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At PGGM, our roots are in the care and welfare sector – and together with our largest client, the Dutch pension fund Pensioenfonds Zorg en Welzijn (PFZW) – we represent the financial future of people who work in this sector in The Netherlands. We look – together with our clients – for opportunities where we can increase our investments in companies and projects that also have a positive contribution, through their products and services, to global sustainability challenges as defined in the UN Sustainable Development Goals (SDGs). We call these investments Sustainable Development Investments, SDIs. Together with our ESG analyses, which focus on the internal behaviour of companies, we believe we can realise our ambition to contribute to a liveable world for the pension participants of our clients.
Honing in on the UN SDGs
Along with others in the asset management and asset owner community, we have seen firsthand this increasing appetite for investing in the SDGs. However, when it comes to investing, the lack of quality, standardised data and definitions with a positive contribution to global sustainability has been a challenge. To accelerate the market adoption of SDIs, we teamed up with APG, AustralianSuper and British Columbia Investment Management to establish the Sustainable Development Investments Asset Owner Platform (SDI AOP), which officially launched in July this year. The overall aim is to create a standard, which will lead to greater efficiencies for financial institutions looking to invest in the SDGs.
At the moment, the focus is on listed equities, with coverage of 8,000 companies. Next year, the universe will include bonds and the coverage will increase to 10,000 companies.
The launch of the SDI AOP comes at a critical time, said Fiona Reynolds, CEO of the Principles for Responsible Investment, who highlighted that the SDGs are the world’s business plan to meet the growing need for a greener, more inclusive and sustainable future.
“The SDI AOP is a much-needed piece in the puzzle of how we, as investment community, can advance the SDGs. It will help to translate the SDGs into investment goals and make sure that investors and corporates have a standardised way of reporting. Investors can contribute to the SDGs through capital allocation, stewardship and engagement with other stakeholders and governments.”
Combining artificial and human intelligence
Operating under a separate legal entity, SDI AOP maintains the SDI taxonomy and rules of solutions that contribute to the SDGs, while Entis is the data science partner that creates objective and consistent data on the SDG contributions of companies. Entis combines artificial intelligence with human intelligence to translate the SDI rules into an SDI classification. Analytics and index provider Qontigo is acting as exclusive distributor of the data.
“The SDI AOP is a huge step forward by creating a set of easy-to-use and cost- efficient data – as opposed to a piece of required software – that can be incorporated into existing tools for investment decisions and reporting,” explains Ian Webster, Senior Managing Director at Qontigo. “In this way, the SDI AOP allows for a very wide set of use cases and continuous development in the future.”
Tried and trusted by asset owners
For this data to reach critical mass, we believe it is key to share knowledge and experience in analysing investment portfolios in detail on their contribution to the SDGs. The SDI Taxonomy and Guidance is an open-source document that we publish so that other financial institutions could also use this as a framework to invest in line with the SDGs, and can be found here.
As asset owners, we use this data, and therefore we also know the importance of continually researching and refining. The SDI methodology is rule-based, resulting in auditable data. Transparency is served by leaving the consideration of ESG risks to the individual investor’s decision-making process. The SDI Taxonomy and Guidance are continuously refined by a dynamic research agenda which also covers those SDGs where companies’ positive contribution stems from operational improvements rather than their products and services.
At the moment, the focus is on listed equities, with coverage of 8,000 companies. Next year, the universe will include bonds and the coverage will increase to 10,000 companies. The platform is also working on forward-looking metrics and private market classifications. The next step on the agenda would be defining metrics to be able to report on real world outcomes.
We see that the SDGs are no longer a side industry, but have become front and center for the financial services community. At the same time, the industry is struggling to make the SDGs part of standard investment processes. We believe that the SDI AOP can address those challenges and we encourage other asset owners to join us: As Reynolds states: “The SDI AOP is a wonderful example of how we can do more together than individually.”
Gert-Jan Sikking is Senior Advisor Responsible Investment at PGGM