This information serves to fulfil the disclosure requirements of Stichting Shell Pensioenfonds (SSPF).

No sustainable investment objective
This financial product promotes environmental and social (E&S) characteristics but does not have sustainable investment as its objective. Furthermore, this product does not intend to make any sustainable investments within the meaning of Article 2(17) of Regulation (EU) 2019/2088 (SFDR).

Environmental or social characteristics of the financial product
This financial product invests in multiple asset classes. The E&S characteristics promoted by this product may vary between asset classes and within the same asset class.

This product promotes the following E&S characteristics:
I. Lower carbon intensity
II. Improved governance
III. Exclusions (business activity)
IV. ESG inclusion criteria and
V. ESG reporting requirements.

Various sustainability indicators are used to measure the attainment of these E&S characteristics. These are periodically monitored through a process that is specific to each indicator.

Investment strategy
The strategy to attain each characteristic differs per indicator. This includes the use of custom ESG benchmarks and tracking-error constraints; the implementation of a business activity exclusion list; side-letter provisions in relation to externally managed funds*, sovereign inclusion list and custom ESG benchmarks that do not include issuers that fail to meet set criteria; assessment of externally managed funds on the basis of a framework on their level of ESG incorporation, pre-investment due diligence checks; and ongoing monitoring.

SSPF assesses investee companies’ governance practices by (a) identifying companies’ involvement in severe controversial business conduct on the basis of the UN Global Compact principles and OECD Guidelines for Multinational Enterprises, along with their responsiveness on any engagement efforts in this respect, (b) considering principal adverse sustainability impacts, (c) incorporating a governance rating, (d) assessing the level of ESG incorporation of (prospective) externally managed funds, and (e) applying Shell Group Principles.

*These disclosures make a distinction between the fiduciary manager, and other managers, collectively referenced by ‘external managers’ or ‘externally managed funds’. Because of the nature of the relationship between SSPF and its fiduciary manager, the expectations set in relation to monitoring the assets managed by the fiduciary manager differ from those related to external managers.

Proportion of investments
The average asset allocation of this financial product over a representative period of time prior to when these disclosures were made to assets that were aligned with one or more of the E or S characteristics was 69.5% of total assets, measured by market value.

Methodologies
There are various methodologies used to measure how the E&S characteristics promoted by this financial product are met. These include the comparison of the exposure of the portfolios in scope with the exposure of standard benchmarks; verification of no portfolio exposure to excluded issuers; verification that relevant side-letter provisions or similar management commitments have been implemented; assessment of the outcomes of pre-investment due diligence; and ongoing monitoring.

Data sources and processing
There are various sources used to measure and monitor the attainment of the E&S characteristics of this financial product. These include metrics, ratings and assessments provided by external data vendors and other third-party service providers; desk research; the outcomes of pre-investment due diligence and associated documentation; public data sources; external manager outreach; and the GRESB reporting tool.

Limitations to methodologies and data
The data selected for the E&S characteristics of this financial product are considered of sufficient quality to guide the implementation and attainment of the characteristics.

Due diligence
The due diligence process most relevant to the disclosures at hand relates to the monitoring of the E&S characteristics. The controls related to this process include the periodic review of the E&S characteristics by the fiduciary manager; review and distribution of the business activity exclusion list and its incorporation in pre-trade compliance tools; and the review of the investable universe criteria for sovereign debt instruments along with the communication of any changes to the criteria.

Engagement policies
SSPF defines engagement as SSPF using its influence to achieve sustainable improvements in relation to environmental and social policy and governance. SSPF seeks dialogue with company management via its ESG service provider, both proactively and reactively. On the one hand through proactive engagement, encouraging companies to make improvements to specific themes (‘do good’). On the other hand through reactive engagement (‘do no harm’) including violation of the UN Global Compact Principles.

Designated reference benchmark
This product uses reference benchmarks for the attainment, or the monitoring of the attainment, of some of the E&S characteristics promoted by this product. This concerns the characteristics ‘lower carbon intensity’ and ‘improved governance’ in relation to equity and corporate credit portfolios, and ‘ESG inclusion criteria’ with respect to sovereign debt.

