Workshop “Puzzling, powering, profiting: The Politics of Sustainable Finance in Europe”

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VIDI grant for sustainable finance research

I am thrilled to announce that the Dutch Research Council (NWO) has awarded me a VIDI grant for the project “Making Finance Sustainable? A Comparative Perspective on the Politics of Investment”. Part of NWO’s Talent Programme, the VIDI grant allows mid-career scholars to develop their own research line and build a research team over the course of five years. For this project, I will be joined by a postdoctoral researcher and a PhD student.

The project takes a comparative political economy approach to study the effects of governance on sustainable investment by large investors like insurance companies and pension funds. Sustainable investment involves (but is not limited to) the application of environmental criteria to financial investments. Despite increased policy interventions and political activism around sustainable investment, however, large investors have yet to realize the goal stated in the 2015 Paris Agreement: making “finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development” (Article 2.1 sub c).

Bringing comparative political economy into conversation with economic and sociological studies of sustainable investment, the project seeks to understand how different types of political economies, each with their own institutional characteristics and modes of governance, produce distinct sustainable investment outcomes. Taking an actor-centered institutionalist approach, we investigate governance at three distinct levels: the macro-organization of the political economy, financial policy-making processes, and the micro-level governance of the investment process. The project focuses on Finland, France, Germany, the Netherlands, Poland, Switzerland and the United Kingdom, where structures of the financial system and modes of policy-making vary along key dimensions relevant to financial investment. The project combines multilevel analysis and automated text analysis of investment data with comparative case studies based on interviews and site-intensive methods.

Three subprojects investigate the following questions: How does the macro-institutional structure of the political economy shape national and sectoral patterns of sustainable investment? How do modes of policy-making produce accommodative or constraining sustainable investment policies? And how do investors manage stakeholder pressures in the investment process? Assessing different policy instruments and political strategies for promoting sustainability among profit-oriented actors, the project will contribute to both academic and policy debates through a monograph and journal articles, conference presentations and targeted outreach activities aimed at national and European policymakers and other stakeholders.

My thanks goes out to NWO and to the VIDI selection committee for granting me this unique opportunity.

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New article in JEPP

My new article “Health and the Social Investment State” with Janna Goijaerts and Jet Bussemaker (both Leiden University) is now published online in the Journal of European Public Policy. This is the first article of Janna’s PhD thesis. In this article, we argue that scholarship on social policy and the welfare state requires new studies on health: studying not the healthcare sector, but public health. Our goal is to bring core insights from social epidemiology in conversation with welfare state research. We argue that the social investment framework has the most potential for this integration.

The objective of social investment policies is to keep modern welfare states sustainable by maintaining high employment and strong human capital. This requires not only a large and well-educated workforce, but also a healthy one. We propose a research agenda for welfare state scholarship on public health, based on the different policy functions of the social investment state as explained by Anton Hemerijck (2018): stock, flow, buffer.

Source: Goijaerts et al. 2022: 9.

Our call for action: 1) health should not only be studied separately as a sector in the welfare state, but as an integrated part of the welfare state as a whole; 2) health outcomes should be added as outcome measures of all welfare state arrangements, not only for healthcare policy; 3) health should be viewed as necessary input for the effectiveness of active social policies in the social investment state; and 4) complex mechanisms between macro-level welfare institutions and micro-level health outcomes should be untangled, so we can understand the complex ways in which different policies intersect and/or overlap.

Read the full article here.

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New Article in New Political Economy

In a new article recently published in New Political Economy, DEEPEN team members Philipp Golka and Natascha van der Zwan investigate the link between financial valuation and institutional change through recent dynamics of pension fund governance in the Netherlands.

The Netherlands has century-old institutions of representing social partners (employers, employees, pensioners) in the governance of pension funds. However, a new law in 2012 allowed pension funds to introduce financial experts to pension fund boards – either by adding them to traditional models of representational governance, or through new models where experts take center stage.

At first sight, the Dutch pension system shows institutional resilience in the face of a changing legislative environment as 69% of Dutch pension funds still use representational models. However, the empirical analysis of board composition of all Dutch pension funds shows that an important transformation is increasingly taking place from within. As of 2020, nearly half (46%) of Dutch pension funds feature independent board members.

Source: Golka and Van der Zwan (2022: 6).

To explain the rise of financial experts, the article draws on the linked ecologies framework developed by Abbott (2005). This framework provides two important analytical concepts: hinges are projects that make professional groups in different institutional spheres dependent on the same outcome. Avatars are institutionalized hinges where one group is reproduced within another professional group.

In the mid 2000s, an important hinge between the financial world of pension funds as well as the political sphere of pension policy has been developed. In 2007, the Dutch government made pension entitlements dependent on a newly developed funding ratio based on market valuation of assets and liabilities. This created a hinge between pension funds and policy, as financial market swings would now translate directly into pension outcomes. As pension assets and liabilities plunged during the financial crisis in 2008-10, funding ratios rapidly declined, leading to unprecedented pension cuts. Indeed, due to historically low interest rates, funding ratios remained low even as asset levels grew almost threefold since 2009.

