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NOTES TO THE READER

Disclaimer

This document is only a "website version" and is not the official annual financial reporting, including the audited financial statements thereto pursuant to article 361 of Book 2 of the Dutch Civil Code. The official annual financial reporting, including the audited financial statements and the auditor's report thereto, are included in the single report package which can be found via media.vanlanschot.nl/media/xbrl/vlk-2020-12-31.zip

In case of any discrepancies between the website version and the annual financial reporting package, the aforementioned financial reporting package prevails.

Note that the auditor's opinion included in the website version does not relate to the website version but only to the official annual financial reporting. No rights can be derived from using the website version, including the unofficial copy of the auditor's report. Our auditors did not determine (nor do they need to) that the website version is identical to the official version.

Unrounded figures

Amounts in the annual report may not add up due to being rounded up or down. The total amounts may therefore deviate from the sum of the parts. Percentage changes are based on the unrounded figures.

Changes to comparative figures

Some amounts differ from previously published reports; in these cases, explanations are given in the footnotes.

Disclosure of Non-financial Information Act

The Disclosure of Non-financial Information Act is a Dutch regulation that made reporting on a number of non-financial themes compulsory for companies that qualify as large public-interest entities (grote organisaties van openbaar belang) with more than 500 employees. These themes comprise environmental, social and labour issues, as well as anti-corruption, bribery and human rights. For each of these themes, companies are obliged to report on the relevant policies, results, risks (including management of these risks) and non-financial key performance indicators. The regulation also requires companies to describe their business models in their annual reports. We provide all of the information required in the relevant parts of this annual report. For transparency purposes only, the reference table in our sustainability supplement provides additional guidance on where to find this information.

Global Reporting Initiative

Communicating transparently on our policies and results is

an important element of sustainability. To ensure this, our annual report has been prepared in accordance with the

GRI Standards: Comprehensive option. See the GRI

content index on our website for further details: vanlanschotkempen.com/sustainability/reporting-and-external-assessment.

External assessment

Van Lanschot Kempen’s sustainability performance is assessed by a variety of external organisations. For more information, see vanlanschotkempen.com/sustainability/reporting-and-external-assessment.

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2020: A YEAR IN REVIEW

Naturally, one of the biggest challenges in 2020 has been responding to the Covid-19 pandemic and the restrictions relating to it.

Everyday life changed for our clients, our employees and all our stakeholders. The financial markets showed a sharp initial decline – followed by a swift recovery in the second half of the year – which impacted the value of our clients' investment portfolios. Dealing with the pandemic meant changing the way we serve our clients, adjustments in our way of working for our employees, and postponing dividends to our shareholders. Our focus was on maintaining regular contact with our clients, offering them advice on how to respond to the impact of the virus on the financial markets, and looking after our employees through difficult circumstances.

Growing our business

Assets under management (AuM)

–Over the course of the reporting year, we saw net inflow of €1.4 billion in Private Banking, with contributions from the Netherlands, Belgium and Switzerland. Our unique advisory proposition in Private Banking – as well as our sustainable discretionary management proposition, expert bankers and distinctive offering to entrepreneurs – are what differentiate us from our competitors. Market performance led to asset growth of €0.3 billion.

–In Kempen Asset Management, we saw a net inflow of €5.4 billion in AuM. This was due to net inflow of €6.0 billion in fiduciary management. Our investment strategies had a net outflow of €0.6 billion.

Corporate Finance and Equity Capital Markets

–Kempen Merchant Banking enjoyed a strong flow of Corporate Finance/Equity Capital Markets deals, with 41 transactions executed in 11 countries across all our sectors – real estate, life sciences & healthcare, financial institutions & fintech, infrastructure and maritime & offshore – as well as in our local alpha coverage.

Loans

–Our Private Banking mortgage loan portfolio increased by €147 million over 2020, due to a growing demand for mortgage loans from our clients.

–In light of the Covid-19 pandemic, we decided to grant moratoria and coronavirus-specific loans to clients. Only a limited number of clients decided to make use of them. The majority of these loans and moratoria were granted as new current account loans, with some as short-term loans or by raising existing limits.

–Overall, there has been a very limited addition of €1.9 million to loan loss provisions, thanks to our limited credit exposure. This is down to our focused wealth management proposition: providing mortgages to our Private Banking clients, as well as having low exposure to corporate lending and to industries impacted by Covid-19 in general.

2020 for our clients 

Communicating remotely

–Communication between our clients and their bankers is crucial for building and maintaining relationships. Given the restrictions due to Covid-19, we experienced first-hand the importance of Van Lanschot Private Banking's omni-channel service model for our communications with clients. As well as making extensive use of our chat and video functions (also used at Kempen Asset Management and Kempen Merchant Banking), we have successfully worked with various other aspects of the digital and data-driven world, such as sending out information about market movements via our messaging centre.

Launching new solutions and enhancing existing propositions

–The new Sustainable Global High Dividend Fund launched by Kempen Asset Management represents an

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important addition to the range of dividend products we offer. This sustainable dividend solution was created in collaboration with our clients, who are looking for direct income in a more sustainable manner.

–To improve the service for our fiduciary management clients, a new Switzerland-based team was hired to further enhance and expand our manager monitoring services and digital client communications. In addition, the team is supporting Van Lanschot Kempen’s existing Swiss offices in their activities for our Private Banking clients. 

–In previous years, we further enhanced our distribution capabilities abroad, using placing agents. In 2020, Kempen Asset Management saw this result in a number of new clients for our real estate proposition in Germany. We also expanded to Scandinavia and added alternative strategies to our offering.

Adjusting our offering in changing markets

–We focus on products that are relevant for our clients and create added value. To enhance the solutions we can provide, we further honed our product offering. This meant discontinuing our active government bond funds, products under the Evi brand in Belgium, and Evi savings-only in the Netherlands. We will continue with Evi investment accounts (and their linked savings accounts) in the Netherlands.

–As a consequence of persistently low interest rates, we introduced a negative interest rate of -0.5% on higher amounts of savings. At the same time, we understand the need for our clients to hold cash. Starting in January 2021, we therefore introduced the so-called wealth management arrangement through which we offer our clients the possibility to keep a certain percentage of their assets invested with us in cash, without paying the negative interest rate.

–Our structured products activities resulted in significant losses. This was mainly due to exceptional volatility and illiquidity in certain segments of the financial markets, as well as hedging activities during the rest of the year to limit the risks to the portfolio. We will continue to offer structured products to our Private Banking clients as an alternative investment solution to help diversify their investment portfolios, while hedging risks to a significant extent for the existing portfolio. Newly issued notes will be hedged one-on-one.

Holding online events

–During 2020, we held dozens of online meetings with over 6,000 participants in the Netherlands, Belgium, the UK and Switzerland. 

–In June, we held our first major webinar for Van Lanschot Private Banking clients. Our CFO and Head of Economics informed clients about expected recovery scenarios for the financial markets. The event was attended in real time by around 800 participants, with hundreds more watching the recording afterwards.

–Kempen Merchant Banking organised the first all-digital European property seminar in June, during which face-to-face meetings were exchanged for more than 1,400 conference calls over two days. These calls allowed 165 investors to interact with management teams of 45 listed European real estate companies.

–Van Lanschot Private Banking offered its clients an online climate event in October, during which they were informed about the current state of our climate and the various ways they can positively contribute.

–In November, the first online stakeholder dialogue took place, during which the importance of climate change was discussed with our stakeholders. 

Joining forces

–In January, we announced a collaboration between a.s.r. bank and Evi. This collaboration gave clients with an investment account at a.s.r. bank the opportunity to switch to Evi at no cost. Around 7,000 clients and €157 million were transferred to Evi.

–Van Lanschot Kempen acquired Hof Hoorneman Bankiers, a Dutch wealth manager with €2.0 billion in client assets. Hof Hoorneman Bankiers provides private banking, online wealth management and settlement-only services. The acquisition strengthens our position in the Dutch market while offering potential for cross-selling opportunities and economies of scale. All approvals from regulators were obtained in December 2020, and closing happened in January 2021. Migration is expected to take place over the course of 2021. We consolidated Hof Hoorneman Bankiers' figures in our balance sheet and in our client asset figures as per 31 December 2020.

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2020 for our shareholders

–We took the advice of the European Central Bank (ECB) and De Nederlandsche Bank (DNB) not to pay out the 2019 dividend to our shareholders in 2020. However, the annual general meeting of shareholders approved the 2019 dividend; this amount of €59.4 million has been reserved for our shareholders on our balance sheet and is not included in our capital ratios.

–To explain the impact of the pandemic on Van Lanschot Kempen, we published a more comprehensive quarterly update with additional financial information in Q1 2020. We also asked our external auditors to provide a review opinion with respect to the half-year figures, a statement we received on 25 August 2020.

–The 2020 net result amounted to €49.8 million, of which the second half-year contribution was €40.4 million. We propose a 2020 dividend of €0.70 per share, which will be paid out in two parts following the recommendation from the ECB and DNB.

