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Joanne Kellermann, Chair of Pensioenfonds Zorg & Welzijn (PFZW), Netherlands second-largest pension fund, says it acts on the belief that “for a good life in old age you need more than money alone; you also need a livable planet and environment”.
Kellermann, who was speaking this week at RI Netherlands 2021, stressed that the €255bn pension fund was not “an NGO or an activist”, but it “believed while making money, it could also reduce its negative impact and increase its positive impact on the world”.
PFZW, and its asset manager PGGM (spun-out by PFZW in 2008), have been prominent leaders in ESG, sustainability and – more recently – impact investing; and the fund has been typically open about the challenges of providing inflation-protected pensions while contributing to a more sustainable world.
PGGM struggled to meet a €20bn impact investment commitment, driven by PFZW, to “invest in solutions” such as renewable energy and food security because of a lack of investible products. “We reached €19.8bn – a very decent result,” Kellermann tells RI.
But the experience hasn’t deterred PFZW from going even further. It has now committed to investing 20% of its portfolio – around €50bn – into a new sustainable investment strategy over the next five years.
Importantly, there will be “no hierarchy between the risk, return and impact” in the strategy, says Kellerman, who admits the five-year goal is “quite ambitious”.
‘We're seeing a tremendous acceleration in interest and in traction for this whole subject, and I think that's really great if we also see the big mainstream asset managers on the move’
She stresses the need for cooperation with asset owners, governments and industry. “We are depending on them to get their act together,” she says. “Because if nothing changes in the market then we won’t be reaching those goals”.
“We are banking on the fact that with the Paris Accord, with a climate tax, with all the movement that you currently see in the investment world, also the companies we invest in will do their share and start changing for the better.”
PFZW’s new commitment has been informed by surveys of its 2.9 million beneficiaries, who work (or worked) in the Dutch health and welfare sectors.
“One important element of those surveys was that the vast majority of our participants are happy with the fact that we want to invest sustainably. And more than 70% said that even if it would slightly diminish their return, they wouldn’t mind, which was also quite spectacular,” says Kellermann. “But it's not something that we need because we are convinced that in the end sustainably investing will add return rather than generate less return.”
Beneficiaries also told PFZW that, as part of the commitment, it should focus on two overarching goals: People & Health, and Climate.
As PFZW engages more with its ultimate clients on investment and sustainability, robust impact measurement is essential, says Kellermann. At RI Netherlands, Kellermann said such processes were needed to counter greenwashing, maintain integrity and communicate with its members.
“Most of our beneficiaries are not financial people. So for them, it’s perhaps more satisfying to know that we’ve reduced our CO2 footprint or improved access to clean water than we’ve made a 0.5% return on our structured lending portfolio in Asia,” she says.
PGGM is leading the conversation on impact through a partnership with APG, the asset manager of ABP – the Netherlands’ largest pension scheme – called Sustainable Development Investments (SDIs) Asset Owner Platform initiative. The SDI-AOP uses artificial intelligence to filter through 10,000 companies, effectively translating the UN Sustainable Development Goals into a taxonomy of investable opportunities. The SDI-AOP sells data on individual companies and publishes a taxonomy of solutions for each SDG for free.
Australian Super and Canada’s British Columbia Investment Management Corporation have since joined the initiative, investing money into the product and also converging with PGGM and APG on their approach to impact measurement.
Piet Klop, Senior Advisor Responsible Investment at PGGM, describes the SDI-AOP as “an attempt to bring method to the madness and be more accountable” as an impact manager. It analyses company revenues to gauge the depth of contribution to individual SDGs and seeks to analyse future positioning to those SDGs.
‘Most of our beneficiaries are not financial people. So for them, it’s perhaps more satisfying to know that we’ve reduced our CO2 footprint or improved access to clean water than we’ve made a 0.5% return on our structured lending portfolio in Asia’
The SDI-AOP also tries to have a better measure of what a company’s impact has in the real world. Klop explains: “This is about how many people get better access to healthcare, how many tons of carbon is avoided, how many cubic meters of clean water is added. As Joanne said, that is ultimately what a beneficiary is most interested in. If we sell ourselves as providing pensions with purpose, that purpose has to be easily understood. Preferably in a very absolute sense.”
Dutch beneficiaries have had a big influence on the approach of the country’s pension sector. Its well-documented leadership in responsible investment was driven largely by public pressure in the mid-2000s after an exposé on Dutch pension funds’ exposure to weapons and child labour.
That scrutiny remains with PFZW, which just this month came under fire for investing billions in companies with alleged links to Myanmar's military – a claim that it says is more nuanced, because the companies involved include many with regular international businesses like package deliverer DHL and the Hilton hotel chain. Nonetheless, PFZW and PGGM are assessing and engaging with the companies identified.
Kellermann says its journey towards meeting its beneficiaries’ values on ethics and sustainability won’t be easy.
“We're seeing a tremendous acceleration in interest and in traction for this whole subject, and I think that's really great if we also see the big mainstream asset managers on the move. We have to wait and see what it all means, which is why it will always be important to keep up the measurement so that we can actually check whether people put their money where their mouth is. I think that's important,” she says.
“And the other thing that's important is at the same time, we should be realistic. We have big plans. We've made a conscious decision to set pretty ambitious goals. But we're not there yet. Every day we stumble into a new problem and that will continue. That's not going to be over anytime soon. Situations change. Insights change. At first natural gas was the solution. Now it's bad. This will continue.
“It’s also important to be aware that we need to be adaptable. We also need to realise that we are a pretty big tanker that cannot be as nimble as a sailing boat. And that's a fact of life that we'll have to balance.”