Institutional investors are unable to take advantage of increasing numbers of interesting sustainability investment proposals because they are not packaged for appropriate scale and due diligence requirements, according to Rob Lake, head of sustainability at APG Investments, the €250bn fund manager of Dutch pension fund ABP.
Speaking at the Triple Bottom Line Investing (TBLI) conference Asia in Bangkok, Thailand, Lake said he had been impressed by presentations at the event from Asian renewable energy entrepreneurs. However, he pointed out that the fund manager could only look at investments of $50m minimum and said he was surprised at a lack of relevant packaged investments on the market: “Seen from our end of the pipe, small-scale investments are just not viable. It would be great if there were people out there, probably in the private equity sector, who would come to us with at least some sort of entry point; not necessarily fully packaged product, but at least an understanding of our size and the kind of detail we need before we invest.”
Lake’s comments captured some of the pluses and minuses of the TBLI Asia event. Its strength is that itbrings together sustainability entrepreneurs with investors in the region where much of the important production of large- and small-scale renewable energy solutions are happening. Innovations presented this year included environmentally friendly concrete produced from pulverised fly ash, localised hydro electricity and energy efficient refrigeration. Stewart Armer, head of Sustainable and Responsible Investment, Fortis Investments, told the conference that it was “increasingly drawn to Asia” looking at opportunities in countries where situations of stress, notably regarding the environment, were in turn producing a number of good undervalued companies well placed to meet growth in demand on sustainability themes. At the same time, Asia, the world’s factory, is home to many serious cases of poor environmental, social and human rights practices. The presence at the conference of local and international NGOs working in the field is a reminder of the human face at the end of the investment chain. Few conferences achieve this balance. Other topics on the programme felt more relevant than ever: peak oil, biofuels and palm oil production in Asia, emissions trading, microfinance and water.
Andreas Knörzer, managing director and head of sustainable investment at Sarasin, the Swiss fund manager, outlined why water was such a dominant theme at present: “By 2025, two thirds of the world’s population will be in water-stressed areas.” He said the manager was particularly focused on water efficiency technologies in its investments and said portfolio holdings also had to meet its internal sustainability requirements.
Sadly asset owners were thin on the ground, diluting that necessary connection between capital owners and the implications of their investments. One example was a discussion on whether environmental, social and governance practices provide risk reduction for pension funds. Heather White, founder and president of New-Standards, a research company on global workplace standards, pressed Lake at APG as to how investors could ensure they are not complicit with controversial projects that could have reputation and financial repercussions.
His response was that it is difficult, particularly when companies can be selective about transparency: “There is a large mining company that we are engaging with that has told us that criticism against it is a result of a complete misunderstanding by local activists without all the facts. They asked us if we wanted the full story, which of course we did. But the real risk is that the company gives investors the facts but not stakeholders in the community!”
Kris Douma, head of responsible investment and active ownership at MN Services, which runs €60bn in assets for 15 Dutch pension funds, gave some idea of the scaleof engagement now being undertaken by fund managers: “We are in discussion with around 40-50 companies that are not currently complying with the Global Compact. We are also engaging with companies such as Lundin Petroleum in Sweden about potential issues of complicity with the Sudanese government on human rights issues. We want to be sure they are being proactive in implementing some of the best practices they have identified.”
“By 2025, two thirds of the world’s population will be in water-stressed areas”
Douma explained why MN Services had joined an investor coalition to lobby Wal-mart, the US supermarket giant, over labour and commercial issues at its June 6 AGM: “We are concerned that the company has been involved in about 25 breaches of labour rights and that there are a growing number of US cities who don’t want Wal-mart to build new stores because they are perceived as being against small businesses and workers’ rights. That is material to us as investors. We want the company to report to us on these issues. We are hoping for large support and are calling for investors to join us in the resolution.”
This kind of co-operative engagement, said Douma, was becoming increasingly important: “In two months we will be joining with other investor members of the UN PRI Clearing House for a meeting with companies in Kuala Lumpur where we can talk about ESG issues in Malaysia. We have also joined another UN PRI collaboration on
ESG transparency for companies in emerging markets where we really need more information.” To this end, Chanchai Supasagee, director of corporate governance and compliance at the $12bn Thailand Government Pension Fund (GPF), a DC scheme for the country’s civil servants, outlined the reason why the fund has started its commitment as a signatory to the UNPRI by deepening its corporate governance efforts: “Three years ago we adopted a CSR policy on good company governance and share voting based on OECD guidelines, which we have made public. Our governance ratings on companies on such issues as treatment of shareholders, stock options and board appointments are published on our website. We put a premium on investing in good companies and a discount on poor ratings. This year we voted against five companies on issues of board duration and stockoptions. We also voted against 19 board member appointments. “We find that fiduciary and social responsibility do not conflict and in fact have something in common. For our environmental and social commitments to the UNPRI we will be following the same path.” He said the fund also recommends that fund managers it hires take into account the principles outlined by the UNPRI. GPF has also approached other local investors to support corporate governance campaigns, but Supasagee said peers were often reluctant to commit to such initiatives due to political considerations. Increased activity by responsible investors from developed markets in Asian ESG projects could be the catalyst for sustainable growth that will convince more local institutions to pursue the same values.