2020 for our organisation

Acting as one and increasing efficiency

–To enhance efficiency and accelerate cooperation within Van Lanschot Kempen, the legal entity Kempen & Co merged into Van Lanschot NV. This entity was renamed to Van Lanschot Kempen Wealth Management NV. For more information, see page 90.

–Clients and employees in our Belgian Private Banking business were successfully migrated to the group IT infrastructure. With our Belgian offices now also running on systems with broader functionalities, these clients gained access to our omni-channel service model, enhancing their experience. The Belgian IT infrastructure has been successfully phased out.

–Throughout the reporting year, we spent time defining the next steps in our strategy. At the beginning of 2021, we adjusted our organisational structure by shifting from a business line-driven organisation to a function-based structure. This aims to increase synergies and improve collaboration.

–In the second half of 2020, part of the team managing the credit strategy decided to leave Van Lanschot Kempen. Their responsibilities were appropriated by other teams in our business. As a result, we were able to maintain our service to clients.

Enhancing and monitoring our sustainability

–In 2020, we started quantifying our non-financial impact. For our investment strategies, we use data from an external data provider to determine our positive and negative contribution to the Sustainable Development Goals. For more details, see the "Natural capital" and "Social capital" sections on pages 33 and 38 respectively.

–At Van Lanschot Private Banking, assets under management invested in sustainable and impact investment wealth management solutions increased to €3.1 billion (2019: €2.0 billion). By 2023, we’ll actively offer our Private Banking clients sustainable investment solutions as the default option.

–Through our new, strengthened climate change policy in 2020, Kempen Asset Management committed to become a net-zero investor by 2050. To reach this, we set short-term targets for 2025 and mid-term targets for 2030, all in line with the Paris Agreement, the Dutch Klimaatakkoord and Europe’s ambition to become a net-zero economy by 2050. As Kempen Asset Management is the asset manager for Private Banking's discretionary management propositions, this also applies to these portfolios.

–To encourage sustainability, we engage investee companies one-on-one and through multi-investor collaboration. One key area is to help the oil and gas industry transition to a low-carbon economy. The Climate Action 100+ investor initiative has seen us engage in ongoing dialogue with Shell, Equinor and BP. The first half of 2020 saw these major energy players step up their climate ambitions. We welcome these developments and will continue to engage with them to encourage a further shift towards more sustainable operations.

Dealing with Covid-19 from an organisational perspective

–In February 2020, anticipating the impact of the virus, we started preparations for working from home and introducing the concept of working in clusters.

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Our colleagues' experiences of home working are a theme of the testimonials in this annual report.

–Our employees have primarily been working from home since the first lockdown in March. In order to ensure continued engagement, we’ve been organising virtual town halls, team meetings, Friday afternoon drinks and other online events to keep people updated and motivated. Our Executive Board frequently appears in videos on our intranet, from professionally recorded videos to informal vlogs, to speak directly to employees.

Being recognised through awards and rankings

–Kempen Asset Management won three awards at the annual Morningstar Awards ceremony: Best Fund House Overall, Best Fund House: Fixed Income, and in the Dutch Equities category for the Kempen Orange Fund. Kempen Asset Management also won nine Lipper Awards, including Best Fund House Overall (small).

–Kempen Asset Management won the International Corporate Governance Network (ICGN) Global Stewardship Disclosure Award in the Asset Managers <US $60 billion AuM category. This award is in recognition of innovation and excellence in Kempen's stewardship initiatives, such as engagement policies and disclosures in its Annual Stewardship and Responsible Investment Report.

–In 2020, Kempen Merchant Banking provided the best equities advice according to annual analyst research by Willem and Dirk Gerritsen (Utrecht University). Their findings put us at the top of the league based on our advice, commanding 56% returns on a portfolio with a long position in equities rated Buy, and a short position in those rated Hold or Sell.

–Evi was recognised as “Best Choice” according to IEX Gouden Stier.

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WHO WE ARE AND WHAT WE DO

Van Lanschot Kempen is the oldest independent financial institution in the Netherlands. Our history is deeply intertwined with the history of the Low Countries and the people who represent them. Founded originally in Antwerp in the 17th century, Van Lanschot Kempen has brought several entities together over time; the common thread that links us all is trade.

Our purpose is the preservation and creation of wealth, in a sustainable way, for our clients and the society we serve.

As a company, we believe that the generation of wealth – and its redistribution through taxation – are critical to the process of creating and maintaining stable, successful societies. Given that social cohesion necessitates such wealth creation, we believe that wealth management cannot be the preserve of a few but is a necessity for all. We create wealth, economic growth, jobs and tax income via our services to entrepreneurs, as well as contributing to the realisation of societal goals via the preservation and creation of wealth for asset owners, including private individuals and pension funds.

We believe that wealth is not just about financial assets; essential as these may be, wealth is about all the things that we value in life. In a broader sense, wealth represents the collective wisdom of a society and the cultural norms and values that sustain it. Although our primary objective is to help our clients with the financial aspects of wealth, we endeavour to serve their broader objectives as well. 

We serve clients across the social spectrum and in several segments – private, wholesale & institutional and corporate – as a trusted partner and to assist them in preserving and creating wealth sustainably. Investing for the long term is no longer just about looking for the greatest returns by a future date; it's about ensuring the liveability of the planet for the generations to come. We believe that in serving the long-term interests of our clients, we can contribute to a sustainable world and societal stability.

Our values

Values are essential to any successful enterprise. We are no exception. These values drive our decision-making process and our Code of Conduct. In turn, they define who we are and what we stand for. As a company, we believe in the following core values:

–We look for opportunities, even when there appear to be none

–We believe in and pursue our goals

–We accept failure as part of the process and are not defeated by it

–We are able to connect the dots and make things work

–We accept that one cannot be good at everything

–Specialisation helps us to make choices and to focus

–We believe in expertise

–We appreciate each other’s specialist knowledge and employ this optimally

–We believe in the pursuit of excellence

–We have the tenacity and relentlessness to get things right

–We strive to be true professionals – knowing our craft inside out

–We do not accept second best as the outcome in our search for excellence

–We believe in the conscious act of committing one’s emotional, intellectual and physical capabilities to one’s objectives

–We are intrinsically motivated to work hard in providing our services in order to exceed clients’ expectations

–We believe genuine dedication enables us to create value for the long term

–We understand that notions of privacy are changing in this era of social media and digital transformation

–We believe in the importance of privacy at an individual, institutional and societal level

–We do our utmost to protect and secure our clients’ sensitive information in order to truly be their trusted partner

These values define what we do, and help us to serve our clients best.

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Key reasons for clients, employees and investors to choose Van Lanschot Kempen

As a wealth manager, Van Lanschot Kempen builds on the experience of its core activities, operating under the strong brand names Van Lanschot, Kempen and Evi van Lanschot.

Reliable reputation and rich history

–Clear choice for wealth management, targeting private, wholesale & institutional and corporate clients;

–Tailored, personal and professional service;

–Independent institution with strong Dutch roots;

–Relatively small-scale organisation and high level of executive involvement;

–Strong focus on sustainable investing;

–Capable and motivated professionals;

–Ability for employees to make real impact.

Integrated wealth manager

–Uniform way of servicing our client segments;

–Differentiating and compelling investment management offering that matches client needs;

–Compelling storyline from an investor and client perspective.

Sound financial and risk management

–Strong balance sheet and attractive capital strategy;

–Strong track record in transformation processes and    de-risking of the company;

–Proven capability to integrate acquisitions.

1 The amount of €59.4 million has been reserved for our shareholders on our balance sheet.

2 The underlying net result is the net profit adjusted for one-off charges related to the costs incurred for the Strategy 2020 investment programme and restructuring. 

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OUR STRATEGIC FRAMEWORK

In light of our purpose – to preserve and create wealth, in a sustainable way, for our clients and the society we serve – we have defined our wealth management strategy. Taking into account the changing world around us as well as the expectations of our clients and other stakeholders, we've defined five strategic pillars that enable us to deliver on our ambition to be a leading player in our markets and geographies, and to create both financial and non-financial value. In order to monitor our progress, we've developed a number of key performance indicators (KPIs).

THE CHANGING WORLD AROUND US

Our business is impacted by the world around us, and our strategy needs to reflect and respond to that. The economy, society and environment in which we operate as a wealth manager, the regulatory landscape, the demands of our clients and prospects, the technological advances of our competitors, and the state of the labour market as a whole – all of these external developments have an impact on our business. So we take these  into account when executing our strategy.

The reporting year 2020 started on a strong note economically: financial markets were still bullish, global economic growth was relatively strong, and unemployment was low. But in March, the spread of the Covid-19 pandemic turned the global economy on its head. Due to widespread lockdowns in the second quarter, we experienced the deepest recession since the Second World War. But as soon as restrictions were lifted, the recovery (at least in some sectors) was just as swift. Economists saw a “K-shaped chart”, meaning that certain sectors – such as online retail, healthcare and tech – had a sharp upturn, while other sectors – such as air travel and high-street retail – had an equally sharp downturn. And this was reflected in the stock markets, too.

