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RI leaders: Eloy Lindeijer, Chief of Investment Management, PGGM: the challenge of allocating assets to impact

Why PGGM has only invested €16bn of a €20bn target set in 2014

Eloy Lindeijer is responsible for PGGM’s investment management. PGGM's main challenge is to generate a sustainable long-term return on its global investment portfolio. This means it strives to realise an inflation-protected pension, while contributing to a more sustainable world. Lindeijer was formerly director of the Financial Markets division at De Nederlandsche Bank (DNB). 

The challenging of allocating assets to impact.

Dutch pension investment giant PGGM has been typically open about its struggle to meet a €20bn impact investment commitment – a large part of which involves low carbon transition opportunities.

Eloy Lindeijer, Chief of Investment Management at the €238bn fund manager, believes engaging with governments is part of the answer. 

Lindeijer, who also sits on the executive committee of PGGM, joined in 2011. He started his career in 1988 at the Dutch Central Bank, holding several positions and representing the Netherlands in various committees of the European Central Bank and Bank for International Settlements. 

“I’ve had discussions with high officials of large emerging economy countries. It’s in the countries where they are putting in new coal fired power plants and we’ve been asked by these governments to invest in their global infrastructure programme,” he says. 

“We say this is impossible as you are on-lining all these coal fired power plants and we don’t want to do these. So, one of the things I’ve suggested to these policy-makers is splitting up infrastructure programmes; put the coal-fired power plants into a different sleeve and make a special sleeve for renewables because otherwise you are making it impossible for us to participate.”

In 2014, PGGM committed to invest at least €20bn into solutions to issues such as water scarcity, climate change, health and food security by 2020.

One of the things I’ve suggested to these policy-makers is splitting up infrastructure programmes.

“We’re not going to meet the target,” admits Lindeijer, who says PGGM has invested €16bn so far. “Half of it’s gone into opportunities related to the energy transition [€8bn] and a large part of it is also in private markets where we’ve been purchasing utilities that are leaders in the energy transition.”

Too few good deals

RI spoke with Lindeijer as PGGM and oil major Shell were jointly bidding for Dutch utility Eneco that generates about half its electricity from renewable energy. In the event, the deal went to a Japanese consortium made up of Mitsubishi Corporation and Chubu for €4.1bn.

Speaking before the announcement, Lindeijer said: “These are the types of companies we’d love to have in our portfolio. This way you get a board on the seat and you’re very much more involved in actual strategy setting.”

This is the case with its 10% interest in US-based utility, Puget Sound Energy. The Washington state energy provider is “phasing out its coal power plants and getting greener,” says Lindeijer. 

But these types of deals are still too few for investors like PGGM, he notes: “We see a shortage of projects with good risk/return characteristics which meet our impact objectives. We’d love to see many more energy transition projects in our own country for instance. And so far we’ve not had enough of them.”

Lindeijer hopes this will change, describing an infrastructure project in the Netherlands’ second-largest city, Rotterdam. Dubbed the ‘Heat Roundabout’, it will distribute surplus heat from industry throughout the Zuid-Holland province. Lindeijer calls it a vital part of the country’s energy transition: “20% of Dutch CO2 emissions originate in the petrochemical industry in Rotterdam. So this is crucial to do over the next few years.

We see a shortage of projects with good risk/return characteristics which meet our impact objectives.

“We’d love to own that network,” he continues. “But the problem is that there is this huge development risk in building the pipelines, in getting the permits. It will never meet our returns objectives, taking the risk.”

Lindeijer sees a role for the Dutch government to think creatively: “It could put out a green bond,” he says. “If it was 50 basis points at a negative rate it could finance the green field development and make a decent return. Then the government could sell the project to us once it is operational.

“This is where I can see governments and long term investors working together to really speed up the energy transition.”

Sustainable Development Investments initiative 

PGGM, as part of its “investment in solutions” commitment, was a backer of the Dutch government’s first green bond. It invested a total of €83.5m as part of the €6bn issue – €1m through its own PGGM Government Bond Fund and €82.5m on behalf of its client and owner Pensioensfonds Zorg en Welzijn (PFZW). 

In 2008, PFZW, the Netherlands’ second largest pension fund, spun out its asset management activities, creating PGGM. 

Today PFZW, which provides pensions for healthcare sector employees, remains PGGM’s largest client and was the driver of its €20bn impact goal. As part of this, UBS manages a listed equity portfolio of €2.2bn. 

