Position Paper on Anti-Bribery & Corruption

Responsible Investment |Research

Zeist, January 2019

This document provides guidance to definitions of unethical business practices and PGGM´s
understanding and approach towards these practices. We address the way in which we engage with
managers, business relations and investee companies to abolish these practices. This guidance can be
used to further clarify the implementation of PGGM’s policy as it relates to third parties. The
expectations and the proposed process will help investment teams and external parties detect, evaluate
and address the relevant issues.

PGGM’s Code of Conduct (in Dutch) shows our commitment and sets the tone for our interaction with
clients, suppliers, colleagues and society in general. In combination with regular training it also ensures
that all employees are familiar with the specified guidelines. PGGM’s Whistle-blower guidelines (in
Dutch) show the procedures for internal and external reporting of actual and potential abuse, such as
corruption or any other perceived violation of the law or the policies. The whistle-blower policy also
includes anonymity and guarantees protection for employees who report actual or potential abuse in
good faith.
1. Introduction 2 Definitions
As an asset manager for our clients, PGGM is There are many ways for business to engage in
exposed to different sectors and countries all over unethical business conduct. PGGM has zero
the world. Some of these countries and sectors tolerance for any form of corruption, including
have less stringent laws concerning corruption bribery, facilitation payments, extortion and
and even consider different types of corruption as kickbacks.
a normal cost of doing business. In other countries
and sectors corruption is a sanctioned offence. PGGM follows the guidance from relevant
Increasingly, anti-corruption enforcement is global international institutions such as the UN
and sometimes has an extraterritorial reach. Convention against Corruption (UNCAC) and the
UN Global Compact with its 10th Principle. The
Multinational companies with connections to the 10th principle demands that companies not only
US and UK are growing more aware of the risks avoid bribery, extortion and other forms of
due to the enforcement of the US Foreign Corrupt corruption, but also proactively develop policies
Practices Act (FCPA) and the UK Bribery Act and concrete programs to address corruption
(Bribery Act). PGGM, as a responsible investor, internally and within their supply chains.
commits to raise awareness with our
counterparties to improve the standards and work Corruption
against corruption in all investments. PGGM accepts the definition of corruption by
Transparency International as “a political, social
PGGM recognizes the severe negative impacts of and economic phenomenon whereby entrusted
corruption to social and economic development. power is abused for private gain”. The UN Global
Every year the cost of corruption increases the Compact sets the expectations of companies to
overall cost of public services, it hurts good work against corruption in all its forms, including
businesses and hinders economic development. extortion and bribery. Below we describe the
Corruption is also detrimental to the efficiency of most common forms of corruption.
financial markets. By distorting competition,
corruption can prevent efficient and fair pricing. Bribery
The costs of doing business thus increases, Bribery is prohibited under the OECD Anti-Bribery
reducing overall profitability. Convention and considered a criminal offence in
almost all jurisdictions. Transparency International
For PGGM, as an investor, the risks of being linked defines bribery as “an offer or receipt of any gift,
to companies that are involved in forms of loan, fee, reward or other advantage to or from
corruption are significant. A fund manager any person as an inducement to do something
involved or linked to these activities can bring which is dishonest, illegal or a breach of trust, in
reputation damage to its investors. This can also the conduct of the enterprise's business”.
become a commercial risk. When law
enforcement agencies start to investigate a A distinction is sometimes made between bribery
company that is suspected of corruption, it can be and facilitation payments:
difficult to sell the company – assets can be frozen o Bribery concerns substantial payments of gifts
or seized and the true value of the company is whereby governments, companies or
likely to be uncertain as turnover and bank individuals are incited to act unlawfully. So it
balances may have been artificially inflated. can be towards public officials or private
companies.

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o Facilitation payments, also punishable portfolio companies involved in corruption. We
offences in the Netherlands and most will shortly describe the different approaches and
countries, involve smaller sums aimed at tools we use in this process depending on the
government officials for example performing proximity to our investments and type of investing
lawful acts more quickly. (active or passive, direct or indirect).

