. Exclusion after engagement: this involves a critical assessment of the conduct and activities of the entities in which investments are made on behalf of clients, the pursuit of change if such conduct or activities undermine a sustainable world and the termination of an investment if that change fails to materialise. 2. Immediate exclusion: this concerns the exclusion of entities involved in the production of or trading in products which are incompatible with the identity of PGGM and its clients. Both elements lead to specific exclusion criteria and lists of excluded entities. When taking decisions on exclusions, PGGM goes through an extensive process that takes account of clients considerations, usually through an opinion issued by the Advisory Board Responsible Investment. Clients can keep track of PGGM s funds policy and the resulting exclusions. They can also opt to give PGGM an assignment or mandate to implement their own exclusions policy. Clients can also decide independently to exclude individual entities, products or categories. In the case of individual mandates, PGGM will implement such decisions on behalf of the client as soon as reasonably possible. Where such exclusions apply to the PGGM funds, PGGM will seek to achieve a common position among the participants in the PGGM funds through the participants meeting and take this into account when deciding whether to implement it in the PGGM fund. Exclusion after engagement We can exclude companies if we observe activities or conduct which we consider undesirable or harmful and where, after we have tried to bring about change within the engagement programme, the desired change fails to materialise in the company and is no longer likely to occur. Examples include involvement in violations of human rights, corruption or serious environmental pollution. We use international guidelines such as the UN Global Compact to assess the seriousness of the abuse. Because this concerns behaviour and not a type of product, we first enter into discussions with the company to bring about a change of conduct. We expressly see exclusion after engagement as a last resort. Immediate exclusion We exclude companies if they are involved in the production of or trading in products which are incompatible with our identity and that of our clients. This applies to controversial weapons, which PGGM defines to be weapons of mass destruction and weapons with a considerable risk of casualties, including among the civilian population. In addition, since 2013 we have excluded tobacco production at the request of the majority of our clients. We exclude government bonds if sanctions have been imposed on the issuing states by the internationally recognised institutions, i.e. the UN Security Council and the European Union. This applies specifically to sanctions imposed on the country itself or the sitting government. The sanctions must also concern an arms embargo or relate to gross and systematic violation of human rights or the possible deployment of controversial weapons. 7.1 Developments in 2013 At the end of 2013, the listed company exclusions list contained a total of 124 names. The full list can be found on our website. In 2013 we excluded the government bonds of twelve countries: Eritrea, Iran, Côte d Ivoire, Libya, Burma, North Korea, Sudan, Somalia, Syria, Belarus, Zimbabwe and South Sudan. We enter into agreements with external managers on the application of the exclusions list. We include this in contracts as an investment restriction. It makes no difference whether the investee companies are listed or private. The manager who invests on our behalf is responsible for applying the implementation guideline. The Exclusions Guideline cannot be applied fully in every case. In 2013 we ascertained that the Exclusions Guideline was being applied to 99% of investments. In addition to internally managed investments and external investments for which its application is specified contractually, this includes investments in which the policy is irrelevant because it cannot be breached. An example is investments in commodities. The fact that we recorded a portfolio application level of 99% does not mean the remaining 1% breach the guideline. It simply means that we cannot state for certain that the Exclusions Guideline is being applied to them in full. This mainly concerns exchange-traded funds, index futures and a number of hedge fund investments. 47 PGGM

48 Exclusion of tobacco Tobacco producers were placed on the exclusions list in This concerned a total of 79 companies. The production of tobacco has become a criterion for immediate exclusion. Over a long period we have tried to encourage tobacco producers to introduce better working conditions in the industry. In our engagement activities we have also spoken out against marketing practices and advertising by tobacco producers aimed at underage people. We endorse the World Health Organization rules on smoking by underage people and entered into discussions with the sector on this subject. The dialogue did not have the desired result. Combined with the fact that tobacco was no longer seen as a suitable product by a large proportion of the rank and file among PGGM s pension fund clients, this prompted several of our clients to add tobacco producers to the exclusions list. Prohibition of investment in cluster bombs Controversial weapons, such as cluster bombs, have been excluded for a long time. The assessment as to which company is or is not involved in the production