The rest (€1.4bn) is managed internally. “There is really not a lot of product out there yet,” says Lindeijer. “There are indices that tilt. There are increasingly ‘impact benchmarks’ being constructed. But so far we haven’t felt that any of these benchmarks suit our needs. That’s why we’ve tried to develop them internally.”

When asked what could move the market, Lindeijer says more standard setting is necessary. PGGM is working on this with APG, asset manager for the Netherlands’ largest pension scheme, ABP. 

The duo is developing a framework for determining which companies contribute to the United Nations Sustainable Development Goals (SDGs). The Sustainable Development Investments (SDIs) initiative, which uses artificial intelligence to filter through 10,000 companies, effectively translates the SDGs into a taxonomy of investable opportunities.  

Parallel to this, PGGM is working on impact measurement. “It’s not enough to say that you know that a certain company or investment contributes to the SDGs,” says Lindeijer. “You actually also want to measure impact. But, because measuring impact is such a complex task, you need to develop a lot of it yourself.”

The firm is working with UBS, City University of New York, Harvard University, and the University of Wageningen on developing an impact assessment model that converts company revenue from the solutions that companies provide into an absolute impact number. 

Because measuring impact is such a complex task, you need to develop a lot of it yourself.

Lindeijer says it is a “work in progress” with the impact models being tested with a number of companies to help refine the process.

“Every time, you are trying to discover where are the limits. It’s really two steps ahead and two steps back at times. You can have very lively debates. But it is interesting to get new insights that you might not have otherwise, working together with academics. I very much think this is where the boundary is: to try and do this stuff in collaboration with academics, companies and other investors.”

Convergence on impact reporting 

Lindeijer says PGGM is strengthening its collaboration with APG on the SDI Initiative: “We worked together on this SDI taxonomy. We are using the same data sources. And ultimately in decisions and rules within the taxonomy, when we report on a company we do that in a comparable way. I’d say we’ve converged for 70% of the way we report and measure things. But we’d like to have full convergence. Ultimately, we would like to see that happening much more at a global level as that would really facilitate a common base for understanding and engaging on impact. It would help to provide clarity to issuers on the data we are looking for to support our decision making.”

RI understands that a North American investor is set to join PGGM and APG on the SDI Initiative. 

“In an environment with an increasing number of initiatives, PGGM believes it is important to set standards that asset owners can converge on, which increases speed and efficiency of development, particularly in this key area,” says Lindeijer. “And you really have to work together with others to do that efficiently.”

PGGM has a history of collaboration, having co-founded, with APG and the UK’s USS universities fund, GRESB, the Global Real Estate Sustainability Benchmark. Launched 10 years ago, its ESG and data benchmarks now cover $4.5trn in real estate and infrastructure value. 

Lindeijer is also a member of the Task Force on Climate-related Financial Disclosures (TCFD)– the voluntary reporting framework on climate data. 

Implementing TCFD

PGGM is now working with the Investor Leadership Network, a global initiative including the likes of Allianz, CalPERS and Generali, on implementing the TCFD. 

Its first report focused on scenario analysis. “That kind of data which is forward-looking should ultimately help you deciding if you want to be in or out of a lot of your companies,” says Lindeijer. 

Lindeijer also says SASB – the Sustainability Standards Accounting Board – is an important initiative. “It’s so important to get standards on broader ESG factors and I think SASB is the ideal platform to work together with peers on this.”

It’s so important to get standards on broader ESG factors.

Hans Op ‘t Veld, Head of Responsible Investment, at PGGM sits on SASB’s Investor Advisory Group and Lindeijer says PGGM uses the SASB framework across asset classes: “We’ve started to use it in our due diligence processes for infrastructure, for example,” he says. 

After this interview was conducted PGGM won the GSG Honors 2019 for Impact Institutional Investor. Judges were impressed by PGGM’s commitment to reduce CO2 emissions, improve healthcare access and achieve a circular economy. 

Lindeijer said: “Impact investing on an institutional scale is the next big thing. Very large investments are needed that contribute to solving global problems as defined in the SDG framework. As a long-term pension investor PGGM is committed not only to invest with impact but also to work with other investors to develop international standards for impact measurement. Such standards should help to scale up impact investments. We are proud that the Global Steering Group has recognized our work in this field.’’