Extortion Due diligence for passive investments

Extortion, according to the OECD Guidelines for Our listed equities and credits portfolios are
Multinational Enterprises is: “The solicitation of largely run through external parties and are in
bribes is the act of asking or enticing another to majority index replication strategies. We call these
commit bribery. It becomes extortion when the passive investments.
demand is accompanied by threats that endanger
the personal integrity or the life of the private PGGM screens this portfolio on a quarterly basis
actors involved.”. for severe actual negative impacts through the
violations of the UN Global Compact relating to
Kickback the 10th principle. We engage with these
Kickback is common in procurement processes. It companies and expect them to adopt a policy
is a form of a negotiated bribe which implies (ideally publicly available) and/or code of conduct
collusion between agents of the two parties, and commit themselves to enforce and report on
rather than one party extorting the bribe from the procedures to prevent corruption.
other. Here a commission is paid to the bribe-
This means for example committing to compliance
taker in exchange for services rendered. An
with the national laws, but also supporting
example is a vendor submitting an inflated invoice
(inter)national and legal frameworks. Maintaining
with an employee of the victim company assisting
a gift and hospitality register, reporting in annual
in securing payment for which the individual
reports and accounts and auditing is also
receives some sort of payment. These are more
important. Additionally we ask companies to set
common in procurement processes.
up whistleblowing channels where relevant and
report on the efficiency of such mechanisms.
3. Implementation
PGGM aligns with international and regional legal Due Diligence in active, more direct investments
frameworks such as the UN Convention against PGGM’s private markets and alternative
Corruption and the UN Global Compact. Apart investments are mostly managed by internal
from looking at our own behaviour, as elaborated teams with larger ownership percentages. Here
in the Code of Conduct, we also analyse the are influence is often larger than in our passive
exposure and risk of unethical behaviour with investments, even though here too we often
third parties: companies, fund managers and depend on external managers and business
other business relations we work with. The relations.
approach is different and tailored to the way of
Corruption is a material topic in the due diligence
investing and the type of relationship.
process, especially for certain industries and
We accept the definition of due diligence as countries. This topic is also a part of the regular
described in the OECD Guidelines as an ongoing, analysis performed by the risk and operational
repetitive process aimed at identifying, assessing, due diligence teams. Where the risk is deemed
mitigating and accounting for the negative high, or where we find evidence of any
impacts coming from business relations or wrongdoing in the past, we analyse how the

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company has remedied the situation and what has investigation usually also extends to people
improved in terms of policy and management directly involved with these parties, such as
systems. We also reach out to local NGOs to find directors. If the results of this investigation so
out more about the issue in question. This helps warrant, we refrain from entering into a
us determine if through owning the asset we relationship with these parties or terminate
could try to minimize the negative impact. The existing relationships.
findings from due diligence are acknowledged in
the asset management phase. When necessary As part of our due diligence process, we verify
and possible we set up an action plan to improve the existence and content of anti-corruption
the policies and systems of the asset. policies and procedures when assessing
investment opportunities in companies and with
Indirect investment and working with third parties fund managers – as well as the underlying
For almost all our asset classes, private or public companies in which they invest – by reviewing
and active or passive, we work with a number of documentation and testing awareness during
third parties: banks, asset managers, onsite meetings. This process is repetitive and
intermediaries and individuals. We use publicly ongoing during the invested period. We monitor
available information and data providers to reporting and visit the investee companies and
investigate whether parties, with which we have other relevant third parties for monitoring and
or wish to have an investment relationship, are engagement.
or were in the past involved in corruption. This

For more information on PGGM Investments’ Responsible

Investment Implementation Framework please contact our
Responsible Investment department, +31 (0)30 277 99 11,
[email protected], or visit our website
www.pggm.com

Disclaimer
The information in this document has been compiled with
care by its authors. Omissions and errors pertain to the
authors. Information may change without prior notification.

PGGM Investments
Noordweg Noord 150
Postbus 117, 3700 AC Zeist

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Annex: PGGM’s expectations for business partners and investee companies

PGGM expects that its business partners and investee companies take bribery and corruption seriously and
develop the necessary policies and management systems to tackle it in their work. Transparency International
and other organizations provide guidance on developing a good anti-bribery and corruption systems. We
expect that the business partners and companies evaluate how they can implement this guidance specific to
their business.
The expectations involve five steps: Commitment, implementation (Assessment and Improvement) and
monitoring (Review and Engage). We follow the guidance by Transparency International to establish our
process.

