Annual report responsible investment 2018 published

In 2018 we again devoted ourselves to achieving the best possible financial and social return with the pension investments entrusted to us by our clients. We did this, amongst others, by investing in solutions for societal issues. For our clients, we now have €14.5 billion invested in solutions for climate, care, food and water. Both in private markets and in the listed domain, we made a number of eye-catching investments in 2018 with which we finance the energy transition with long-term pension capital. In the US, for example, we have expanded our interests in solar and wind generation with an investment in EDF Renewables.

It is a challenge for us to find such sustainable investments of sufficient size. Many innovations are still in their infancy and have too little scale and too many development risks to invest in. That is why PGGM is looking at ways to do smaller transactions and to aggregate investments into investable propositions. At the start of 2019, we took a step in this direction by building up the Private Equity portfolio of fund and co-investments around the four themes of Investing in Solutions. The aim is to invest in smaller, impact-funds and companies that focus on societal solutions. In this context, we expect that in 2019 PGGM will be able to carry out interesting transactions that underline our ambitions in this direction.

For the transparency and credibility of such sustainable investments, we attach great importance to measuring the tangible impact in absolute units such as kilos of avoided CO2 emissions or numbers of people with access to good healthcare. In addition to the financial return, what is the actual societal impact of responsible investment? Measuring tangible impact is difficult and there are plenty of challenges: very few companies have a good idea of their societal impact, let alone quantify it and report on it. PGGM therefore works closely with academics and other partners to develop methods for this. In 2018, for example, we worked together with the University of Wageningen on impact modeling in the field of agricultural productivity and food waste.

In 2018 we mapped out for the first time how our investments contribute to the Sustainable Development Goals (SDGs). On behalf of our clients, almost €34 billion was invested in companies and projects that contribute to the SDG’s. This is more than 15 percent of the total assets under management. We call these investments SDI: Sustainable Development Investments. The announcement of an SDI volume in this annual report is the kick-off for further discussion and research on measuring impact, both financially and societal. We also aim to better identify the negative impact of these investments.

In addition to investing for positive impact, we have taken further steps this year to include ESG risks and opportunities in our investment decisions. We are convinced that ESG factors are material in the long term. A great deal of attention was devoted to the consistent mapping of ESG risks in order to be able to manage these risks better. By integrating these risks and opportunities into the investment process, we achieve a better risk-weighted return. The annual report includes interviews with some of our investors who explain how this works out in daily investment practice.

An important topic to which we have paid much attention in 2018 is climate change. The risks of climate change are explicitly taken into account within our private markets investments. Also, in 2018 our Risk department developed a CO2 stress test for our clients’ portfolios. In real estate the physical locations of investments were linked to climate models. This provides insight into which part of the property portfolio is vulnerable to rising sea levels and extreme weather. In addition, we reported for the first time this year according to the Taskforce on Climate Related Financial Disclosures (TCFD) recommendations. We are pleased to see that by the end of 2018, more than 500 businesses, insurers, banks and institutional investors had explicitly committed themselves to the transparency framework of the TCFD.

To stimulate responsible investment and jointly bring about changes, PGGM played an active role in various networks and partnerships. In 2018 we supported a call from IIGCC, which encourages governments to take concrete measures to meet the objectives of the Paris climate agreement. We also joined the collective engagement initiative Climate Action 100+, aimed at making the 100 companies with the largest contribution to global greenhouse gas emissions more sustainable.

PGGM has also been intensively involved in the creation of the IMVB Pension Funds Covenant for International Socially Responsible Investment, led by the Social and Economic Council (SER). In the coming four years, we will be working on implementation with our clients who have signed the covenant. With this, we hope to take responsible investment to the next level.

Good results, however, that does not alter the fact that there are many challenges, both financial and societal. That is why we, together with our clients, are continuously working on improving responsible investment policy and execution. By working together, by making our voices heard and by exhibiting behavior that contributes to a sustainable financial system, we want to further increase our tangible impact as a responsible investor.

Read more about our activities, the results achieved, the dilemmas and the most important developments in the field of responsible investment in 2018 in the Responsible Investment Annual Report 2018.