In order to stimulate economic recovery, central banks maintained low interest rates and created bigger balance sheets, while governments stepped in and invested huge amounts of money. In Europe, companies were able to borrow large sums in order to keep employment at economically and socially acceptable levels. In the US, the strategy was different, with companies quickly laying off staff while the US government doubled unemployment benefits for the people impacted. With so much government and central bank stimulus, it’s likely that the real effects of the recession won’t be felt until 2021 and beyond.

This means that despite the huge dip in March and April, the investment market did not in fact depreciate between the start and end of 2020. The European Central Bank’s temporary ban on dividend payments for banks, however, has had a material impact on their share prices – and by extension on shareholders. At the time of writing, the ban is expected to be lifted after September 2021. Because of the uncertainty caused by the pandemic, uncertainty surrounding economic projections has also increased – and it remains to be seen what the longer-term impact will be.

From a social perspective, the Covid-19 crisis led to huge upheaval in the way people live, work and maintain social contact. From a corporate point of view, it brought companies’ social conditions for employees and suppliers into sharp relief. The virus laid bare whether companies really were taking care of the people in their supply chain, paying attention to health and safety, and upholding labour standards. It also highlighted the need for holistic thinking around the role businesses play for their employees, clients and suppliers, as well as across complex supply chains.

From an environmental perspective, the lockdown measures brought in to curb the pandemic led to reductions in carbon emissions. While things may still return to “normal”, the situation proved to many people that measures such as reducing travel and limiting factory production could have a meaningful positive impact on the climate. And governments’ targets reflect this: there’s been a further shift towards ambitious net-zero emissions targets by 2050.

The impact of the Covid-19 pandemic on regulators’ priorities was also felt. In 2020, the focus shifted to help banks ensure the continuity of their operations, including support to their clients. This entailed postponing the implementation of certain regulations, such as Basel IV, and reviewing recently implemented regulations to reduce the administrative burden. At the same time, we’ve seen further harmonisation of supervisory regulations in Europe, as well as more detailed descriptions of how to define and implement certain rules.

During the reporting year, financial institutions continued to prepare for the large number of regulations that are scheduled to come into force going forward – albeit some later than originally planned. Financial institutions are still

working on the Basel IV package of reforms, which involves collecting a lot more data but whose impact on lending procedures and capital is relatively limited. The need to prepare for the cessation of LIBOR at the end of 2021 has meant assessing exposure to LIBOR-linked products and making robust plans. The fifth anti-money laundering (AML) directive introduces an ultimate beneficial owner register which is currently being implemented in the Netherlands. The sixth AML directive contains minimum rules on criminal liability for money laundering. Client due diligence and transaction monitoring remain important priorities for the industry as a whole.

From a sustainability perspective, we’ve seen a clear external push from the regulators, especially in Europe. The EU has the ambition to make Europe a climate-neutral economy with net-zero greenhouse gas emissions by 2050, and has come up with plans that touch every sector – including financial services. For example, the action plan on sustainable financial growth contains a set of new regulations. The EU has created a harmonised framework, which will come into force step by step and develop over time. The new framework introduces a classification system for sustainable activities and investments as well as new disclosure requirements for financial institutions to bring more clarity to end-investors and prevent “greenwashing”. There is also a focus on mainstreaming management of sustainability risks and fostering transparency for listed companies and shareholder long-termism. The challenge for Van Lanschot Kempen (and for all financial institutions) is to efficiently implement these rules and to source meaningful environmental, social and governance (ESG) data.

With the EU and the UK finally reaching a deal in the dying days of 2020, a no-deal Brexit was averted. For the financial industry, however, the proposed EU/UK Trade and Cooperation Agreement does not contain much detail so far. In this context, we are no longer expecting permanent equivalence decisions with respect to UK central clearing parties, or third-country exemption regimes being applied to UK-based counterparties, for example. Clarity on these matters will be most welcome. In the first few days of 2021, we saw some memoranda of understanding between supervisory authorities, which will form a basis for future cooperation between the UK and the EU with respect to supervision of financial markets and their participants. Uncertainty still remains as to whether, over time, future regulation in the UK may gradually diverge from EU regulatory standards and may as a result become an unsurpassable hurdle for the application of third-country recognition or equivalence regimes.

Our client groups – and those we wish to attract – are broad-ranging. They include private clients, such as wealthy individuals, entrepreneurs, professionals and first-time investors; wholesale & institutional clients, such as pension funds and insurance companies; corporate clients in our focus sectors (real estate, life sciences & healthcare, financial institutions & fintech, infrastructure, maritime & offshore, and local alpha); and other types of clients, such as charities, foundations and associations. Each client group has different, evolving and increasing demands, but we also observe a few common wishes among all our client groups,

such as omni-channel service, holistic advice, sustainable investments and advice on how to prepare for the future. 

In terms of the way they do business with us, clients are looking for several differentiating factors. They want to be able to reach us wherever and whenever they like, via whichever channel they choose – and they expect personalised, tailor-made service. This means that while some clients might want to do everything online, others may prefer to discuss things over the phone – or a combination of both. They’re looking for personal knowledge of their specific circumstances from their contact coupled with easy, omni-channel service. Of course, we’ve seen the demand for digital tools increasing for several years – but the Covid-19 pandemic has accelerated this demand among all client groups.

Most of our clients are also looking for holistic advice rather than individual products. They expect thorough knowledge of all the solutions on offer across all our business lines, so that we can proactively advise them on the best options. But of course the search for yield and returns is ongoing and requires product innovation as well. Clients are requesting access to asset classes that were previously the domain of only the most sophisticated of investors, such as private equity, land, infrastructure and private debt.

Sustainable investments are becoming the new normal among many of our client groups, both private and institutional. We’re rapidly moving towards a world in which complying with the highest ESG standards is part of our licence to operate rather than a differentiating factor.

And finally, our clients – like everyone in today’s world – are seeking certainty. When the first wave of the pandemic hit, they wanted to discuss the possible scenarios and how to meet their investment goals. As the crisis continued, they wanted to know how to prepare for the future and adapt to the new reality. Adaptability to change is key if we are to remain a trusted adviser to our clients.

Clients’ expectations are partially driven by what they have come to expect from other companies, both within and outside the financial services sector. These include the big tech firms, which provide excellent customer experience; universal banks, which meet high standards in terms of day-to-day banking functionality; and fintechs, which use algorithms in their processes as well as application programming interfaces (APIs) to enable value-added services. These expectations lead to increasing demand for digitalisation of services.

In the technology domain, we’ve seen continued developments in 2020 – a couple of which are of particular relevance to our strategy. On the one hand, the rise in cloud-based services has precipitated a move from traditional “on premises” applications to the cloud, or software as a service (SaaS). On the other, low-code applications and robotic process automation (RPA) systems are increasingly automating manual tasks, without deep coding knowledge being required.

The increasing speed at which both technological developments are advancing and client needs are evolving requires organisations to be quick and nimble, taking an agile approach.

In the financial services industry, competition for talent in the labour market is as fierce as ever. All companies in our sector rely on the knowledge, experience and professionalism of their employees – and there’s significant crossover with other sectors in terms of the skills required. So attracting, retaining and developing the best people is crucial. At the same time, the labour market has increasingly high expectations when it comes to personal and professional development. Employees and potential candidates are demanding not just technical training but also creative work and ways to improve their well-being. We need to keep up with these demands to stay competitive as an employer.

Meanwhile, the Covid-19 pandemic forced organisations such as ours to operate completely differently: working from home became the new norm. People were forced to engage differently with their managers, employees and colleagues. And everyone needed to adapt to online technologies – fast. While a toll on people’s emotional well-being was inevitable, there were some positive side effects: travel time was all but eliminated, which increased time-efficiency; the digital savviness of the workforce paid off; and (perhaps ironically) absence due to illness went down. On the flip side, the lack of personal interaction between colleagues began to have an impact on people's sense of belonging.

The digitalisation and remote working trends accelerated by the pandemic also play into the competition for talent. Physical location and travel are becoming less and less important, making it easier for talented professionals to switch roles and take advantage of opportunities that are not necessarily close to home.

Finally, our stakeholders – including shareholders, clients and employees – continue to see diversity as an ongoing priority. This has been reflected in the upcoming regulations, which also place more emphasis on employing a diverse workforce in all sectors, including ours. We of course aim to comply with these regulations.

For more details on what Van Lanschot Kempen is doing to address these external developments, see “Our strategy” on page 20 and “Our value creation” on page 24.

OUR STAKEHOLDERS’ EXPECTATIONS

We work with consideration for future generations, the environment, and the financial requirements of clients and shareholders. An essential part of this approach is an active, continuous dialogue with our stakeholders.

We identify five main stakeholder groups: clients, shareholders, employees, government/regulators and other stakeholders, including all those who might be affected by the decisions and activities of Van Lanschot Kempen (e.g. society at large, suppliers and competitors). The interests and expectations of the different stakeholder groups vary, and may lead to potential conflicts of interest. Van Lanschot Kempen weighs up its stakeholders’ interests, and incorporates these into decision-making processes and the development of strategic targets.

