Dutch funds play hard to get on defence investments

Pension funds in the Netherlands are waiting for the government to offer “concrete proposals” for investment in the defence sector.

Despite their sensitivity to the topic, Dutch pension funds have not materially increased their investments in defence assets since the outbreak of the war in Ukraine. Only one scheme has relaxed its exclusion criteria for the sector, resulting in the value of its defence investments more than tripling.

The pension fund for employees of Mediahuis Nederland, publisher of the Netherlands’ largest newspaper, De Telegraaf, had already increased its investments in defence companies in 2023.

At the end of that year, the fund’s investments in the sector amounted to €5.2m, or 2.1% of the total equity portfolio. This was up from €1.1m before the Russian invasion of Ukraine in early 2022. Over the past two years, there has been a five-fold increase in defence investment by the fund.

The reason for the fund’s increased exposure was a relaxation of its exclusion criteria for the sector. “Our old policy was that we didn’t invest at all in companies that had anything to do with nuclear weapons,” said the fund’s president, Arno Reekers.

He added: “But that means excluding many manufacturers of ordinary weapons. We never wanted to exclude ordinary weapons and the Ukraine war shows the need for that. F16s and anti-aircraft guns, for example, must be able to be produced for Ukraine.”

The fund, therefore, relaxed the exclusion of investment in the production of (components for) nuclear weapons; only supplies to countries outside the Nuclear Non-Proliferation Treaty, intended to limit the possession of nuclear weapons, remain prohibited.

As a result, many more arms manufacturers became eligible for investment. This allowed the German defence firm Rheinmetall to become the pension fund’s largest individual European equity position by 2023. Thales, Dassault and Hensoldt were also added to the portfolio.

Most large pension funds in the Netherlands exclude companies involved with the production of controversial weapons, including nuclear weapons, and as a result do not invest in the likes of Airbus or Boeing. But the government especially wants pension funds to up their non-listed investments in defence.

Backseat

More than a year ago, former defence minister Kajsa Ollongren accused pension funds of being “part of the problem” by not investing enough in the Dutch defence sector.

Her call to action has, however, so far failed to yield any results as the pension sector has taken a back seat after kicking the ball back into the government’s court by calling on it to first provide investment opportunities.

“Pension funds don’t buy bullets, so it all must start with a long-term investment plan for the defence industry from the government,” said Edith Maat, the director of the Dutch pension federation Pensioenfederatie.

The government says it has been holding talks with pension funds about them increasing their defence investments, but these have not produced any public results yet.

Most pension funds that were approached for an interview on the topic by IPE declined to participate because they had nothing new to say.

“We would like to invest more in defence,” Daan Spaargaren, senior strategist for responsible investment at technology and electronics sector pension scheme PME told IPE.

“We want to think along with the government to see what’s needed and how we can contribute to this. But we still haven’t received a concrete investment proposal from the government,” he said.

“The same goes for euro bonds that will be issued to finance specific defence spending. We are interested in investing in these bonds, but they are yet to be issued.”

Members cheer defence investments

If the government provides stable long-term financing, there’s nothing to stop PME from investing more in defence as its members support higher defence investments, said Spaargaren.

“We have seen a sea change since 2022,” he noted.

“Participants find it important that the armed forces be strengthened. We also hear that at meetings with members that we organise. We are currently conducting a member survey on the topic, and I expect a high percentage to support more investments in defence.”

The same goes for PME’s ‘sister scheme’ PMT, the pension fund for the metals industry, which conducted a member survey last year.

“The results showed that fewer respondents do not want to invest in weapons and that the sentiment to absolutely invest in weapons for defence and warfare has risen,” a spokesperson told IPE.

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