Dependent on financial expertise, policymakers invited economists and pension professionals to make sense of the crisis. This created an avatar of finance within the policy realm. As a result, the earlier idea to introduce financial experts as internal supervisors was transposed to strengthening expertise within pension fund boards. However, expertise was ascribed to financial actors by their social position, creating a false dichotomy that led to a gradual displacement of representative board members.

This study provides novel insights by showing how changes in financial valuation techniques can lead to larger institutional change. It shows how financial valuation can create dependencies between finance and policy that can be used as professional opportunities by experts who can claim respective proficiency. Importantly, the displacement effects elicited by the rise of financial experts should not be read as a growing financialization of the state. Rather, this dynamic bolstered state capacity in a previously corporatist domain as expertise requirements are defined by financial regulators.

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Handbook of Financialization Now in Paperback

Together with my co-editors Philip Mader and Daniel Mertens, I am very pleased that the Routledge International Handbook of Financialization (2020) is now also out in paperback. We are grateful that our joint efforts and those of the 60 contributors to our Handbook have been so positively received by a large, and still growing, readership. Please see the Routledge website for more information.

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Getting Rid of Fossil Fuels

A few weeks ago, Dutch pension giant ABP decided to divest from fossil fuels. But is this actually going to help the climate? With Arjen van der Heide and Philipp Golka (both Leiden University), I address this question in our new article for S&D. Here’s the English summary:

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The positive view on divestment is that it lowers stock prices and may reduce fossil extraction by reducing available capital and public shaming. It is also expected to free up capital for green investments. Moreover, divestment may reduce pension exposure to stranded assets. It may trigger other funds to divest, too.

But, so we argue, divestment is a double-edged sword: the threat of investors “exiting” may actually strengthen their positions in engagement with polluters. Yet, as as more sustainable investors divest, engagement opportunities decrease and less concerned investors may take over. Such a shift in fossil fuel firms’ shareholder basis towards less sustainable investors is problematic: financialization scholarship has shown investors’ large success in pressuring firms to maximize shareholder value. This may result in more fossil fuel extraction.

This is an actual threat, because many fossil fuel producers are owned by governments that are highly dependent on fossil fuel revenues. And big parts of fossil fuel extraction are not financed via equities, but via bank lending that shows hardly any signs of slowing down. This means that not only may the scope of divestment be too small to deliver meaningful change—by closing the door on engagement, it may also increase the voice of fossil-hungry investors who may pressure for more fossil fuel extraction.

While its effectiveness is up for debate, divestment decisions are hailed as successes for the climate movement and often garner significant media attention. But this may obfuscate our view of the problems of current climate finance, and how it can be improved. Even as ABP is a front-runner in sustainability, only a fraction of its assets are currently invested into green projects. Globally, the situation is most likely even worse, yet there is hardly any transparency regarding investors’ carbon impact.

The recent drop in (EU) green assets after the introduction of the EU Sustainable Finance Disclosure Regulation has shown that investors still have too much labeling flexibility. We therefore need portfolio-level transparency on scope 1-3 emissions as a first step to make finance 1.5°-compliant. Green finance has long been a tool for policymakers hoping to “leverage” public resources. But financial markets alone won’t transform our economies. Besides much stronger regulation, we need much more direct public investment into the green transition.

Read more here.

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2nd LawFin Workshop, December 13-14

On December 13, 2021, I presented the first research results of the ongoing project on internal supervision in Dutch pension funds (with Philipp Golka) during the Second LawFin Workshop. Themed The Metamorphosing Landscape of Investors’ Capitalism, the workshop brought together legal scholars, economists and political scientists to have an interdisciplinary discussion about new developments in contemporary investor capitalism. For more information on the workshop, see the program below or click here.

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New article in JESP

In a new article recently published online by the Journal of European Social Policy, Ville-Pekka Sorsa (University of Helsinki) and I argue against expert and scholarly understandings of pension sustainability as affordability and adequacy. Instead, we shift focus to political sustainability:  policymakers’ ability to maintain consensus around pension scheme parameters and avert pressures for change. The key question is: do policymakers have the willingness and the ability to sustain the pension scheme?

To answer this question, we compare the cases of Finland and the Netherlands: two mature three-pillar pension regimes characterized by the long-term survival of large-scale, funded and collective DB pensions. In both countries, we identify three historical waves of pension reform (see table 1 below). Each of the three waves is characterized by different political concerns over the long-term sustainability of collective DB pensions. For instance: during the first wave of pension reform, which took place in the formative years of both pension systems, policymakers were concerned about low coverage of collective DB pensions, which threatened the survival of the system. In later waves, sustainability concerns centered on the fiscal sustainability of the pension system (Finland) and low solvency of pension funds (Netherlands).

Crucially, policymakers in both countries responded to these concerns by making parametric changes to collective pensions. We find that, in our two cases, nine types of pension scheme parameters have been (re-)negotiated (see Table 2). For instance, sustainability concerns in the Netherlands during the late 1990s directly informed parametric changes, such as changes to the accrual rates (from final to average-salary DB) and the elimination of automatic adjustments of pension rights to wage or price increases (conditional indexation). Both adjustments successfully sustained the DB nature of collective pensions and averted a paradigmatic switch to DC pensions.  