Our various stakeholder groups have different expectations regarding Van Lanschot Kempen. The overview below1 outlines our assessment of these expectations.

Topics that are material to our stakeholders

To determine which topics are valued most by our stakeholders, we conduct a survey among stakeholders every two years. Our most recent survey was conducted in 2019. For 25 topics relevant to our business, stakeholders were asked to assess the extent to which each topic influences the decisions they make regarding Van Lanschot Kempen. These topics are divided into two main categories: financial and non-financial value creation. Non-financial value creation can be further sub-divided into human and intellectual, natural and social value creation.

In addition, our Executive Board and a panel of external sustainability experts determined the significance of the impact Van Lanschot Kempen has via each of the 25 topics. Impact refers to positive impact and prevention of negative impact, and may be economic, environmental or social in nature.

The table below and matrix overleaf show the eight most material topics (out of the 25 in total), based on those topics rated as “significantly important” by our stakeholders, and on which Van Lanschot Kempen has “significant impact”. Further details on the materiality matrix can be found in the sustainability supplement.

1 See our sustainability supplement for further details.

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2 Although the materiality matrix itself remained the same in 2020, the numbers of the material topics have changed compared with our 2019 annual report.

OUR STRATEGY

Van Lanschot Kempen is a well-capitalised, profitable, independent wealth manager with a strong specialist position in the market and proud Dutch roots. We believe that our knowledge and experience, our personal, client-focused approach and our unique combination of activities set us apart from our competitors in our selected market segments, while offering growth opportunities.

Our ambition

Supported by our strong client relationships, we aim to be a leading player in our relevant markets and geographies. This means being:

–A leading wealth manager in the Benelux region;

–The number one online wealth management option for the mass affluent in selected markets;

–A prominent, active investment manager that delivers alpha in illiquid markets, as well as in income-generating and ESG strategies across Europe;

–The leading fiduciary manager in the Netherlands, and a challenger in the UK fiduciary market;

–The preferred trusted adviser in selected niches in merchant banking across Europe.

Changes to our organisational structure

Key to our strategy is the development of a fully integrated wealth management model that enables us to serve the entire spectrum of client groups, ranging from private to wholesale & institutional and corporate clients, and the ability to adapt quickly to changing client needs and market circumstances.

At the beginning of 2021, we therefore changed our organisational structure by moving from a business line-driven organisation towards a function-based model.

In doing so, we combined all our client-focused staff and activities in the Client Management & Origination domain, while the Investment Strategies & Solutions domain now covers all our in-house and externally selected investment solutions and services. We have put Digital, Advanced Analytics & Technology at the centre of our organisation,    as these play an important and proactive role in the transformation of our company. All our operational departments have now been centralised in order to

harmonise processes and systems in the service of enhancing client experience and efficiency. In line with our new organisational structure, starting in 2021 we will steer and report on our business according to client groups and no longer according to the business lines.

Our strategic pillars

Economic, social and environmental shifts, regulatory changes, evolving client needs, technological advances and the labour market all impact our operating environment. We need to respond to these changes in order to deliver on our strategic pillars.

The four strategic pillars, introduced at the beginning of 2019, have been complemented with a fifth pillar to underline our commitment to sustainability. All strategic pillars are interlinked and mutually reinforce each other.

Accelerate growth organically and inorganically

To remain relevant for our clients and accelerate our organic growth, we believe that we have to truly understand our clients, anticipate their needs and help them to fulfil these needs in a sustainable manner. Instead of searching for a single product or a specific brand, which entails a product-led approach, clients are looking for solutions that fulfil multiple needs.

In recent years, we’ve successfully expanded our activities through selective bolt-on acquisitions, partnerships and hiring teams. Our high post-acquisition client retention rates show that clients value our proposition. We aim to engage in further bolt-on acquisitions and larger acquisitions in order to accelerate our growth, increase our scale and benefit from revenue, cost and/or funding synergies. We focus on acquisition opportunities that support our positioning as a specialist player while keeping a balanced asset mix, and consider acquisitions in existing and contiguous markets.

Advance through digitalisation and advanced analytics

Changes in clients’ needs and economic developments require us to react quickly. Technology and digitalisation allow us to improve our productivity and service, by speeding up processes, reducing operational errors and improving the availability, quality and interpretation of data. We expect to significantly invest in our capabilities in this area in the coming years.

Digital interaction is crucial as it offers both clients and employees increased flexibility in terms of means of communication and the time needed to communicate. To grasp the full potential of patterns in internal and external data, tooling is being developed that helps end-users to interpret data and use it for data-driven decision-making in commercial, investment and operational processes.

Act as one to leverage our full potential

In order to unlock the full potential of our solutions-led organisation for our clients, we must be able to offer solutions that build on the knowledge and expertise of the entire group as well as our open architecture platform. We believe that by providing clients access to the full range of services and products across our business lines, we can meet client needs in a sustainable manner. We have adjusted our organisational structure to fully benefit from knowledge sharing, to make optimum use of resources across the organisation, and to reduce overlap.

Attract, develop and retain the workforce

Our people’s knowledge, experience and professionalism are key to the way we operate. Investing in our people enables them to embrace new technology and adopt a more data-driven way of working and decision-making. We facilitate and encourage development and training of our existing workforce. Together, we need to optimise the use of advanced analytics, to embrace new technology and to work in a more agile manner. We will also hire new people with the requisite skills and capabilities to help drive our development and the changes needed to stay ahead.

Achieve our sustainability ambitions
Being a sustainable wealth manager with a long-term focus means that we proactively strive to prevent negative consequences for all stakeholders in line with the UN Global Compact, while aiming to create positive long-term financial and non-financial value. We can achieve the most significant social and environmental impact via our client investments. Our ambition is therefore to move towards more sustainable investing, together with our clients. In the future, we intend to raise the bar even higher and make sustainable investing the new normal. To achieve this, we will increase employee awareness and expand our expertise in the area of sustainable investing.

How we steer and monitor our business
In order to monitor whether we're on track to deliver on our ambitions and create long-term value, we define financial and non-financial KPIs and targets. These are based on industry trends and developments, stakeholder expectations, client needs and strategic relevance.

The KPIs are focused on value creation, both financial and non-financial. We explain both our KPIs and our results against them in the sections on our value creation per type of capital on pages 26-41.

The table below shows our targets and performance on these KPIs in 2020 and 2019:

1 This KPI does not cover the full range of training offered within Van Lanschot Kempen. It is calculated based on training for employees working in the Netherlands, booked via our learning

  platform and via our training broker.

2  The score for this KPI is based on responses to the following statements in the employee engagement survey:

–In my experience, all employees are held to the same standards of ethical behaviour;

–This organisation operates with integrity in its internal dealings (i.e. with employees);

–I think I could report instances of dishonest or unethical practices to the appropriate level of authority without fear of reprisal.

    In 2020, the first statement underlying this score was changed to: We operate with integrity in our external dealings (with clients, suppliers, etc.).

3  Engagement consists of four stages. If it moves to the next stage, a milestone has been achieved.

OUR VALUE CREATION

Wealth enables our clients to achieve their business, personal and social goals. Wealth generation is essential to create and maintain stability in our society. This requires a long-term focus in which economic, social, environmental and governance factors all need to be taken into account.

We are convinced that our purpose – to preserve and create wealth, in a sustainable way, for our clients and the society we serve – can only be fulfilled in a sustainable world. We also believe that, via the generation of wealth and its redistribution through taxation, we can contribute to creating and maintaining a stable and successful society.

Our approach to fulfil our purpose

In line with our purpose, we aim to create value. We therefore proactively strive to:

–Embed our core values – entrepreneurial spirit, specialisation, craftsmanship, dedication and discretion – in everything we do.

–Operate as a trusted adviser for our clients and cooperate with other stakeholders.

–Increase positive long-term financial and non-financial value by developing new solutions in close cooperation with our stakeholders.

–Contribute to a stable society. We create wealth, economic growth, jobs and tax income via our services to entrepreneurs, while contributing to the realisation of societal goals via the preservation and creation of wealth for asset owners, including private individuals and pension funds.

–Prevent and mitigate negative impacts for all stakeholders, wherever we can – for example, via our responsible and sustainable investment policies, responsible lending policy and carbon reduction policy.

Our value creation per type of capital

Our value creation model on the following page provides an overview of our impact and the value we create in the long term. As a wealth manager, Van Lanschot Kempen attracts four types of capital:

–Financial capital: Our clients entrust us with their investments, savings and deposits, while our capital providers invest in our shares and bonds.

–Human and intellectual capital: Our employees and external parties bring in their knowledge and experience.

–Social capital: The network we have as an organisation and the trust that other stakeholders place in us – our licence to operate.

–Manufactured capital: Our physical inputs, such as offices, energy, IT and transport.

As a company, we aim to deploy these types of capital in combination for overall value creation – meaning that we strive to add value via our business model, thereby increasing the total capital or value. Outputs can be both positive and negative.