of or trading in controversial weapons can sometimes be difficult. We therefore consult parties such as the AFM and NGOs in order to define clear guidelines or explain our choices. The exclusions list we use does not always match those of NGOs, for example, because different definitions are applied. We base the exclusions list on the policy frameworks. The ban on investing in cluster munitions came into force in the Netherlands on 1 January From that date a financial company established in the Netherlands must demonstrably take measures to prevent it from purchasing or selling a financial instrument (such as a share or non-freely negotiable interest) issued by a company which produces, sells or distributes cluster munitions (or crucial components of such weapons). It is also necessary to prevent loans being issued to such a company. The ban has been overseen by the AFM (the Dutch Financial Markets Authority) since 1 April We were involved in shaping the supervisory framework, for example specifying the names of companies which the AFM uses as a risk radar in its supervision of compliance with the ban. All names on the risk radar also appear on the PGGM exclusions list. Exclusion of Walmart The US supermarket group Walmart was added to the exclusions list in This was because Walmart failed to respond adequately to concerns about strained labour relations in the company s home market. Moreover, the company s board is not prepared to engage in constructive dialogue with shareholders on this matter. This decision followed a lengthy period in which we raised this matter frequently with the company. The policy pursued by Walmart in the United States limits the right of employees to organise themselves in trade unions. This contravenes not only international labour guidelines (ILO) but also the codes which Walmart has drawn up for its own suppliers. The company also offered shareholders no means of discussing the concerns directly with the management and independent directors of the company. Explanatory note on exclusion of Israeli banks Since 31 December 2013, the PGGM investment funds have ceased to invest in five Israeli banks, namely Bank Hapoalim, Bank Leumi, First International Bank of Israel, Israel Discount Bank and Mizrahi Tefahot Bank. The exclusion of these banks drew a great deal of media attention and reactions from our clients beneficiaries at the beginning of These included positive, but certainly also negative reactions, with frequent suggestions that it was a politically inspired decision and/or a boycott of Israel. This is not the case. As at 31 December 2013, we had investments in almost 100 Israeli companies. We regret that, partly as a result of the media representation, disquiet also arose among our clients beneficiaries and that beneficiaries may have been offended. The exclusion accords with the responsible investment policy frameworks and shows that as a responsible investor we find it important that investee companies comply with international agreements. For a number of years we have been engaged in dialogue with companies undertaking activities in the occupied Palestinian territories. We visited Israel and the occupied Palestinian territories in April As well as holding discussions with companies, this visit was intended to provide a better picture of the situation in the occupied Palestinian territories. In an attempt to gain a better understanding of this complex situation, we spoke to a range of parties including human rights organisations, government officials, international representatives and citizens on both the Israeli and Palestinian sides. We also spoke to representatives of Palestinian and Israeli businesses and with representatives of employer and employee organisations. We also spoke to a number of Israeli banks about the financing of the expansion of Israeli settlements in occupied Palestinian territories. The settlements are seen as illegal under international law and international observers believe they constitute a major obstacle to a peaceful (two-state) solution to the Israeli-Palestinian conflict. In an advisory opinion, the International Court of Justice ruled in 2004 that the settlements in the Palestinian territories violated article 49 of the Fourth Geneva Convention on the Protection of Civilian Persons 48 PGGM

49 in Time of War. This article prohibits an occupying power from moving its own citizens into an occupied area. International organisations, including the General Assembly and the Human Rights Council of the United Nations, have adopted various resolutions with worldwide support declaring the settlements to be illegal. This interpretation of the application of international law is disputed in Israel. It emerged from these discussions that the banks had little or no scope to end their involvement in financing the expansion of settlements in the occupied Palestinian territories. It was therefore concluded that dialogue was not an effective means of bringing about change in this case. Since there is no prospect of imminent change in this worrisome situation, we are currently no longer investing in the five banks concerned through the PGGM-managed funds. 