1. Commitment
 Create an enabling environment and culture
o Establish proper tone from board and management in their statements and activities;
o Design remuneration and incentives so they do not reward undermining behaviour.
 Ensure proper governance and commitment
o Develop and Anti-bribery commitment or a policy/a process to identify and comply with anti-
bribery and related laws, clear assignment of responsibilities for the anti-bribery program taking
into account the company’s organisational structure.
 Enabling factors: Stakeholder engagement, Corporate community investment, Sustainable development,
Collective action, Business systems

2. Assessment
 Carry out risk assessment
o Understand the range of bribery/corruption risks facing the company and deciding which are the
most significant to address. Focus on the highest risks, evaluate as consistently as possible
(likelihood and impact framework), repeat the process periodically.
 Understand different types of corruption – bribery, kickbacks, active or passive
 Address small bribes: Assess the risks, develop policies and procedures to counter small bribes,
communicate and train, address third parties and enable accounting controls to counter small bribes.

3. Implement and Improve

 Introduce controls and prevention
o Establish financial controls – checks and balances, record transactions, implement audits;
o Set limits to gifts, hospitality and expenses – training for employees;
o Mitigate conflicts of interest – maintain a register, screen potential board members.

 Mitigate high risk activities

o Manage political engagement – board should have oversight and CEO or senior management
responsibility for political engagement as a whole. Be transparent about public policy positions,
donations and lobbying activities.
o Avoid bribes surrounding charitable donations, community investments and sponsorships can be
used as bribes.
o Have a strategy and ensure that all proposals fit within the strategy and the established
criteria. Conduct due diligence to see if they are affiliated with public officials or existing or

Research | Responsible Investment | Anti-Bribery & Corruption (ABC)

 potential customers. Implement controls (approval thresholds and counter-signatories) and
monitor payments to make sure that procedures are followed. Be transparent about your
donations and sponsorship strategy, procedures and payments.

 Manage third parties

o Create and implement a risk-based, integrated and consistent approach to anti-bribery
management of third parties across company operations.
o Carry out due diligence – collect, analyse and store relevant information about all third
parties including their ownership, how they operate, their integrity and anti-corruption
standards and any significant risks.
o Be systematic and focus on highest risks and build trust and constructive relationship.
 Procurement and Contracting
o Put in place and ensure effective procedures to counter bribery and corruption in its
procurement and contracting processes. This includes tailored training for staff and financial
controls over payments to contractors. Companies should also communicate the anti-bribery
program to contractors and suppliers, and include anti-bribery provisions in contracts, and
conduct rigorous monitoring of transactions and high-value contracts.
 Organizational Resilience
o Develop training and communication, i.e. integrated, tailored communication and training,
involvement from the top and important line managers, appraisal and continuous
improvement.
o Facilitate speak-up & Advice channels – build open culture, provide a range of channels, deal
with matters promptly, complete the process and analyse the use of the speak-up channels
for early warning signs.
 Enforce role of Human Resources
o Recruit and appoint the right people, help design the anti-bribery program: incentivize,
appraise and recognize, discipline.

4. Monitor and Review

 Ensure continuous improvement of the anti-bribery program, use new technology, engage external
review to audit and improve existing processes. Report on results of monitoring to senior
management and the Board and ensure that improvements are implemented where deficiencies
have been identified.

5. Engage
 Develop external engagement and reporting
o Integrate the approach to external communications, public reporting and stakeholder
engagement and incorporate reporting on integrity and the anti-bribery program in public
reporting;
o Use public reporting as a means to drive improvement, making use of KPIs where possible;
o Provide organisational transparency and country-by-country reporting;
o Use continuous reporting to provide accessible, up-to-date information;
o Be transparent about vulnerable processes, such as contracting and procurement (subject to
commercial confidentiality, privacy and data security laws

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