Other forms of ESG incorporation
The description included in these regulatory disclosures only covers binding characteristics in the meaning of the SFDR; other forms of ESG incorporation, which take place on a discretionary basis, including but not limited to the ongoing integration of sustainability risks and opportunities in their investment decision-making processes, the periodic sustainability risk assessment and ongoing adverse impact due diligence, are not covered through these disclosures.

This financial product promotes environmental and social (E&S) characteristics but does not have as its objective sustainable investment.

Furthermore, this product does not intend to make any sustainable investments within the meaning of Article 2(17) of SFDR. Thereby, the investments underlying this financial product also do not take into account the EU criteria for sustainable economic activities, including the 'do no significant harm' principle.

This financial product invests in multiple asset classes. The E&S characteristics promoted by this product may vary between asset classes and within the same asset class, as further specified in the section 'What is the asset allocation planned for this financial product?’.

The following table specifies the E&S characteristics promoted by this product.

Table 2: E&S characteristics promoted by the product*

* Detailed description as to the portion of the product to which each characteristic applies can be found in the section of this website titled ‘Proportion of investments’. Where a reference benchmark is used for the purpose of attaining a characteristic, a detailed description of how this is being done is provided in the section of this website titled ‘Designated reference benchmark’.

** Scope 1 & scope 2 GHG emissions: Scope 1 emissions are direct greenhouse gas (GHG) emissions from sources owned or controlled by the company. Scope 2 emissions are indirect GHG emissions derived from the generation of electricity, steam, heating and cooling purchased by the company for its own consumption. (Source: CDP).

The following table specifies the sustainability indicators used to measure the attainment of the E&S characteristics promoted by this product.

Table 3: sustainability indicator overview

***(Quasi-)sovereign issuers: In the context of this characteristic, these are understood to be issuers 100% owned by a government or a government-related entity. The product thus does not have exposure to the debt issued by sovereign or quasi-sovereign issuers in relation to which the country of risk associated with that issuer fails to meet the minimum World Bank governance score and/or is subject to a UN arms embargo.

Investment strategy used to meet the environmental or social characteristics promoted by the financial product.

The following section describes the investment strategy used to meet the environmental or social characteristics promoted by the financial product, along with its binding elements (expectations in table 4 below). The fiduciary manager has set internal expectations and reports to SSPF if E&S characteristics are met or not.

Table 4: investment strategy used to meet the E&S characteristics and its binding elements

Policy to assess good governance practices of investee companies
The investee companies’ governance practices are assessed in the following ways:

  • Assessment of controversial business conduct
A process is in place to identify issuers that are involved in severe controversial business conduct and that are not responsive to engagement efforts regarding this conduct, and to subsequently assess the desirability of their exclusion from the investment universe. This process includes a review of inter alia governance practices of investee companies on the basis of the UN Global Compact principles and the OECD Guidelines for Multinational Enterprises. Elements such as business ethics, fraud, corruption, and market abuse, but also social elements such as employee relations and freedom of association are taken into account.

  • Consideration of principal adverse impact (PAI) indicators
This product’s investments are monitored on the basis of indicators aligned with the Commission Delegated Regulation (EU) 2022/1288 (SFDR Regulatory Technical Standard (RTS)) that relate to social and employee matters, as well as anti-corruption and anti-bribery. These indicators are periodically reviewed, which may lead to action to reduce the PAIs.

  • Governance rating incorporation
Parts of the product* used to attain the characteristic ‘improved governance’ have a tilt to issuers with a higher governance rating. This means that portfolio exposure to issuers with lower governance ratings is reduced relative to a standard benchmark, including full exposure removal in individual cases. The governance rating process*** includes the assessment of elements such as sound management structures and tax compliance. Furthermore, the same parts of the product as those used to attain the characteristic ‘improved governance’ aim to maintain the social rating at least at par with a standard benchmark. The social-rating process includes an assessment of elements such as employee relations and staff remuneration.
* Parts of the product: Detailed description as to the portion of the product to which the characteristic ‘improved governance’ applies can be found in the section of this website titled ‘Proportion of investments’.
** Rating process: Conducted by an external data vendor, MSCI.
*** Social rating: Same as the governance rating, the social rating is also provided by an external data vendor, MSCI.

  • Assessment of externally managed funds’ level of ESG incorporation
The assessment of ‘governance’ forms one of the four elements of the framework managed by the fiduciary manager to assess the level of ESG incorporation of externally managed funds for the purpose of the characteristic ‘ESG inclusion criteria’ described in Tables 2 and 3 in section 'Environmental or social characteristics of the financial product'. (Prospective) funds with less robust governance practices will score lower in the overall assessment and may be disqualified from investment.

