Insurance plays a very important social and economic role. It protects people, property and assets. By doing so, it allows individuals and businesses to take risks; savings products help them invest and plan for the future.
Without insurance, consumers would be less confident spending their money, and businesses would be reluctant to expand and invest in new activities.
Insurance isn't only a driver of growth, it's also a source of social and economic stability. Insurers are natural long-term investors since, through their products, they also have long-term liabilities. Insurers also strengthen social cohesion by sharing the cost of protection across large groups – in effect, using income from the majority to cover losses suffered by a minority. Long-term savings and investment products, meanwhile, help create greater financial security – and help people provide independently for retirement.
As an insurer and financial services company, we have a number of social and economic levers. We're a significant employer, especially in the US, Netherlands and the UK, and we also contribute to society through our tax payments, support for our local communities and, most importantly, through the money we invest, both for our own account and on behalf of our customers. Our role is to be a responsible corporate citizen – fully aware of the impact our business has on those around us, not only financially, but also socially and environmentally.
Revenue-generating investments managed by Aegon in 2017
In green investments
Aegon manages revenue-generating investments worth more than €817 billion. We have a duty to invest that money responsibly. That means delivering the financial returns expected by our customers and shareholders. But it also means investing, where we can, for the good of society and the environment. Since 2011, we've had a Responsible Investment Policy. The aim of this is to ensure we take environmental, social and governance (ESG) factors into account when making our investment decisions. The policy applies to all our businesses and to all major asset classes, including both fixed income and equity. We're working now on sector-by-sector guidelines to help investment managers apply our policy consistently.
Aegon's approach to responsible investment is overseen by a Responsible Investment Strategy Committee; this is backed up by a technical committee, which looks after operational issues. There's mandatory ESG training for our portfolio managers, and we've taken steps, over the past few years, to build responsible investment into our investment mandates and into our formal risk management framework1. Our investment teams also include ESG on their tear sheets – the analysis they make before deciding where to invest.
As part of our policy, we've decided to exclude some investments2. For example, we won't invest in controversial weapons, such as cluster bombs and anti-personnel mines – both the subject of international treaties. Nor will we invest in countries where there are systematic breaches of human rights. In 2017, we excluded mining companies that derive 30% or more of their revenue from coal – to support the fight against climate change. We also decided to stop investments in tobacco groups because of the link between smoking and cancer, heart disease and other long-term illnesses. This means selling our general account equity investments and stopping new fixed income investments in tobacco groups. We currently exclude 120 companies, the majority involved in tobacco and coal mining3.
Though we exclude some investments, our preference is to engage directly with the companies we invest in. We have an active engagement program; last year alone, we engaged with 335 companies on environmental, social and governance issues4. We've been especially active on climate change, where we've pressed companies on scenario analysis, disclosure and transparency, and water management – to better understand climate-related risk. Our aim, in engaging with all these companies, is to improve their business practice, and to reduce risk for both society as a whole and for ourselves as investors. Most of our investments are in debt securities, mainly corporate bonds. But we also invest in shares and funds, and have significant investments in real estate and mortgages.
1 Through Aegon's Investment & Counterparty Risk Policy, or ICRP.
2 Exclusions apply to our general account only, with the exception of the Netherlands, where exclusions apply to all investments.
3 Listed companies only.
4 Of this engagement, approximately 40% focused on social and /or environmental issues; the remaining 60% dealt with governance issues.
Responding to climate change
Climate change is already having a significant effect on our lives. Recent years have witnessed an increase in the frequency and severity of natural disasters. 2017 alone saw floods in India, Nepal and Bangladesh, flooding and mudslides in Colombia and Sierra Leone, and hurricanes across the Caribbean and southern US. Climate change has been a priority for our investment strategy since 2014. Last year, we also made it an integral part of Responsible Business, promising to invest in a "clean and healthy environment".
As part of this approach to climate change, we've sold off investments in coal, and invested more in renewable energy, green bonds and new environmentally-cleaner technologies. Currently, we have more than €800 million in green investments1. And we've said that, by 2025, we'll double our investments to support the energy transition. In our view, it's important that financial markets understand climate risk, and shift investments to lower-carbon alternatives, so we can begin to put the global economy on a more sustainable footing. In 2017, we set up a dedicated Climate Working Group to make sure climate is embedded in our approach to both investment and risk management. Part of this group's work will be to look at how Aegon can implement recommendations from the Financial Stability Board's recent Task Force on Climate-Related Financial Disclosures (TCFD)2. The Working Group's initial risk assessment showed there are only minor risks to Aegon's business from climate change; our main risks are reputational. We'll continue to monitor and manage these risks as part of our overall approach to risk management.
We also make investments that bring specific social and environmental (as well as financial) returns. By the end of 2017, these impact investments totaled under €8.1 billion (that's up from €7.2 billion the year before). In the US, UK and Netherlands, for example, we've invested nearly €5 billion in helping tackle the shortfalls in affordable housing. We've also invested in renewable energy, micro-finance and care homes for the elderly. In the Netherlands, we recently set up a new fund, known as GRIF3. At least 50% of this fund's investments will be in projects with direct social and environmental benefits. And, in the UK, we signed a partnership with Funding Circle, an online lending platform. During the first year of this partnership, we expect to approve loans to more than 2,600 small businesses.