–Financial capital: We invest client assets in companies and other organisations, assist entrepreneurs when

raising funds, provide investment returns to our own clients and investors, pay salaries to our employees and pay taxes to society. However, there’s also the potential for negative outcomes – for example, if poor market performance hits the assets we manage for our clients.

–Human and intellectual capital: We contribute to human capital via the hiring, training and development of our employees, but on the flip side there may be work-related illness and possible redundancies.

–Natural capital: We contribute to natural capital by investing client assets in sustainable and impact funds that contribute to natural or environmental goals such as clean energy, climate change mitigation measures or sustainable agriculture. As a result of our investment of client assets and lending activities, however, there may be negative impacts on the environment under certain circumstances, such as waste production, pollution and carbon emissions.

–Social capital: We preserve and create growth and job opportunities for society by passing on financial capital to companies and other organisations. We increase social capital by investing client assets in sustainable and impact funds that contribute to social goals like health, education or basic needs like food and clean water. But as a result of our investment of client assets and our lending activities, in some cases there may be negative social impacts, such as on labour rights, human rights or other social issues in our supply chains.

Our contribution to the SDGs

A long-term focus on a sustainable society is what the UN Sustainable Development Goals (SDGs) are all about. As a wealth manager with a focus on the long term, we support all these goals. Of the 17 SDGs, there are seven to which we contribute specifically via our core activities:

–SDG 3: Ensure healthy lives and promote well-being for all at all ages.

–SDG 6: Ensure availability and sustainable management of water and sanitation for all.

–SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all.

–SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.

–SDG 12: Ensure sustainable consumption and production patterns.

–SDG 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable and inclusive institutions at all levels.

–SDG 17: Strengthen the means of implementation and revitalise the global partnerships for sustainable development.

Information about our contributions to the SDGs can be found at vanlanschotkempen.com/sustainability.

Over the next four sections, we define what each type of capital comprises, describe our approach to it, provide an indication of how we quantify our contribution, and offer concrete examples of how we create value. We're making progress in terms of quantifying our value creation, but we have only recently started and the process is still in its infancy. Challenges exist around data availability, data comparability, methodology and lack of standards.

VALUE CREATION MODEL

FINANCIAL CAPITAL

In line with the International Integrated Reporting Framework, we define financial capital as the pool of funds available to an organisation for use in the production of goods or the provision of services. Funds can be obtained through financing, such as debt, equity or grants, or generated through operations or investments.

Our approach

Van Lanschot Kempen is a financial services business and,  as such, creating value via financial capital is our reason for being. Our profitability and cost effectiveness are important not only to our clients but also to our shareholders, employees, governments/regulators and other stakeholders, including society at large. For more details on our stakeholders’ expectations, see page 18.

Wealth generation for our clients

Our clients trust us to manage their wealth effectively and to make a positive contribution via our investment solutions. They expect risk-rewarding returns that enable the preservation and growth of their financial assets. Our wealth management solutions and investment strategies should also perform well compared with their benchmarks. To achieve this, we have set up professional investment processes that focus on long-term value creation for our investment strategies and the portfolios of our individual and institutional clients. Each of our investment strategies

uses a process that is best suited to take advantage of the opportunities in its respective sector. We believe in the values of specialisation and craftsmanship, which is why our portfolio managers have the freedom to create and manage a strategy that is in line with their clients’ needs and that delivers sustainable value to their clients. These portfolios bring together the collective expertise from teams that focus on fiduciary management, investment strategies, manager selection and portfolio management. Each team plays a pivotal role in the investment process, governance (including clear responsibilities) and optimum use of systems and tools, in order to achieve the most positive outcomes.

Profitability and cost effectiveness

We manage our profitability and cost effectiveness through continuous improvement of our processes, and through growth and innovation. Drawing on our multi-year forecast, we have set 2023 targets for our Common Equity Tier 1 (CET 1) ratio, our return on CET 1 capital and our efficiency ratio. We set annual targets for all Van Lanschot Kempen departments as part of our annual budget cycle. These budgets are devised bottom-up, with the input of the businesses challenged and, where necessary, made more concrete in sessions with the Executive Board. Target achievement is measured monthly and reported to the Executive Board using management reports – including KPI dashboards – and analyses of financial and non-financial data and trends.

We steer and monitor the value we create in terms of financial capital through a number of KPIs:

Financial and risk management

Financial performance and risk management are key to our organisation, as all direct stakeholders benefit from a solid capital position and sustainable performance. In 2020, our CET 1 ratio increased to 24.3%, well above our target range. Our return on CET 1 declined to 4.4%, significantly below the target range, due to the loss on our structured products activities. Our efficiency ratio amounted to 85.7%, not meeting our target. More information on the developments underlying these ratios is provided on pages 49 and 53.

Return on assets under management

Our wealth management solutions aim to deliver positive performance in the long term, with our investment strategies performing well against their benchmarks.

In 2020, the three-year average performances of Private Banking and Evi discretionary management mandates relative to their benchmarks stood at -1.8% and -2.2% respectively (2019: -0.4% and -0.9%). These figures are calculated by comparing the year-end absolute performance of the largest discretionary solutions over the last three years with their respective benchmarks. Although we did not meet our target to outperform the benchmarks, the absolute three-year average performance of these mandates amounted to 5.2% and 4.8% respectively, thereby positively contributing to our clients' wealth.

For more details on our financial results, see the “Financial performance” section on page 43.

Quantifying our value creation

Overview of financial capital: inputs and outputs

H: shareholders and bondholders, C: clients, S: society, E: employees, NP: non-public figure

How to read these tables

The table above, and the equivalent tables in the three sections that follow, show the various capital values used and generated by Van Lanschot Kempen in 2019 and 2020. On the left-hand side, the capital deployed by Van Lanschot Kempen in our business model is listed, divided into separate categories. On the right-hand side, the capital generated is listed, also divided into categories. The items listed in the tables are intended as examples, and should not be used to calculate our overall value creation. We have not included total inputs or total outputs in these tables for two reasons: firstly, the methodology is still too immature; secondly, inputs and outputs of a certain type of capital can also be deployed and transformed into another type of capital. For example, new assets under management (financial capital) can also lead to an increase in social capital if invested in the right solutions. 

As this table shows, our financial capital inputs consist mainly of the savings, deposits and investments from our clients, as well as the funds provided by investors in our shares and bonds. Our financial capital outputs consist mainly of the funds we invest (on behalf of our clients) in companies and governments, the financial investment returns for our clients, and the financing we arrange for our clients. Our shareholders and investors receive dividends and returns as outputs. The outputs for our employees take the form of the salaries they receive. And for society at large, the main outputs relate to the taxes we pay.

HUMAN AND INTELLECTUAL CAPITAL

In line with the International Integrated Reporting Framework, we define human capital as people’s competencies, capabilities and experience; their motivation to innovate; their ability to understand, develop and implement our strategy; and their ability to lead, manage and collaborate. We define intellectual capital as organisational, knowledge-based intangibles, including specific expertise and intellectual property.

Our approach

In a knowledge and service-based organisation such as ours, people make all the difference. Their professionalism, skills and engagement determine the quality of our service. Well-trained, knowledgeable people not only provide better service to our clients; they are also more engaged in what they do. And the rapid pace at which digitalisation and technology are developing makes the need for continuous learning even stronger.

Recruiting, retaining and developing talent

Our strategy is to be an attractive and inclusive employer for all talent sources available in the labour market. We continuously strive to recruit a diverse range of talented professionals. Instead of looking for individuals on a case-by-case basis, our aim is to create a continuous flow of new talent. One of the reasons employees choose Van Lanschot Kempen over our competitors is the broader and deeper level of responsibility we are able to offer them. To retain our employees, we provide opportunities to grow, a diverse and inclusive culture, competitive and inclusive labour conditions and our Vitality Programme.

Through our online learning platform – accessible to all Van Lanschot Kempen employees – we provide an integrated educational programme that fits with our strategy. The platform helps employees and their managers to see what is expected of them, and what knowledge and skills they have yet to attain or develop. Development KPIs are included in the people analytics that managers receive on a quarterly basis. 

We steer and monitor the value we create in terms of human and intellectual capital through a number of KPIs:

Employee engagement

We aim to engage our employees on topics that are relevant and critical to our strategy. In 2020, we identified four such topics – health and well-being, the new way of working (accelerated by the Covid-19 pandemic), ethics and integrity, and performance management development. As a result of our focus on health and well-being, absenteeism went down from 3% in 2019 to 2.3% in 2020.

Although our formal employee engagement survey only occurs every two years (last time in 2019), we conducted pulse surveys on these topics and developed action plans for each. The average participation rate across the pulse surveys was over 65%. Our Employer Net Promoter Score (eNPS) was 6, which is a positive result despite being slightly below our target of 10. The eNPS is a method used to measure employee satisfaction and loyalty to our organisation, based on the percentage of employees who are promoters of the organisation, minus the percentage of employees who are detractors.

In line with our strategic pillar to attract, develop and retain our workforce, we aim to further develop the skills of our staff. In 2020, 25% of all training was aimed at developing new skills, exactly meeting our target.