  • Shell Group Principles
Given its relationship to the Shell Group, SSPF applies Shell’s approach to tax and the Shell Responsible Tax Principles that guide decisions on tax matters, and is committed to compliance, being transparent about tax matters and being open to dialogue. Moreover, SSPF acts in line with the Shell General Business Principles and verifies where selected external managers have appropriate business principles in place.

What is the asset allocation planned for this financial product?

Given the E&S characteristics promoted by this product differ per asset class/sub-asset class/strategy, the product’s disclosures are done at two levels: overall (as required by SFDR) and per individual characteristic.

At the overall level and per individual characteristic, the field ‘#1 Aligned with E/S characteristics’ denotes the average asset allocation of the financial product over a representative period of time prior to when these disclosures were made that is aligned with one or more of the E or S characteristics. The category ‘#2 Other'* represents investments that do not contribute to any of the specific E or S characteristic promoted by this financial product, namely, developed markets sovereign debt, private loans, derivatives, and cash.
*More generally, according to para. 12 SFDR RTS Preamble, the category ‘#2 Other’ may contain, for example, hedging instruments, unscreened investments for diversification purposes, investments for which data are lacking or cash held as ancillary liquidity.

These disclosures are made for an existing product and the figures presented in Chart 1 and Table 5 below do not constitute a binding minimum commitment as to the proportion of the asset allocation of the product that would be at all times used to meet a specified E or S characteristic. Instead, they serve to showcase the proportion of the product that can be reasonably expected to be used to meet the specified E or S characteristic, barring larger changes in the overall (strategic) asset allocation of the product driven by investment considerations** . In the context of this product, the ‘#2 Other’ category - developed markets sovereign debt in particular, is expected to increase over time in line with the product’s de-risking journey. Therefore, no such minimum commitment is made.
** Investment considerations: Material changes in the overall (strategic) asset allocation of the product would trigger a review of the average asset allocation to the investments used to meet certain E or S characteristics.

The financial product consists of approximately two thirds direct and one third indirect investments, based on the average assets of the financial product over a representative period of time prior to when these disclosures were made.

Chart 1: average asset allocation of the product - overall

#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product.
#2 Other includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor are qualified as sustainable investments.

Same as at the overall level, at the level of individual characteristic the percentage average asset allocation relating to the ‘#1 Aligned’ assets reflects the proportion of the product used to attain a characteristic over a representative period of time prior to when these disclosures were made.

Table 5: average asset allocation of the product – per individual characteristic

Each E&S characteristic promoted by the product is monitored on the basis of set indicators through a process that is specific to each indicator, as laid out in the table below. The attainment of all E&S characteristics is periodically monitored by the fiduciary manager. The review of the E&S characteristics by the fiduciary manager is subject to an annual internal control. For the characteristics ‘Exclusions based on business activities’ (exposure to non-compliant issuers) and ‘ESG inclusion criteria’ (World Bank governance score/UN arms embargo), as further described in the table below, additional controls have been established by the fiduciary manager.

The fiduciary manager reports back to SSPF with regards to the attainment of all E&S characteristics. The report is discussed in the SSPF’s ESG forum, which constitutes of board members of SSPF, SPN and representatives of the fiduciary manager. The minutes of the ESG forum are distributed to the board of trustees of SSPF and discussed in the board meeting.

Table 6: description of a process to monitor individual E or S characteristics

The following table describes the methodologies to measure how the environmental or social characteristics promoted by the financial product are met.

Table 7: methodologies for measurement of environmental or social characteristics

The following table lists the data sources used to measure and monitor the attainment of the E&S characteristics promoted by the product.

In order to ensure data quality, either the data or the third-party providing the data are reviewed prior to their initial onboarding and on an ongoing basis after onboarding by the fiduciary manager.

The way data are processed differs per characteristic. Data are reported in a centralised reporting system administered by the Reporting team of the fiduciary manager. This centralised reporting system also serves as a storage for relevant underlying data sources and historic exposures.

With the exception of the metric ‘Carbon intensity’, where part of the data set may be estimated by the third-party providing the data, none of the metrics used should include estimated data. The proportion of the data that is estimated in relation to the metric ‘Carbon intensity’ fluctuates over time, but it makes up a minority of the data set.

