pdf, 131.4 KB
Our core banking activities – client acceptance, investment and lending – are always underpinned by our sense of corporate social responsibility. For more information about corporate social responsibility in our core banking business, please consult our 2016 annual report.
We have a rigorous client due diligence (CDD) policy in place, under which we properly establish information about our clients, such as the origin of their assets. This policy also guards us against providing services to clients who may be involved in financial and economic crimes, such as money laundering or financing terrorism.
Our CDD policy supports corporate social responsibility, as we test new corporate borrowers on our responsible lending criteria ‘at the gate’.
Private clients, charitable societies, associations, church groups and institutional investors increasingly demand responsible investment, while civil society institutions are encouraging banks to make their investment processes ever more sustainable.
Responsible investment processes are based on both financial and non-financial data, and Van Lanschot’s investment process clearly reflects both. We opt for a strategy of engagement – a dialogue with companies and/or fund managers – and will exclude companies and investment funds if such engagement proves ineffective. It is our experience that engagement can result in changes in company policies.
To underpin our engagement activities, Van Lanschot draws on the expertise of an independent, specialist consultant, which screens companies and/or investment funds. To this end, our data provider has translated the United Nations framework into more specific screening criteria that are easy to apply and do not reflect subjective views on responsibility, but draw on generally and internationally accepted minimum standards as set down in around more than hundred international treaties and conventions covering such themes as human rights, labour standards (including child labour), environment, bribery and anti-corruption, weapons, pornography, nuclear energy, animal welfare (including fur) and tobacco. See our Convention Library.
Many responsible investors believe in the importance of good working conditions – not just for the employees of the company in which they invest, but also for those employed in the supply chain. We engaged in dialogue with several companies on this topic in 2016. One of them was La Doria, an Italian supplier of tomato and other food products. La Doria employs around 750 permanent staff and 1,500 seasonal workers, and has been accused in recent years of practices tantamount to ‘modern slavery’. The accusations relate primarily to tomato-pickers from Africa and Eastern Europe, who were said to be working under very poor conditions for La Doria agricultural suppliers in southern Italy.
To obtain an accurate picture, KCM not only contacted La Doria, but also a number of its clients, namely supermarkets which claim that they do not tolerate poor working conditions at their suppliers. It transpired from these discussions that there is indeed evidence of poor working conditions in the Italian agricultural sector but that La Doria is not directly involved. In fact, according to the supermarkets, La Doria is actually one of the most sustainable operators in the market, for example encouraging its suppliers to harvest mechanically rather than by hand where possible. In view of these practices, the risk of involvement in modern slavery is very small.
Moreover, all suppliers used by La Doria are bound by the company’s ethical code. La Doria’s own seasonal workers are given employment contracts where possible, are paid at least the minimum wage and are asked to work as little overtime as possible. La Doria has stated that it wishes to be as transparent as it can about its production conditions, and accordingly announced in 2016 that it was commissioning an independent third party to carry out further screening of its suppliers. Once the findings become available, we will discuss them with the company if necessary.
This approach works, as illustrated for example by our successful dialogue in recent years with the American high-yield manager Neuberger Berman. There were two important topics for engagement, the first of which concerned an investment in a controversial arms company. KCM noted that the Neuberger Berman High Yield Bond Fund had a stake in Aecom, a company that is excluded from the KCM investment universe due to its involvement in the production of nuclear weapons.
Neuberger was amenable to dialogue and, following a number of discussions and meetings, decided to sell this investment. It also emerged from these discussions that, while Neuberger takes ESG criteria into account in its decision-making process, this applied principally for equities and debt instruments issued in emerging markets, not for high-yield investments. KCM successfully persuaded Neuberger to integrate ECG criteria into its decision-making process for high-yield investments as well.
Our external stakeholders, and particularly civil society groups, clients and investors – institutional or otherwise – typically question us on our lending policies. The main thing they want to know is whether Van Lanschot puts its clients’ money – savings, deposits and current accounts – towards responsible lending exposures.
These questions have prompted us to draw up a responsible lending policy, which we’ve been implementing since 2011. The policy translates Global Compact and ILO principles – to which we are a signatory – on human rights, labour standards, environment and anti-corruption into a responsible lending process, and we’ve added a number of other themes, including weapons, fur, gambling, pornography, animal testing and nuclear energy. A split of the corporate portfolio to sectors can be found at the annual report 2016, pp. 120-126.
In addition, we have expanded our responsible lending policy by adding rules governing banking relationships with other financial institutions. This is how we seek to prevent funds entrusted to us from ending up with financial institutions with few or no corporate responsibility policies, in the shape of interbank loans for instance. Together with our responsible lending policies, this supplementary policy for financial institutions also informs the periodic screening of our own investment and trading portfolios.
In the past period, banks’ recovery sections have come in for a great deal of scrutiny, with debate raging about their roles and practices. To create more transparency, the Dutch Banking Association (NVB) has drawn up its Handreiking Bijzonder Beheer (‘Guide to financial restructuring and recovery’, in Dutch only) in close collaboration with the country’s banks, which sets out what clients can expect from banks’ recovery departments. Van Lanschot was involved in its creation and fully endorses the document.
Below we present a case study to show how we screen our corporate loan portfolio.
In the spring of 2016, Van Lanschot received a credit application from a Dutch company supplying climate control solutions to health care institutions, housing associations and schools. With the entrepreneur not an existing client and manufacturing a proportion of their products in Bosnia, we initiated additional sustainability research, focusing in particular on labour and environmental conditions in Bosnia. Our investigation revealed that Bosnia has ratified the most relevant ILO conventions, implying little chance of poor labour conditions, such as forced labour, discrimination or child labour. As the production facilities are built with the aid of EU subsidies, only produce high-grade technology products (no low-skilled labour) and have never been at the receiving end of any controversies, the chances of any irregularities were concluded to be slim. Lastly, the entrepreneur’s customers – i.e. semi-public institutions – were taken into consideration, as they are known to impose CSR requirements on their suppliers. Our research findings resulted in a positive CSR rating for the company.