Diversity and inclusion

Attracting and retaining a diverse workforce continues to be a focus area for Van Lanschot Kempen. We aim for a fully inclusive workforce, in terms of ethnic background, religion, sexual orientation, gender and so on. We measure gender balance, and therefore aim for at least 30% female and 30% male in management positions reporting directly to the Executive Board, as well as in the next level of staff with management responsibilities. The gender balance in management positions did not change in 2020: 21% of employees in management positions are female, below our target range. We are taking steps to redress this, including – as of 1 January 2021 – supporting female colleagues to reach the top level in several departments under our adjusted organisational structure.

Also as of 1 January 2021, at the level reporting directly to the Executive Board, we saw 40% so-called "next gen" employees (under 45 years old) compared with 25% the

1 This KPI does not cover the full range of training offered within Van Lanschot Kempen. It is calculated based on training for employees working in the Netherlands, booked via our learning

  platform and via our training broker.

previous year. This gives us a strong signal to continue our inclusive labour market approach in 2021. An important initial step is our renewed employer brand narrative towards prospective candidates.

During 2020, we encouraged leaders from across the business to follow training on unconscious bias, to raise awareness around inclusion and to activate more inclusive behaviour. We revised our vacancy texts to be 100% gender neutral – something for which we received recognition from the external market. We also implemented people analytics to analyse our recruitment funnels, the labour market, our actual inflow and promoters in more depth. Increased awareness and insight into data is a starting point for changing behaviour.

We strive for equal pay for our workforce, which means that pay is merit-based and related to job level; we therefore periodically investigate this for all categories of employees. If necessary, we make adjustments to equalise pay.

In 2020, we analysed the gender pay gap at different levels in the organisation. We observed pay gaps at senior management levels and in specific areas in the wider workforce; these may be due to differences in age, work experience and so on. In 2021, we will perform further analyses to determine whether there are any unexplained differences.

Quantifying our value creation

Overview of human and intellectual capital: inputs and outputs

E: employees

As the table above shows, our human capital inputs consist of the opportunity costs of work by our employees, meaning the value of the hours our employees devote to Van Lanschot Kempen. We aim to add value to these human capital inputs through our business model – for example, by creating attractive jobs that result in additional social value for our employees. However, such outputs can also be negative – as in the case of work-related illnesses. Note that the table contains only three examples so far; we expect to add more data in the future, including figures on diversity,  the gender pay gap, work experience and training.

Opportunity costs of work

By using the so-called “willingness to pay” method, economists have been able to establish the average monetary value that a Dutch employee assigns to one working hour, compared with one leisure hour. By multiplying the annual number of working hours spent by our employees by the average price of a leisure hour,

it should be possible to estimate the total opportunity costs of our human capital input. As we are still exploring this methodology and its implications, there is no figure reported in the table above.

Social value of having work

Numerous studies show that people with a job are more satisfied with their lives than people without one. Several of

these studies also focus specifically on quantifying this social value, usually by means of a "well-being valuation". Through this econometric method, developed to measure the value of so-called non-market goods, we can determine the monetary value of increased life satisfaction as a result of a job. Based on the formula developed by Fujiwara (2019)2, the social value of all jobs at Van Lanschot Kempen in 2020 amounted to €16.3 million – accrued by employees – compared with €17.3 million in 2019.

Work-related illness

On the flip side, the negative impact of work-related illness on employees’ quality of life is also reflected in our contribution to human capital and social value. To calculate this, we use the disability-adjusted life year (DALY) method developed by the World Health Organization. A DALY is an international measure of missed happiness in life due to illness. In short, every healthy year of life counts for 1 DALY, and the DALY is lowered for each year in which an employee is ill by using a weighting factor.

2 For full details of the formula used to calculate this value, see Fujiwara, D. (2019), Valuing non-market goods using subjective wellbeing data (The London School of 

  Economics and Political Science).

We combine this data with illness-related absentee data for the average Dutch employee (from the Dutch National Institute for Public Health and the Environment – RIVM) and the value of one year of life (from CE Delft, an independent research organisation) to calculate the total impact. Based on this calculation, the total negative impact from arm, neck and shoulder complaints, back pain and burnout in 2020 amounted to €1.5 million, the same as in 2019.

Other achievements and developments

Organisational structure

In line with our strategic pillars – that guide the implementation of our strategy – our workforce and organisational structure need to evolve. We have engaged staff from all business lines and across multiple levels in the organisation to think through the strategic challenges, and involved them in the transformation of our workforce. With the shift from a business line-based structure to a function-based structure, some roles will be required to shift, too. Our company strategy will also be translated into the required skills and competencies, with a well-structured learning management system in place to ensure that our people are able to deliver on it. This process started in mid-2020 and will be further worked out in 2021.

Inclusive employment practices

In early 2020, we completed the process of integrating our HR practices – including the provision of a defined benefit pension plan for all our employees. This plan gives us the opportunity to use some of our own Kempen funds and/or an additional Evi pension scheme to offer a solid pension provision to our people. As part of the same HR integration project, we now also have some more inclusive employment practices. For example, we financially support female colleagues who want to work full-time with daycare costs. We also give older employees the opportunity to work fewer hours as they get closer to retirement, without it negatively impacting their pension savings. Lastly, we give our employees the opportunity to take a sabbatical once every five years

Impact of Covid-19 on our employees

Naturally, the pandemic – and the restrictions related to it – had a significant impact on our employees. On the one hand, travel time was all but eliminated and people embraced the digital working environment. On the other, many parents understandably struggled to balance work with childcare, while the lack of personal interaction took a toll on people's well-being. To boost engagement, we organised many digital team events.

Next steps

In 2021, we will continue to work on engaging our employees on key topics, and increasing the diversity and inclusion of our workforce. We will also further refine and increase our reporting on our contribution to human capital value creation.

NATURAL CAPITAL

In line with the International Integrated Reporting Framework, we define natural capital as all renewable and non-renewable environmental resources that support the prosperity of an organisation. Natural capital includes air, water, land, minerals, forests, biodiversity and ecosystem health.

Our approach

We contribute to natural capital by investing client assets in sustainable and impact funds that contribute specifically to natural or environmental goals such as clean energy, climate mitigation measures or sustainable agriculture. As a result of our investment of client assets and lending activities, however, there may be negative impacts on the environment under certain circumstances, such as waste production, pollution and carbon emissions.

Responsible and sustainable investment

Given the size of our assets under management, the biggest environmental impact we make – whether positive or negative – relates to how we invest our clients’ assets. We therefore have an extensive responsible investment policy in place for all assets under management. This policy is developed and implemented internally, and is based on a long-term, focused investment philosophy coupled with an active ownership approach. We believe that an actively managed investment portfolio will create the most value in

the long term, in both financial and non-financial (environmental, social and governance – ESG) terms. We engage with fund managers and investee companies on a broad range of ESG topics, including environmental issues, and we exercise our voting rights at annual general meetings (AGMs). If fund managers or investees are not willing to comply with our minimum environmental standards, we may choose to divest. In addition to our responsible investment approach, we offer sustainable solutions. These contain more exclusion criteria and a best-in-class approach.

As part of our responsible and sustainable investing, we also have a climate policy that was significantly strengthened in 2020. Kempen Asset Management has set strong targets for our investment funds, in line with the Paris Agreement on carbon emission reduction, to be met by 2025, 2030 and 2050 respectively. As Kempen Asset Management is the asset manager for Private Banking's discretionary management propositions, this also applies to these portfolios. In 2020, Kempen Asset Management also signed the Net Zero Asset Managers initiative: a group of 30 international asset managers who aim to achieve net-zero greenhouse gas emissions in their portfolios by 2050. For a full description of our responsible investment policy (including our voting policy and voting records), see kempen.com/en/asset-management/esg.

We steer and monitor the value we create in terms of natural capital through a number of KPIs:

Sustainability ambition

Private Banking assets under management invested in sustainable (Duurzaam+) and impact investment (Impact Investing) rose 50% to €3,063 million in 2020, from €2,046  million in 2019.

In 2018, we started rating internal and external fund managers on our approved list, with the ultimate aim to rate them all. At the beginning of 2020, we adjusted our KPI (15a) to an increase in the percentage of fund managers2 that meet our sustainability criteria. In 2020, the percentage of fund managers that met our sustainability criteria was 76%. Given that our criteria are now more stringent, we are satisfied with this result by the end of the reporting year.

In 2020, we undertook 116 direct engagements for change and awareness (up from 84 in 2019), which means we reached our annual target of 80–100 cases. At least one milestone was reached for 61 engagements in 2020, meaning that at least one pre-defined goal of the engagement was realised. The large number of engagement cases for which at least one milestone was reached is due to increasing engagement efforts. 

In addition to these direct engagements with companies, we also had 206 collaborative engagements with companies and 32 dialogues with external fund managers. In addition, we voted at 419 meetings, or 96% of all votable meetings (2019: 414 meetings, 92%).