7.2 Outlook The exclusion of five Israeli banks caused a stir among various stakeholders in the Netherlands and abroad. We regret that our clients beneficiaries may have been offended. Jointly with our clients and the ABRI, we are therefore going to evaluate the decision-making process and the communication with the media and various stakeholders. We are also engaging in discussions with other parties in order to provide a fuller explanation. In 2014 we are continuing to look critically at the conduct and activities of the entities in which we invest on behalf of clients. We will continue to pursue change if such conduct or activities undermine a sustainable world and we may terminate an investment if change fails to materialise. We apply international guidelines and codes to determine and assess undesirable conduct. Exclusion is explicitely not an aim in itself and we will always try to avoid exclusion by seeking to change the conduct of the companies in question through dialogue. Attention in 2014 will also focus on the application of the exclusions guideline and exclusions lists in the new advisory role which PGGM is to take on when clients invest directly in external funds and mandates. Exclusions Outcomes and targets of quantitative indicators (at year-end) Outcome 2012 Target* 2013 Outcome 2013 Target* 2014 Number of excluded companies % of total assets under management covered by the 99% 99% 99% 99% Exclusions Policy** Excluded companies as proportion of FTSE All-World benchmark 1.1% 3.6% * No targets are applicable for some of these components. These components have nevertheless been included in this table to show the outcomes of the various responsible investment activities. ** Global Reporting Initiative indicators from the Financial Services Sector Supplement (2008 version). The GRI is a worldwide standard for companies reporting on ESG factors. 49 PGGM

50 Outlook The Beliefs and Principles for Responsible Investment and the underlying implementation framework are being implemented in We have enhanced the vision and sharpened the focus through continued development of the frameworks, enabling us to improve the implementation of our clients policies. Various clients will also continue to develop their responsible investment policies in the forthcoming year. PGGM is fulfilling an advisory role in this regard. Making choices with regard to responsible investment is no straightforward matter when multiple clients are involved. The challenge for 2014 is to carry out the responsible investment activities to the satisfaction of all clients. We aim both to promote commonality within the funds and to implement or support specific fulfilment for each client. The meetings of participants in the mutual funds help achieve commonality and accord with new laws and regulations. The participants meeting enables clients to voice their opinion and become involved in the funds policies with regard to responsible investment. An investment in the PGGM funds can generate economies of scale for our clients, because they combine the capital of several clients, but it offers less scope for divergent policies. This tension will remain a challenge in 2014 and we will continue to work with clients to devise solutions. Clients also have the possibility of investing through segregated mandates. In 2014 we expect to be awarded a licence as a manager of investment institutions under the Act on Financial Supervision, in which the AIFMD has been implemented. The award of this licence is a hallmark of the professionalism which we wish to convey to our clients and to the market. It will enable us to offer greater transparency with regard to our investment funds and risk management and gain greater insight into the remuneration policies of external parties. making a positive contribution to new and existing focus areas. In addition, we are going to focus on improving market and sector standards. The dialogue with companies is targeted particularly at companies which have a halo effect in the market, in other words companies in which the changes we are able to bring about can serve as examples for, or have a wider impact on, other companies in the respective region, sector or chain. In 2014 we will evaluate the process leading up to exclusion and the communication on exclusions. Although exclusion is not an aim and we seek to prevent it by pursuing a change of behaviour through dialogue, further companies may be added to the exclusions list in We aim to avoid our investments contributing financially to practices incompatible with our identity and that of our clients and their beneficiaries. We will also continue investigating our own behaviour and our own role in the financial sector in We will also consider the parties with which we wish to co-operate. For the integration of ESG factors in investment processes, we will look in 2014 not only at the activities in the investment categories, but also, on a higher level, at the categories themselves and the breakdown between them. In this way we can help our clients to further increase the sustainability in their investment portfolio. We will continue to look for possible ways of investing in solutions in order to improve the positive social contribution made by our investments. In 2014 we will also measure the impact of new investments in solutions and of existing investments in solutions whose impact has not yet been measured. In this way we aim to support our clients in order to contribute to a valuable future once again in Transparency remains important to PGGM, not only for reasons of accountability, but also as a means of working with our clients to move the wider industry towards a more sustainable world. This is also reflected in our activities as an active shareholder in which we focus on the conduct of companies and markets in which we invest. For example, we will critically assess the voting chain, where transparency is often lacking. We also aim to adopt a more focused approach to engagement in The emphasis will be on 50 PGGM