Our comparison highlights the importance of governance practices for the possibility of adjustment. Both countries are characterized by long-standing traditions of corporatism in the pension system. Policymakers’ willingness to sustain stemmed from their perception of the key collective pension schemes as important power resources. The social partners did not only consider the schemes crucial for the legitimacy of corporatist governance, but also accepted compromises to improve or maintain their own status in pension governance. Governments of the two states, meanwhile, also considered collective pensions essential, often for economic reasons.  

BenefitsPension salary
Accrual rate
Indexation of accrued pension rights
Eligibility Years of employment
Additional conditions for retirement
FinancingContributions by employers and/or employees
Investment policy and management
Investment regulations
GovernanceManagement and administration of pension plans
Table 2: Pension parameters

We draw two conclusions from our study. First, even perceived unsustainable features of pensions can be adjusted to changing circumstances, as long as policymakers and stakeholders regard all pension scheme parameters as negotiable. These findings inform our second conclusion: not just policy design, but also governance considerations are necessary for sustaining pensions. If stable political coalitions are central to the political sustainability of social policies, then governance interests and concerns need to be more seriously taken into account if policymakers wish to build sustainable pension schemes.

Even though our focus is on pensions, our findings are relevant for the wider scholarship of social policy. Sustainability offers a useful concept for understanding the long-term prevalence of social policies and institutions like pension schemes. However, without explaining why different actors maintain and renew some social policies and welfare institutions but not others, sustainability research will have little to say about the actual longevity of policies and institutions. Our findings can be summarized as the following maxim on sustainability: the capacity to sustain a welfare scheme is primary to any particular conception of sustainability based on a narrow set of policy indicators.

This has become apparent in the Netherlands, where a fourth wave of adjustment has moved the policy paradigm towards CDC pensions. The deviatingtrajectory of the Netherlands since the 2010s shows how the very process of sustaining can also disrupt existing pension policy. When cracks emerged in the consensus between the social partners, the state was able to increase its influence. State interventions either fixed some parameters or led social partners to consider certain parameters as non-negotiable. Once social partners become unwilling to negotiate particular pension parameters (the contribution rate for employers; the retirement age for unions), possibilities for parametric adjustments are closed off. The Dutch social partners choose to maintain collective administration of occupational pensions at the expense of the DB nature of the pension contract.

This leaves us with an important recommendation for future research on welfare sustainability: rather than conceptualizing sustainability as a ‘tick-box’ exercise of available policy instruments external to the policy process, scholars of social policy should consider how institutional capacities and governance practice shape the complex ways in which policymakers create sustainable welfare states.

Read the entire article here.

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Webinar on Sustainable Investing by Pension Funds

At the invitation of Netspar, Arjen van der Heide and I recently gave a flash webinar on sustainable investment by Dutch pension funds. Our webinar was part of the 11th edition of the Pensioen3daagse, an annual public awareness campaign organized by Wijzer in Geldzaken, an initiative of the Netherlands Ministry of Finance.

Pension is a difficult topic and many people don’t know the details of their own retirement savings. Each year, the Pensioen3daagse hosts special events to inform Dutch citizens in an accessible manner, in collaboration with Netspar and other partners. This year, more than 2.000 people signed up to attend the flash webinars on a range of current themes related to pension.

Coinciding with the COP26 climate summit in Glasgow, the Pensioen3daagse offered a great opportunity to shed additional light on sustainable investment by Dutch pension funds. To introduce our audience to an otherwise very technical topic, Arjen and I organized our lecture around five questions:

  1. What are the origins of sustainable investment?
  2. What does sustainable investment entail?
  3. Is sustainable investment profitable?
  4. What are the pros and cons of sustainable investment?
  5. What can pension plan members do themselves?

Broadcasting from the Aegon studio, we answered each of these questions in a 20-minute presentation. Aalt-Jan Smits assisted as online moderator.

For more information on our ongoing research on sustainable pension investment, click here.

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Roundtables on Internal Supervision Pension Funds

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Together with Philipp Golka and Aalt-Jan Smits (both Leiden University), I recently participated in two roundtable discussions with trustees and internal supervisors from the Dutch pension sector. During the roundtables, organized by Monitoring Commission of the Dutch Pension Fund Code (Monitoringcommissie Code Pensioenfondsen), my colleagues and I presented the first results of our research project on internal supervision in Dutch pension funds. Internal supervision is a control function of pension fund boards that has been introduced by the legislator in 2014.

Drawing on a survey as well as in-depth qualitative interviews, the Leiden team described the experiences of internal supervisors in safeguarding participant preferences, diversity, and the learning capacity of their organization. In addition, we led a discussion among pension fund board members and internal supervisors by presenting a number of dilemmas that, according to our research, internal supervisors face as part of their responsibilities. The findings from these round table discussions will inform the final research report that aims at serving as a scientific basis for future improvement of the Dutch Pension Fund Code.

The roundtable discussions were held on September 22 and 28 2021 in Utrecht, The Netherlands. More information regarding the research project on internal supervision can be found here.

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