1 Engagement consists of four stages. If it moves to the next stage, a milestone has been achieved.

2 The asset classes covered by our ESG scorecard are listed equities, government bonds (developed and developing), corporate bonds (investment grade and high yield) and listed real estate. 

  Funds with no material asset allocation are not in scope.

Green mortgages

On the Private Banking side, our green mortgage solution, Van Lanschot Groenhypotheek, helps private clients finance home improvements to make their properties more sustainable at a lower interest rate.

Carbon footprint

As carbon emissions are considered to be the biggest driver of climate change, we report on our carbon footprint annually. Due to the small size of our company relative to the magnitude of the assets we manage, our biggest emissions relate to our client investments. In 2020, the aggregate carbon footprint of our clients' managed assets was 4.9 million tonnes (2019: 4.7 million tonnes). Although the absolute carbon footprint increased, carbon intensity decreased, indicating that our investments have become less carbon intensive. This reflects the fact that our clients' assets are increasingly in ESG investments, which have lower carbon intensities. We see this development in both Private Banking and Asset Management. 

Our mortgage portfolio saw a reduction in carbon emissions of 5.8%, reflecting the fact that the Netherlands is moving towards making its homes more sustainable.

However, the total carbon footprint of the assets on our balance sheet increased from 41,645 tonnes in 2019 to 47,879 tonnes in 2020. This was due to an increase in the indirect emissions of our investment portfolio, which was the consequence of changes in the portfolio.

In our own organisation, our absolute carbon emissions in 2020 totalled 1,965 tonnes, or 1.17 tonnes per FTE (2019: 4,220 tonnes, or 2.4 tonnes per FTE). The 51.1% fall in emissions per FTE is mainly the result of less business travel due to the one-off impact of the Covid-19 pandemic. Because of these exceptional circumstances, we more than met our reduction target of 2.5% per FTE per year, but it is likely that emissions will increase again once the situation normalises. In 2020, we continued to offset all the carbon emissions from our own organisation, as we did in 2019.

3 CO2e figures based on 2018 data (scope 1 and 2); underlying assets under management as at 30/09/2020.

4 CO2e figures based on 2017 data (scope 1 and 2); underlying assets under management as at 30/09/2019.

Quantifying our value creation

Overview of natural capital: inputs and outputs

S: society

As the table shows, our impact on natural capital – both positive and negative – is mainly via the products and solutions we provide and our organisational footprint. For the latter and our clients' investments, we have made some initial value creation calculations. For our natural capital inputs, the situation is different: because the value of these inputs is insignificant and very hard to quantify or monetise, there are no data in the left-hand side of the table. Van Lanschot Kempen's primary inputs come from financial capital streams, and are transformed into natural capital outputs.

Our client investments and natural value creation
In 2020, we made an initial step in terms of quantifying the natural capital outcomes of our clients’ assets. By using data from a new data vendor, we undertook a preliminary first assessment of the natural capital alignment of Kempen’s sustainable equity funds.6 These funds comprise the Kempen European Sustainable Value Creation Fund, Kempen Global Sustainable Value Creation Fund, Kempen Global Sustainable Equity Fund and Kempen Sustainable European Small-cap Fund, with a total value of €876 million. Our assessment focused on the goods and services provided by our investee companies that are associated with eight natural themes, such as clean water and sanitation, affordable and clean energy, and climate. As shown in the table above, the natural capital alignment of all Kempen’s sustainable funds in aggregate (€876 million) is estimated at -€1.8 million. If the €876 million were to be invested in benchmark funds instead, the natural capital alignment would be estimated at -€101.1 million.

Our calculations were based on company sales data per investee, indicating which portion of sales could be linked (positively or negatively) to a set of natural and social themes. Adding up the sales numbers for the natural themes resulted in the total contribution to natural capital. Although we recognise that this aggregation may result in a product or service of an investee being attributed to more than one (natural or social) theme, we do not expect this to materially influence the final outcome of our analysis. The main reason is that our aggregation is conducted both for positive and negative impacts, and consequently smooths out a potential double-counting calculation impact.

As shown by the graph on the following page, for every million euros invested in the Kempen sustainable equity funds in aggregate over 2020, there was a positive alignment of €24,449 with sustainable energy and €24,478 with climate mitigation. The graph also shows negative alignments with some natural themes, especially sustainable energy, climate mitigation, marine ecosystems and terrestrial ecosystems. Some but not all of the impacts compare favourably with the benchmarks for these sustainable Kempen funds, as shown by the horizontal lines in the graph. For more information about benchmarks, visit kempen.com/en/asset-management.

As also indicated in the graph, the calculated impact can be mapped to the SDGs as well. However, the process of mapping the natural capital alignment with the SDGs is still in its infancy.

5 Based on four sustainable funds with a total value of €876 million.

6 Until now, we have not been proactively steering on contributing to these eight natural themes through our investments in listed asset classes, which is why we use the term “alignment” instead of “contribution” at this stage.

Alignment of our assets under management in Kempen sustainable equity funds with natural themes (in €1,000 per million euros invested)

Private Markets Fund

The Private Markets Fund7 published its first annual sustainability report in 2020. The fund’s portfolio companies continue to find ways to positively contribute to the environment. In 2019, 38.7 million trees were planted and 2,349 hectares of natural areas were protected across fund partners, timber and farmland investments. On a pro-rata basis, that equates to a contribution of 150,000 trees planted and 33 hectares protected. Planting trees can enhance biodiversity while forests can store approximately one-third of annual carbon emissions from burning fossil fuels globally.

Next steps

We’ve made some progress on reporting in terms of natural capital in 2020, but there’s still work to be done. We aim to expand our analysis to our credit investment funds as well. In general terms, we aim to steer these figures in the right direction in 2021 and beyond by setting targets and by further enhancing and implementing our responsible investment policies.

7 The Private Markets Fund's figures are not included in the graph "Alignment of our assets under management in Kempen sustainable equity funds with natural themes".

SOCIAL CAPITAL

In line with the International Integrated Reporting Framework, we define social capital as the relationships within and between groups of stakeholders. In our case, social capital includes the social impact we make via our client assets.

Our approach

We preserve and create wealth, growth and job opportunities for society by passing on financial capital to companies and other organisations. Our relationship with  clients is one of our most important assets. We increase social capital by investing client assets in sustainable and impact funds that contribute specifically to social goals, such as health and education, or basic needs, such as food and clean water. But as a result of our investment of client assets and our lending activities, in some cases there may be negative impacts, such as on labour rights, human rights or other social issues in our supply chains.

Responsible and sustainable investment

As with natural capital, the biggest social impact we make relates to how we invest our assets under management. Our responsible investment policy therefore also covers social issues extensively. We engage with fund managers and investee companies on a broad range of ESG topics, including social issues such as human rights and labour rights, and we exercise our voting rights at AGMs. If fund managers or investees are not willing to comply with our minimum social standards, we may choose to divest. In addition to our responsible investment approach, we also offer sustainable solutions. These contain more exclusion criteria and a best-in-class approach.

For a full description of our ESG policy (including our voting policy and voting records), see kempen.com/en/asset-management/esg.

Ethics and integrity

The financial sector is built on trust, and a healthy culture and ethical behaviour are needed to sustain this trust with all our stakeholders.

The Banking Code, with which we comply, sets out principles for sound and controlled business operations, corporate governance, risk management policies, and audit and remuneration policies. Its scope includes the integrity of the organisation (for more information, see page 92). As stated in the Banking Code, the Statutory and Supervisory Boards are responsible for developing and maintaining standards of integrity and ethical behaviour.

Our Code of Conduct, to which every employee must adhere, goes further than complying with relevant legislation. It includes guidelines on how employees should act with integrity and balance the interests of all stakeholders. Our Code also includes the Banker’s Oath, which all our employees are required to sign. For more information, see vanlanschotkempen.com/en/governance.

There are various internal mechanisms for employees who are seeking advice, or for reporting concerns about ethical issues, unethical or unlawful behaviour, and organisational integrity – for example, via their managers and the Compliance department. We have a whistleblower policy and a complaints procedure in place; we have also appointed an adviser who employees can speak to confidentially.

We steer and monitor the value we create in terms of social capital through a number of KPIs:

Client relations

The relationship with our clients is one of our most important assets. To measure their satisfaction and loyalty, we use the Net Promoter Score (NPS), which gives insight into client loyalty and the number of promoters of the organisation. The score lies within a range of -100 to 100 points, the higher the better. The formula is as follows: NPS = % promoters - % detractors. Promoters give the organisation a score of 9 or 10, whereas detractors award a score of between 0 and 6. The NPS that we measure is also known as Relationship NPS. We measure this three times a year for Private Banking, twice a year for Evi, and once every two years for Asset Management.

In 2020, our Private Banking clients1 awarded us an NPS of 26, higher than our target of 10. This can be attributed to a significantly higher score in Q4 2020, during which the percentage of clients with whom there was no contact decreased. Satisfaction regarding our investment services also increased, which could relate to the rebound of financial markets in the last quarter. 

The NPS for Evi decreased to 5 in 2020, lower than our target of 10. Compared with 2019, Evi clients indicated a lower level of satisfaction regarding their investment results. However, 85% indicated it was "likely" to "very likely" that they would remain a client.

