PGGM has been active in

the field of responsible

investment since 1985,

at that time focused on

exclusionary screens on

weapons and human rights. In

later years this has broadened to

activities on sustainable investment

and corporate governance,

among others best-in-class mandates

and voting.

In November 2006 the Board of

Trustees of PGGM approved the

Responsible Investment Policy

which lays down the principles

and activities on responsible

investment for the coming years.

This new Responsible Investment

Policy focuses on integration and

internalisation and forms an

integral part of our investment

policy.

We define responsible investment

as all investment activities

that take account of the impact of

environmental, social and corporate

governance (ESG) factors. By

integrating responsible investment

into our investment policy,

PGGM seeks to achieve a high

and stable return while respecting

the identity of the fund and

its participants.

PGGM cares about responsible

investment because it regards it

as a necessity; it is one of our core

investment beliefs. There are two

main reasons. First, responsible

investment is part of our fiduciary

duty. It contributes to a

high and stable yield, because

ESG factors have an impact on

the risk and return of our investments.

Furthermore, as a universal

investor, PGGM has an interest

in the quality and continuity

of the global investment universe.

Second, responsible investment

is part of PGGM's identity. PGGM

seeks to relate its investment policy

to the identity of the fund and

the norms and values of its beneficiaries.

Moreover,

a pension

fund has a clear

social responsibility

which is

also expressed

in its investment

policy.

Responsible

investment

must be seen

first and foremost

as an

aspect of our

fiduciary duty.

As a pension

fund, we have

a statutory

responsibility

to invest the

assets in such a

way as to "preserve

the security,

quality

and liquidity

of and the

return on the

fund as a

whole'"(Section

9.b.a. of

the Dutch Pensions and Savings

Funds Act). This requires the

fund to assess and manage all

foreseeable risk factors as effectively

as possible. If ESG factors

have a demonstrable impact on

the financial performance of the

investments, they have to be

analysed and taken into account

in the investment decision.

At the same time, PGGM sees

responsible investment as an

important expression of its identity.

Consequently, PGGM sets

minimum standards for the ethical

and social behaviour of the

companies and funds in which it

invests and its identity to some

extent dictates the agenda on

which, for example, dialogue is

conducted. Core themes within

the Responsible Investment Policy

are weapons, human rights,

health care and medicines, and

climate change.

Responsible investment is an

integral part of our investment

policy and activities. Core to our

policy is our fiduciary duty and

our identity. The concept of

responsible investment is still

evolving rapidly. As such, the

implementation of responsible

investment within PGGM will

also be evolutionary and a learning

process. Our activities need to

be auditable to our policy. We

accept that the results accruing

from responsible investment are

still difficult to measure and allocate,

yet we shall attempt to do

so. The focus is on activities

which are expected to have the

greatest impact.

Since the resources are by definition

limited, PGGM will in all

cases be selective, specific and

pragmatic. Cooperation with

other players in the market will

create synergy and increase

impact. Finally, we will report

transparently on our objectives,

operations and results, in the

interests of providing a clear picture

of our responsible investment

activities and their impact.

Perceiving sustainability to be

an integral part of our investment

policy, PGGM, in cooperation

with a large number of institutional

investors and at the invitation

of the United Nations,

drew up the principles for

Responsible Investment (PRI).

These Principles were formally

ratified by the UN and other signatories

in April 2006 and cosigned

by PGGM after approval

by its board of trustees.

PGGM has adopted the UN PRI

as a mandatory framework for its

activities in the field of responsible

investment. The principles

require investors to undertake

activities in six areas:

❏ Incorporate ESG issues into

investment analysis and decision-

making processes;

❏ Act as active owners and incorporate

ESG issues into ownership

policies and practices;

❏ Seek appropriate disclosure on

ESG issues by the entities in

which is invested;

❏ Promote acceptance and implementation

of the Principles

within the investment industry;

❏ Work together to enhance

effectiveness in implementing

the Principles;

❏ Report on activities and

progress towards implementing

the Principles.