We are firmly committed to making a valuable economic and social contribution to the communities in which we operate, both through our own tax payments and through collection and payments of third party taxes. We seek to pay 'fair taxes', which for us means paying the right amount of tax in the right places.
It is our policy to allocate profits where value is created through our commercial business activities. For us, tax follows business, which means that our decisions are taken for business reasons and not for tax advantages. We won't, for example, set up artificial tax structures or base business in countries simply to reduce the amount of tax we pay.
Following discussion with stakeholders, we published our Global Tax Policy online. This policy outlines Aegon's approach to responsible tax, which seeks to align the long-term interests of all our stakeholders, including customers, employees, business partners, investors, and wider society. We also hold regular meetings with NGOs to discuss Aegon's tax strategy and policy.
In our relationship with tax authorities we strive to work together in a constructive and transparent manner. Our Horizontal Monitoring agreement with the Dutch tax authorities shows our commitment to this principle. This includes public discussion and disclosure of policies and principles, as well as the overall governance and oversight of our tax position.
Disclosures are provided in our financial statements and cover tax payments in our main markets. Additionally, we provided country-by-country tax reporting in a transparent and accurate manner to the tax authorities in 2017. We are currently assessing the value that public disclosure of this information might have for our business and our stakeholders.
As we did in the 2016 Review, we also provide details of our total tax contribution company-wide and by region in the charts below. Taxes borne are a cost of business and affect our financial results. Taxes collected are not a direct cost of business but are collected on behalf of government from others. The reported numbers are on cash payment or accrual basis.
Aegon's tax function maintains an adequate staff of qualified and trained tax professionals to provide timely and high-quality tax support to our commercial-decision-makers. In this regard, proper governance and procedures are in place to ensure that:
- the tax team understands and is engaged in the tax effects of day-to-day business operations and involved in all significant business developments, investments and transactions.
- the tax consequences are considered as part of every major business decision.
- Aegon's tax control framework is constantly evolving to a higher maturity level.
Aegon's tax function reports regularly to the Executive and Management Boards on day-to-day operations and the status and effectiveness of the function. At least once a year, the tax function reports to the Supervisory Board's Audit Committee.
Investing in local communities
Every year, we support local charities and other good causes. Last year, we donated a total of €8.9 million. Most went to charities in our three focus areas: health, welfare and literacy. We also encourage our employees to volunteer. More than 96% of our staff can now claim paid time-off to work with local communities. In 2017, Aegon employees gave just over 21,000 hours, equivalent to €0.8 million, based on average salaries.
For Aegon, there are clear business benefits in supporting local causes: it brings us closer to our communities; it helps us understand their needs and expectations, and gives employees an opportunity to share knowledge and expertise. Currently – through cash donations and volunteering – we support more than 600 separate charities and good causes, including Habitat for Humanity and United Way in the US, as well as cancer research and the Alzheimer Center at VUMC in the Netherlands.
Key to our approach in this area is the issue of aging. In recent years, we've been working hard to put aging on the global policy agenda. We want to see more done to integrate aging into laws, regulations and employment practices. We publish regular research in this area through our Aegon Center for Longevity & Retirement. The Center works closely with affiliated organizations in the US and Brazil. Through these organizations, we measure retirement readiness and make policy recommendations for individuals, employers and governments. We're also studying the close connection between aging, finance and health. The Center's main 2017 report focused on Healthy Aging and Financial Security.
In 2017, our Retirement Readiness Index reached its highest-ever level. In general, people feel more positive about their financial outlook thanks to stronger economic growth and rising stock markets. Those 'readiest' for retirement are currently in the US and in middle income countries like China, India and Brazil.
Taxes borne by Aegon (in € million)
Taxes collected on behalf of others (in € million)
1 Includes state and withholding tax.
2 Related to company's own personnel (including social security tax).
3 Includes dividends, interest, royalties and other.
4 Policyholders (including social security tax).
Please note in charts above negative numbers indicate credit or amounts received from relevant tax authorities. Some numbers may not add because of rounding. For breakdown of taxes paid by country /region please see Facts & figures.
Sustainable development agenda
Since 2015, we've seen the emergence of a new international sustainable development agenda, with the adoption of the UN's 2030 Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change. Like other companies, we have a responsibility to support this agenda. We recognize that sustainable development is clearly in the long-term interests of business and the global economy. We also see that achieving genuine sustainable development won't be possible without the public and private sectors working together. Aegon can contribute positively as a financial services provider and investor; we've identified three areas for us (see chart below), where we believe our business can directly support the UN's goals and targets1: provision of supplemental health insurance, and investment in renewable energy and affordable homes for those on low incomes.
To implement the sustainable development agenda successfully, we'll need partnerships between government, the private sector and civil society. We have a number of partnerships that support implementation of the SDGs. We're signatories to both the UN's Principles for Sustainable Insurance (PSI) and its Principles for Responsible Investment (PRI); we're members of CDP (formerly, the Carbon Disclosure Project) and the Extractives Industry Transparency Initiative, which works for greater transparency on reporting financial flows from the global mining and energy industries. We're founding signatories to the Global Coalition on Aging – a private sector group that promotes new thinking on related issues like healthcare and retirement. Aegon is also a signatory to the Paris Pledge for Action, announced at the 2015 UN Climate Change Conference in Paris.
1. For more information on our reporting against the SDGs, please see Aegon's 2017 Reporting Supplement.