51 Implementation of responsible investment activities The table below shows our outcomes and targets, as agreed with our clients, and the activities for each quantitative indicator. In this annual report we describe the vision and policy behind these targets and illustrate the activities and outcomes by means of examples and specific cases. Table 1. Quantitative indicators for responsible investment Results and targets of quantitative indicators (at year-end) Outcome 2012 Target* 2013 Outcome 2013 Target* 2014 ESG integration**** Completed in Phase 1 Inventory (as % of total assets under management) Started in Phase 2 Implementation (as % of relevant investment categories) Investing in solutions ***** Volume of investments in solutions / commitments ( million) n/a n/a n/a n/a 100% n/a 100 n/a 4,219 n/a 4,121 n/a New investments in solutions) / commitments ( million) n/a 500m new 331m new n/a Exclusions Number of excluded companies 42 n/a 124 n/a % of total assets under management covered by the Exclusions Policy** 99% 99% 99% 99% Excluded companies as proportion of FTSE All-World benchmark Voting Number of shareholder meetings (AGMs) at which votes were cast 1.1% n/a 3.6% n/a 3,106 n/a 3,155 n/a Number of votes cast 33,276 n/a 33,121 n/a Number of AGMs at which votes were cast as % of total number of AGMs*** Number of AGMs at which votes were cast as % of Voting Focus List 99.7% 98% 99.9% 98% 100% 99% 100% 99% Engagement Number of companies engaged with directly** Number of companies engaged with indirectly (through F&C)** Value of companies engaged with as % of managed equity portfolio as at 1 January n/a 446 n/a 51% n/a 51% n/a Legal proceedings concerning share ownership Active proceedings 5 n/a 5 n/a Proceeds of passive legal proceedings 825,977 n/a 1,510,164 n/a 51 PGGM * No targets are applicable for some of these components. These components have nevertheless been included in this table to show the outcomes of the various responsible investment activities. ** Global Reporting Initiative indicators from the Financial Services Sector Supplement (2008 version). The GRI is a worldwide standard for companies reporting on ESG factors. *** The 2014 target and the 2012 and 2013 outcome s concern the number of meetings at which votes were cast excluding blocking markets. **** In 2014 we will no longer report on these quantitative indicators because the indicators are no longer relevant. ***** For 2014 we are currently still in discussions with clients concerning possible targets.

52 Use of responsible investment instruments The table below shows which pillars of our responsible investment activities are used in the various investment categories. Compliance and risk management Operational efficiency Strategic value Legend X Applied Not applicable Not applied Exclusion Legal compliance Voluntary standards Process efficiency Product sustainability Shared value What we do not want Improve What we do want ESG in investments* Exclusions Financial integration of ESG***** Engagement** Voting** Legal proceedings Investing in solutions % of AUM Investment category ESG integration phase 2 started ESG integration phase 3 Equities Beta equities X (X) X X X 28% Responsible Equities X X X X X X X X 1.5% Private Equity X X X X 6.0% Real Estate Listed Real Estate X X X X X X 5.6% Private Real Estate X X X X 5.2% Fixed-income securities Corporate bonds X X X **** X 3.3% Emerging markets credits X X X **** 0.9% Emerging markets debt X X X 3.8% High Yield bedrijfsobligaties X X X 3.0% Structured Credit X X 1.5% Rates & Inflation X X 24.7% Cash X X X X X 2.5% Commodities Beta Commodities X X 6.7% Additional Infrastructure X X X X 2.4% Real Assets X X X X X 0.6% Insurance X X 1.3% Hedge Funds X (X) X 2.6% Trading & Execution X X X 0% Others X X 0.4% % use as proportion of total assets under management 100% 99% 37% 10% 39% 35% 35% 2,9% * ESG in investments concerns ESG integration and the incorporation of reputational ESG factors and/or ethical dilemmas in investment processes on the basis of social responsibility. Examples are the ESG index in beta equities and the ESG integration phases. We cannot stay ahead of all reputational, ethical and financial factors. It is therefore a continuous process of incorporating new information in the investments. ** Here we use the narrow definition of engagement and voting from the Responsible Investment Policy. In these cases engagement and voting relate only to listed companies. Forms of engagement and voting also arise in other investment portfolios, such as engagement with fund managers during the investment monitoring phase. We include these in ESG in investment processes. *** A white field indicates that the instrument is not yet in use. A black field indicates that the instrument cannot be used under the current investment mandate, e.g. because the underlying investments are not known or because there is no scope (yet) to use the instrument in a particular investment category. **** Engagement with regard to corporate bonds or project finance is not yet a targeted programme within PGGM. We engage as a shareholder with companies whose corporate bonds we also hold. ***** A further explanation of the ESG integration phases is provided on page PGGM Bron: PGGM gegevens per