The focus within our Responsible

Investment Policy is

on the following 10 areas:

❏ We will integrate ESG aspects

into our long-term active equities

portfolio. Within this portfolio

the assessment of the threats and

opportunities presented by ESG

factors will form an integral part

of the analysis of companies;

❏ Within our Portfolio of Strategies

(POS), we will select suitable

theme investments which generate

a social return and are consistent

with the criteria which POS

applies to identify suitable

investments;.

❏ We will enter into a dialogue,

on a structural, systematic and

visible basis, with financial markets

and individual companies in

which we invest, with a view to

raising the standards of corporate

governance, internationally,

starting in Europe;.

❏ We will enter into a dialogue,

on a structural, systematic and

visible basis, with financial markets

and individual companies in

which we invest, with a view to

stimulating progress in environmental

and social issues which

relate to PGGM's identity;

❏ Our role as an active shareholder

will be supported by a

well-informed voting and voting

policy based on clear priorities.

We will develop a new more differentiated

voting policy,

whereby priorities will be carefully

set with reference to our

major holdings, impact and feasibility;

❏ We will develop a more specific

exclusions policy, under which

individual decisions will be made

on the exclusion of certain companies

on the basis of generic ethical

standards;

❏ We will enter into a dialogue

on responsible investment with

external managers. We will make

external managers aware of the

importance we attach to responsible

investment and will assess

their performance in this area,

amongst others by including specific

ESG questions in both our

assessment process and selection

process (RFP);

❏ We will encourage the development

of best practices in responsible

investment in emerging

markets at our external managers;

❏ We will develop responsible

investment principles and a monitoring

framework which will be

steering for our entire portfoli;

❏ We will externally report in a

clear and integral fashion on our

responsible investment activities.

What have we achieved to date?

We have recently started our

journey on integrating ESG issues

in our internal long-term equity

portfolio (LTEP). Within LTEP

opportunities and threats resulting

from ESG issues form an integral

part of the analysis of target

companies. Recently, a concrete

and substantial strategic investment

has been made where we

expect a corporate governance

catalyst to create substantial

value to our LTEP portfolio in a

timeframe of up to five years. ESG

factors have been fully integrated

in the analysis and decision-making

progress.

In recent years, we have

launched some targeted ESG

investments. PGGM has, for

example, invested €200m in the

FTSE4Good Europe index. This is

a passive ‘best-in-class' strategy

in which companies with an

above average sustainability

score are included in the index.

The fund then invests in the

entire index. PGGM has furthermore

invested €180m in the Hermes

European Focus Fund. The

investment philosophy of this

fund is that additional return will

be created by engaging actively

with companies in the fund

selected on amongst others corporate

governance issues. PGGM

has also invested in a fund that

invests in on-shore wind farms in

western Europe.

PGGM has furthermore committed

€250m to Climate Change

Capital Carbon Fund II. This fund

invests in projects that reduce

CO2 emissions. We have committed

€250m to Albright Capital

Management for a long term,

multi-asset class, investment in

emerging markets. PGGM

becomes a strategic investor to

the fund. The objective of the

fund is to improve results by integrating

global citizenship, good

corporate governance, socially

responsible policies, and transparency

into a comprehensive

emerging markets investment

program. Finally, PGGM has

decided to commit €250m to a

sustainable energy private equity

mandate.

Transparency and accountability

are key elements of

good corporate governance.

PGGM believes that

long-term value is created by

the improvement of corporate

governance of companies it

invests in. For this reason

PGGM has been one of the initiators

of and plays an active

role in Eumedion, the Dutch

organisation of institutional

investors on good corporate

governance. Within Eumedion

we work closely with others to

develop best practices.

In 2006 Eumedion, for example,

published a new recommendation

on executive remuneration.

According to the Dutch Monitoring

Commission Corporate Governance

Code that reports to the

Dutch government, 2006 saw significant

improvements in the

corporate governance of Dutch

listed companies. This can be

attributed to some extent to the

work of Eumedion. Internationally,

PGGM participates amongst

others in corporate governance

networks such as the GIGN

(Global Institutional Governance

Network) and the ICGN (International

Corporate Governance

Network).