Table 8: data sources used to measure and monitor the attainment of the E or S characteristics

The data selected for the E&S characteristics of this financial product are considered of sufficient quality to guide the implementation and attainment of the characteristics. Lower data coverage within parts of this financial product may be considered a limitation, but such limitations have been accounted for in how the methodologies are constructed, with coverage levels being sufficiently high to not affect the monitoring and attainment of the E&S characteristics promoted by this product.

There are many forms of due diligence carried out by the fiduciary manager in relation to the (prospective) investments of this financial product. The due diligence process most relevant to the disclosures at hand relates to the monitoring of the E&S characteristics, which is more closely described in the section ‘Monitoring of environmental or social characteristics’ above. The section ‘Monitoring of environmental or social characteristics’ also includes a description of existing controls related to the periodic review of the E&S characteristics; review and distribution of the business activity exclusion list and its incorporation in pre-trade compliance tools; and the review of the investable universe criteria for sovereign debt instruments along with the communication of any changes regarding the criteria.

Engagement is not part of the investment strategy used to meet the environmental or social characteristics promoted by the product. The investment strategy is described in Table 4 in section 'Investment strategy'.

This product uses reference benchmarks for the attainment, or the monitoring of the attainment, of some of the characteristics promoted by the product. This concerns the characteristics ‘lower carbon intensity’ and ‘improved governance’ in relation to equity and corporate credit portfolios, and ‘ESG inclusion criteria’ with respect to sovereign debt.

Lower carbon intensity and improved governance
To enable the attainment of the characteristics ‘lower carbon intensity’ and ‘improved governance’ in relation to equity and corporate credit portfolios, ESG-tilted benchmarks are supplied by external benchmark providers, separately for equity and corporate credit portfolios. The metrics used are the same as those used in the portfolio monitoring context described in Tables 2 and 3 in section 'Environmental or social characteristics of the financial product'. The data sources used for the benchmarks are the same as the data sources described in Table 8 in section 'Data sources and data processing' in relation to ‘Lower carbon intensity’ and ‘Improved governance’. All ESG data is provided by an external data provider that has been assessed on its qualities regarding ESG data and data provisioning.

The benchmarks are constructed through an (optimisation) process under which broad market benchmarks are tilted toward lower carbon intensity and higher governance rating. Namely, they are built with the objective to have 10% higher governance rating and 25% reduction in carbon intensity relative to a standard (non-ESG) benchmark. Their risk/return characteristics of the custom ESG benchmarks are similar to the standard (non-ESG) benchmarks, with limited deviations (tracking error and drifts) as well as turnover required to achieve the characteristics. Prior to implementation, the benchmarks have been back tested across the relevant regions or strategies, confirming the methodology works.

To ensure the investment strategy and the benchmark methodology are aligned, the relevant portfolios are managed against the custom ESG benchmarks, including in the context of performance and risk budget monitoring within the limits set in the IMA. This serves to ensure that the portfolios stay aligned with the custom benchmarks across the board. Depending on the exact strategy at hand, the portfolios may be rebalanced periodically, ensuring they stay close to the benchmark over time. The benchmarks are reset semi-annually for equities and annually for corporate credit, taking the most recent ESG data into account.

The attainment of the characteristics is then monitored on a bi-monthly basis relative to a set of standard (non-ESG) parent indices aggregated based on relative weights (separately for each asset class). Larger than expected deviations from the set expectations would be investigated and, where appropriate, corrected.

ESG inclusion criteria - sovereign debt
To enable the attainment of the characteristic ‘ESG inclusion criteria’ with respect to sovereign debt (emerging markets debt (EMD) hard currency), this product uses a custom benchmark from an external provider that does not include issuers that fail to meet the inclusion criteria. The metrics used and their corresponding data sources are the same as those described in Table 8 in section 'Data sources and data processing' in relation to ‘ESG inclusion criteria - World Bank governance score/UN arms embargo’. The relevant portfolios are managed against the custom ESG benchmark within the limits set in the IMA. This serves to ensure that the portfolios stay aligned with the custom benchmark across the board. The custom ESG benchmark is reset monthly. Compliance with the inclusion criteria is monitored by the fiduciary manager.