53 Appendix 1: Governance and accountability In this Annual Responsible Investment Report 2013 we provide information for our clients, their beneficiaries and other interested parties on the activities of PGGM Vermogensbeheer B.V. (hereinafter: PGGM) in the field of responsible investment. Where we refer to clients in this report we mean both the clients of PGGM participating in the PGGM funds and the clients for whom PGGM manages discretionary portfolios. If we state that we invest in a certain portfolio, we always mean that we do so on behalf of our clients. The information in this annual report only covers responsible investment activities within PGGM. More extensive information on PGGM N.V. and PGGM Coöperatie U.A. can be found on the PGGM website in the PGGM 2013 annual report. This describes among other things the mission of PGGM Coöperatie U.A. and its subsidiaries, PGGM in brief, PGGM in figures and wider sustainability activities. This PGGM Annual Responsible Investment Report 2013 provides information on the 2013 financial year running from 1 January to 31 December This annual report is limited to the responsible investment activities within PGGM Vermogensbeheer B.V. Unless stated otherwise in the respective chapters, the data have been obtained from our financial and RI databases. Governance The cooperative pension fund provider PGGM N.V. is a public limited company with 12 direct and indirect subsidiaries. The Supervisory Board oversees the operation of the Executive Board and the general affairs of the company. The Supervisory Board has two committees: the Audit, Risk and Compliance Committee and the Remuneration, Selection and Appointments Committee. The EC is chaired by the Chief Executive Officer (CEO), who makes up the Executive Board together with the Chief Financial Risk Officer (CFRO). The officers with responsibility for marketing, investments and processes (Chief Marketing Officer, Chief Investment Management, Chief Institutional Business and Chief Operations Officer) also have seats on the Executive Committee. The Executive Board has statutory responsibility for PGGM N.V. and is accountable on these matters to both the shareholder and the Supervisory Board. As at 1 January 2013, PGGM N.V. has a Clients Council made up of representatives of our institutional clients (pension fund directors). The council advises the EC on matters such as service provision, product development, strategy and appropriation of results. The Clients Council meets at least twice a year. Every institutional client has one seat on the council. Policy documents Further information on the implementation of the responsible investment policy for our clients can be found in the following documents on our website. PGGM Beliefs and Principles for Responsible Investment PGGM Responsible Investment Implementation Framework The Executive Committee (EC) is responsible for the day-to-day management of PGGM N.V. The EC comprises the officers responsible for the company s six business units and its subsidiaries. It is made up of two members of the Executive Board and four members appointed by the chairman of the Executive Board. 53 PGGM

54 Organisation chart of PGGM N.V. Members Council Cooperative Council Executive Committee Client council CMO Bart Blanken CIM Eloy Lindeijer COO Harry Vossebeld CIB Jeroen de Munnik CFRO Paul Loven CEO Else Bos Supervisory Board Information Finance Control Corporate Staff Relations & Communication Investments Management Pension Management Institutional Business Organisation chart of Investments CIM CFRO General Counsel Tax, Legal & Regulatory MD Responsible Investments MD Ext. Segregated Mandates CIO Public Markets CIO Private Markets COO Investment Services CRO Risk Accountability Reporting and transparency Transparency is an important component for PGGM. We aim to be a reliable partner and provide clarity about what we do and why. We publish this Annual Responsible Investment Report every year on our website, publish quarterly voting and engagement figures and write articles and position papers on specific subjects. We also enable our clients to provide their beneficiaries and other stakeholders with annual information on the investment portfolio and the parties with which PGGM does business on their behalf. Selection of material subjects As an investor with a widely diversified portfolio, it is not easy for us to define the most essential subjects that affect our activities in the field of responsible investment. We have selected the relevant subjects on the basis of a materiality analysis, for which we have consulted various media sources. The materiality of the subjects for PGGM as an asset manager and its clients has also been taken into account. Guidelines followed In compiling the PGGM Annual Responsible Investment Report 2013 we have adhered to the principles of the Global Reporting Initiative (GRI) G3. The GRI principles relate to both substantive choices (materiality, involvement of stakeholders, the sustainability context, completeness) and the quality of the reporting (balance, comparability, accuracy, timeliness, clarity, reliability). In addition, where possible, we have reported on the indicators of the GRI Financial Services Sector Supplement (FSSS Final Version, 2008). We have not followed the GRI to the letter in this report, because it concerns the asset management activities and is not relevant at corporate PGGM N.V. level. Further information 54 PGGM