For Asset Management, we measure NPS once every two years, as the relationships with – and solutions provided to – institutional clients do not change as quickly as can be the case with private clients. The last time we measured the NPS for Asset Management was in 2019, when our clients awarded us a score of 31, above our target of 20.

In addition to NPS, two new KPIs were added in 2020 to measure our progress in building long-term client relationships with our Merchant Banking clients. Among our Corporate Finance clients, this is measured via the percentage of successful transactions with repeat clients during a year. A client is defined as a repeat Corporate Finance client if they have made a successful transaction

with us in the past five years. The result on this KPI indicates whether existing clients are doing business with us again as well as our ability to acquire new clients. In 2020, 39% of transactions were with repeat clients, below our target range of 60-70%. This was due to the significant rise in the number of new clients for whom transactions were made. This increase was mainly caused by the impact of Covid-19, which resulted in a relatively large number of new life sciences clients within our ECM business.

Client satisfaction among our Securities clients is measured in a similar way: the percentage of repeat Securities clients paying bundled commission for our research in the past 12 months, compared with the previous 12-month period. Given the importance of building long-term client relationships, the target has been set at 80%. At 95%, the 2020 result is significantly above our target.

A crucial element in our relationship with clients is the extent to which their expectations are met by the quality and effectiveness of our solutions. The quality of our investment strategies is measured via the average Morningstar rating of these strategies in the institutional share class. At the end of 2020, the average rating was 3.6, meeting our target.

Ethical behaviour

Our approach to ethical behaviour is described on the previous page. We monitor whether our employees positively evaluate our culture regarding ethical behaviour and integrity via employee surveys. Employees are asked to evaluate whether we operate with integrity in both our internal and external dealings, and if they feel they could report dishonest or unethical practices without fear of reprisal. The outcome is benchmarked against other financial services firms (by an external organisation) and was above the industry average at the end of 2020, in line with our target.

In 2020, there was one ethical incident reported, which has since been handled according to the relevant policies and procedures.

Quantifying our value creation

Overview of social capital: inputs and outputs

S: society

As the table shows, our main impact on social capital – both positive and negative – is via the products and solutions we provide. Although we acknowledge that we use social capital as inputs – such as our brand reputation and stakeholder recognition – we don’t know yet how to quantify or monetise these, which is why there are no data in the left-hand side of the table.

Our client investments and social value creation

As with natural capital, we made an initial step in terms of quantifying the social capital outcomes of our clients’ assets. In 2020, we undertook a preliminary first assessment of the social capital alignment of Kempen’s sustainable equity funds with seven social themes.3 

1 Only clients who belong to Private Banking's target group.

2 Based on four sustainable funds with a total value of €876 million.

3 Until now, we have not been proactively steering on contributing to these seven social themes through our investments in listed asset classes, which is why we use the term “alignment” instead

  of “contribution” at this stage.

These funds comprise the Kempen European Sustainable Value Creation Fund, Kempen Global Sustainable Value Creation Fund, Kempen Global Sustainable Equity Fund and Kempen Sustainable European Small-cap Fund, with a total value of €876 million – the same funds used to quantify our

natural capital outcomes. In our assessment, we focused on the goods and services provided by our investee companies that are associated with the social themes, such as health and well-being, reduced inequality, and clean water and sanitation.

Alignment of our assets under management in Kempen sustainable equity funds with social themes (in €1,000 per million euros invested)

Based on our assessment, the Kempen sustainable equity funds in aggregate over 2020 (€876 million) made a net positive contribution of €31.9 million to the social themes. As shown by the graph, for every million euros invested in the Kempen sustainable equity funds in aggregate over 2020, there was a positive alignment of €44,647 with health and €16,644 with basic needs such as no poverty, education, clean water and energy. There were also two negative impacts, on hunger and health respectively, but in both cases performance was better than the benchmark (as shown by the horizontal lines in the graph). If the €876 million were to be invested in the benchmarks of these sustainable equity funds instead, the social capital alignment would be estimated at €12.1 million. For more information about industry benchmarks, visit kempen.com/en/asset-management.

Sustainable Value Creation Fund

The Sustainable Value Creation Fund actively selects investee companies that make a social contribution. The fund has several pharmaceutical companies in its portfolio, which align with the social theme of health and well-being in the context of the Covid-19 pandemic (as shown in the third bar of the graph above). However, we are aware that such pharmaceutical companies also have negative impacts.

The two cases below are examples of how the fund contributes to social capital.

Firstly, Roche was in the spotlight in March 2020 due to its lysis buffer solution recipe in relation to Covid-19 test kits. Along with other investors, we asked Roche to share this medical information with the Dutch government and other suitable parties to ramp up testing capabilities for Covid-19. The specific recipe was subsequently released and made widely available.

Secondly, Novo Nordisk has continued to contribute to the health of patients needing insulin, even during the Covid-19 pandemic. The company has reduced the price of human insulin from US $4 to $3 per vial to ensure access for uninsured people globally. Because of this, millions of people from 76 countries received access to low-priced insulin in 2020. If patients take their medication correctly and adopt a healthy lifestyle, their life expectancy can reach the same level as people without such a diagnosis. Under this assumption, Novo Nordisk’s products in the diabetes market save 360 million years of total life expectancy for its patients.

Global Impact Pool

The Global Impact Pool (GIP) aims to reach underserved consumers around the world with essential healthcare and financial services. Its goal is to promote inclusive and sustainable economic growth, employment and decent work for all. Access to high-quality affordable healthcare services is a critical unmet need for consumers in East Africa and Southeast Asia. In addition, financial services are able to help marginalised consumers and local businesses access capital and afford the insurance or banking services they need. In 2020, the GIP reached €108 million (2019: €100 million).

Mortgages

On the Private Banking side, our mortgages also contribute to realising social impacts. Scientific research indicates that home ownership contributes to higher levels of well-being and better safety in neighbourhoods. We have not yet quantified such impacts from our mortgages in monetary terms.

Next steps

We’ve made progress on reporting in terms of social capital in 2020, but there’s still work to be done. We aim to expand our analysis to our other equity funds and credit investment funds as well. In addition, we’re continuing to make progress in quantifying the social capital impact of our mortgages and other loans. We aim to steer these figures in the right direction in 2021 and beyond by setting targets and by further enhancing and implementing our sustainable investment policies.

FINANCIAL PERFORMANCE

Key financial data

Market developments

In 2020, we saw exceptional market circumstances related to Covid-19. In March and April, the pandemic sparked a chain of events in the markets that led to increased volatility and illiquidity. The deteriorating economic outlook triggered an unprecedented monetary policy response from central banks and governments around the world. In the second half of 2020, the financial markets showed a swift recovery.

Results

Despite these exceptional circumstances, in 2020 we saw commercial segments developing well, which resulted in a net profit of €49.8 million (underlying net result: €51.0 million). This allows us to propose a dividend of €0.70 per share. Payment of dividends will be made in two parts, as we are following the recommendation of the European

Central Bank (ECB) and De Nederlandsche Bank (DNB) to limit the payment of dividends until 30 September 2021.

The 49% decline in net result compared with 2019 is due to several factors. Firstly, following the impact of the pandemic on financial markets, we suffered a significant loss on our structured products activities. Secondly, interest income declined as a result of the ongoing low interest rate environment. Thirdly, we did not account for exceptional items in 2020, whereas 2019 saw the sale of our stakes in AIO II and VLC & Partners, which were partly offset by an impairment of goodwill.

Following the exceptional market circumstances relating to Covid-19 in the first half of 2020, which led to a net profit of €9.5 million, we saw all commercial segments develop well in the second half of the year, with a net profit of €40.4 million as a result.

1 Full-year 2020 and 2019 including retained earnings; half-year 2020 excluding retained earnings.

2 Return on average Common Equity Tier 1 capital is calculated based on underlying net result.

Client assets grew to €115.0 billion (2019: €102.0 billion), while our assets under management (AuM) increased by 13% to €99.0 billion. This growth was driven by a net inflow of €6.9 billion and positive market performance of €3.4 billion.

With the completion of our acquisition of Hof Hoorneman Bankiers, we have been able to welcome their clients with €2.0 billion in assets. We expect to complete the integration of clients, employees and funds by the end of 2021. At the end of 2020, we included this acquisition in our balance sheet and client assets, because we gained decisive control from the date we obtained declarations of no objection by the regulators.

Private Banking, Asset Management and Merchant Banking made a positive contribution to the underlying net result. Evi is moving towards break-even point. The net result of the Other activities segment is negative, and includes the loss on our structured products activities (-€35.1 million). As of 2020, our structured products activities moved from Merchant Banking to our Treasury department in the Other activities segment, due to the shift in our organisational structure from a business line-driven organisation to a function-based structure. Comparative 2019 figures have been adjusted accordingly.

The underlying net result for 2020 is the net result adjusted for costs associated with restructuring charges and tax effects (€1.2 million net effect).

Underlying net result by segment

(€ million)