PGGM promotes sustainable

development and corporate governance

using the instrument of

‘engagement'. For this purpose,

F&C, on PGGM's request, applies

its Responsible Engagement

Overlay to our entire equity portfolio.

F&C enters into a dialogue

with companies in which PGGM

invests, with the objective to

incite improvements in the areas

of human rights, environment,

corporate governance and social

conditions. For instance, F&C

urged an important group of

companies to better outline the

risks of HIV/Aids in Africa and

develop preventive strategies. On

our website, quarterly reports are

available on these activities by

F&C for PGGM.

To internationally achieve

higher corporate governance

standards, PGGM, together with

several other institutional

investors, has started a dialogue

with the supervisor of capital

markets in the US, the Securities

Exchange Commission (SEC). We

have pleaded for regulations

which would force listed companies

in the US to be more transparent

on their remuneration

policy. These actions directly

resulted in a concrete response.

The new directives published

by the SEC in late summer of

2006, oblige companies to

provide better explanation and

more transparency on their

remuneration policy.

Furthermore, PGGM engaged

in activities to enlarge the

rights of shareholders in the

US. Finally, for the third consecutive

year, PGGM supported

the Carbon Disclosure Project

(CDP). PGGM has signed a letter

which requests companies

globally to report on the way

they reduce carbon emissions.

Voting is an important instrument

to improve the corporate

governance of the companies we

invest in. It is moreover an

important shareholder right.

To steer its voting, PGGM has

developed and published voting

guidelines. These are part of the

PGGM Code of Corporate Governance.

PGGM votes at AGMs of

listed companies by visiting these

AGMs, giving power of attorney

to peers within, for example, the

Eumedion network, or by proxy

voting. In 2006, PGGM, or by

power of attorney one of its

peers, visited 21 AGMs in The

Netherlands. Globally, we

voted at 948 AGMs by proxy. We

fully disclose our voting on our

website.

Last year we again applied our

exclusionary criteria to our entire

portfolio. We screen companies

on substantial involvement in

weapons sales or productions

and/or involvement in human

rights abuses. In weapons sales

we have, for example, excluded

some 50 companies from investment.

We have furthermore

developed and applied a framework

to assess the ESG risks of

specialised investment houses.

PGGM is currently reviewing its

exclusions policy and in progress

of developing a more differentiated

and substantial Exclusions

Policy to be implemented in

2007. This new policy will be

more closely aligned with our

In 2006, we started a dialogue

on responsible investment

with our external asset managers.

In the assessment framework

and in the selection process

of external asset managers, particular

ESG related questions are

defined which are taken into

account in our decision-making

process. In addition, PGGM has

addressed some of its external

asset managers on the role they

play regarding the remuneration

policy of companies in the US.

Furthermore, PGGM is one of the

founders of and participants in

the ‘Enhanced Analytics Initiative'

(EAI). The EAI encourages

brokers and research organisations

to provide better research

on ‘extra-financial' issues, like

ESG themes.

Responsible Investment has

been structurally embedded in

the management reports in 2006,

and it is now part of our Key Performance

Indicators (KPIs). In

addition it has become an integral

part of our reporting. Finally,

the former departments Corporate

Governance and Sustainable

Investment have been integrated

in the new department responsible

investment.

We are not there yet, but we

think we have made considerable

progress in 2006 and are adding

value to our beneficiaries by

slowly and prudently integrating

ESG factors in our entire investment

process. We are furthermore

in progress of developing a

new exclusions policy, engagement

policy, new corporate governance

principles and a new voting

policy & guidelines.

Much more work still needs to

be done. This is why PGGM is

expanding its responsible investment

department to five professionals

in 2007. The department

works closely together with other

departments that have there own

responsible investment targets.

Key focus for the responsible

investment team for the coming

year will be on the integration of

ESG issues in differentiated

investment products, informed

voting across our entire portfolio

of listed equities, targeted ESG

engagement, and transparent

reporting on our responsible

investment achievements to our

stakeholders.

Marcel Jeucken is head of

responsible investments at PGGM.

He was formerly head of

institutional relations at Dutch

Sustainability Research, (DSR) and

sales and marketing director at the

Sustainable Investment Research

International Company (SiRi)

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