55 on the sustainability activities at corporate level can be found in the PGGM N.V. Annual Report. As a participant in Eumedion, we adhere to the ten Best Practices for Engaged Share-Ownership. The notes included in this annual report clearly indicate that we are implementing nine best practices in full. Best Practice 5 states that participants must have good processes in order to take measures in the event of conflicting interests. We have established these processes, but do not disclose them publicly in the way that Eumedion requires, because they involve confidential procedures. The six Principles for Responsible Investment (PRI) of the United Nations have also provided a guideline for reporting. As a signatory to the PRI, we also report annually on our activities to the PRI. Finally, we use PGGM-specific indicators for our responsible investment activities which PGGM has agreed with its clients. These indicators are stated in table 1. Quantitative indicators for responsible investment (page 51). Audit The text of the PGGM Annual Responsible Investment Report 2013 has been audited internally by the Corporate Risk & Compliance department, among others. 55 PGGM

56 Appendix 2: Independent assurance report To the Readers of the Responsible Investment Report 2013 of PGGM Vermogensbeheer B.V. We were engaged by the management of PGGM Vermogensbeheer (further PGGM ) to provide assurance on the information in the Responsible Investment Report 2013 (further the Report ). The management of PGGM is responsible for the preparation of The Report, including the identification of material issues. Our responsibility is to issue an assurance report based on the engagement outlined below. What was included in the scope of our assurance engagement? Our assurance engagement was designed to provide limited assurance on whether The Report is presented, in all material respects, in accordance with the reporting criteria. We do not provide any assurance on the achievability of the objectives, targets and expectations of PGGM. Procedures performed to obtain a limited level of assurance are aimed at determining the plausibility of information and are less extensive than those for a reasonable level of assurance. Which reporting criteria did PGGM use? PGGM applies internally developed criteria as described in Annex 1. Accountability and principles on page 54 of the Report. It is important to view the performance data in the context of these criteria. We believe these criteria are suitable in view of the context of our assurance engagement. Which assurance standard did we use? We conducted our engagement in accordance with the Dutch Standard 3000: Assurance Engagement other than Audits or Reviews of Historical Financial Information. This standard requires, among others, that the assurance team possesses the specific knowledge, skills and professional competencies needed to provide assurance on sustainability information, and that they comply with the requirements of the Code of Ethics for Professional Accountants of the International Federation of Accountants to ensure their independence. How did we reach our conclusion? Our procedures included the following: A risk analysis, including a media search, to identify relevant issues for PGGM in the reporting period in relation to responsible investment; Reviewing the suitability of the internal reporting guidelines of PGGM; Evaluating the design and implementation of the systems and processes for the collection, processing and control of the information in the Report; Interviewing relevant staff at corporate level responsible for the sustainability strategy, policies, communication and management in relation to responsible investment and other staff at corporate level responsible for the delivery of information for The Report; Evaluating internal and external documentation, based on sampling, to determine whether the information in The Report is supported by sufficient evidence; We have discussed necessary changes to the information in the Report during our procedures with PGGM and concluded that these changes have been adequately implemented in the final version of the Report. What is our conclusion? Based on the procedures performed, as described above, nothing has come to our attention to indicate that The Report is not presented, in all material respects, in accordance with the reporting criteria. Amstelveen, 31 March 2014 KPMG Sustainability Part of KPMG Advisory N.V. W.J. Bartels RA, Partner 56 PGGM

57 Colophon This annual report is published by PGGM Vermogensbeheer B.V. For further information, please contact Dr. Marcel Jeucken Managing Director Responsible Investment PGGM Vermogensbeheer B.V. Noordweg Noord JG Zeist The Netherlands PO Box AC Zeist The Netherlands Telephone: +31 (0) Graphic design by PI&Q, Zeist Disclaimer We provide the PGGM Annual Responsible Investment Report 2013 as a service for our clients and other interested parties. Although we have taken the utmost care in compiling this report, we cannot guarantee that the information is complete and/or accurate in all cases. Nor do we guarantee that its use will lead to the correct analyses for specific purposes. Therefore we can in no case be held liable for among other things but not exclusively any deficiencies, inaccuracies and/or subsequent amendments. The use of this report is not permitted without our prior written consent, other than for the stated purpose for which we have compiled this report. In the event of discrepancies between different versions of the PGGM Annual Responsible Investment Report 2013 the Dutch version shall prevail. 57 PGGM