Denmark’s ATP said a new fact-finding exercise has given it more complete insight into the real ESG status of the illiquid part of its portfolio.
The DKK936.1bn (€125.8bn) pension fund said completed questionnaires now received from 77 private equity and infrastructure investee companies mean it will be able to have better, more concrete discussions on ESG matters, as well as other advantages.
In its new 2020 report on ESG in illiquid assets, ATP said this collection of ESG data – which relates to some DKK100bn of investments – had been the top focus this year within this operational field.
It said in the report: “In general, illiquid investments are not covered by ESG data providers to the same extent as is for liquid investments, making data collection a challenge.
“At the same time, the EU has put forth a number of new requirements for investor transparency on ESG, which places new requirements on ATP,” it said.
So far, very few pension funds collect ESG data from their illiquid assets in house, an ATP spokesman said.
Susanne Røge Lund, ATP’s director of ESG, told IPE: “The biggest benefit from this work is that we get an overview of the ESG status of the illiquid portfolio, and that going forward we can have much more concrete and relevant dialogues with companies and funds.
“Furthermore, we can look across the entire portfolio to identify areas for broad engagement,” she said, adding that the questionnaire would now be a yearly exercise for ATP.
“We do not have data for all companies yet, since this is the first year we have sent it out, and it has been a comprehensive exercise to reach out and get responses.
“The purpose of the yearly exercise is to build up data to be able to make qualified analyses across the portfolio, but also to follow developments in individual companies,” she said.
Tracking developments every year would give the pension fund a better sense of the effectiveness of ESG initiatives and whether they were paying off, she said.
The questionnaire is built around the three topics of policy, process, performance, ensuring questions address the right topics and metrics not only in relation to specific ESG risks, but also to value creation in each individual sector, ATP said.
Røge Lund said ATP would use the data actively in its asset management, and also give the companies surveyed the opportunity to use it by giving them feedback.
The team behind the exercise worked to keep the questionnaire simple, she said, asking some overall questions as well as some within the individual areas of environment, social issues and governance.
Examples of ATP’s questions to its private equity and infrastructure holdings range from “How much manufacturing waste is sent to recycling?” to “Do you keep a record of near-miss accidents?”, according to the report.
“We have been very strict in building the questionnaire and we haven’t included any purely nice-to-know questions”
Susanne Røge Lund, ATP’s director of ESG
“We have been very strict in building the questionnaire and we haven’t included any purely nice-to-know questions,” said Røge Lund.
This stopped it from being very time-consuming for companies and meant much of the information requested involved things the companies should be able to answer, she added.
“We also wanted it to be simple in order to get as many responses as possible, and avoid ending up with a very scattered data-set,” she said.
She noted that it was ATP’s firm investment belief that companies managing ESG well would create better returns in the long run.
“This is due to lower risk and that companies who are able to identify and utilise ESG opportunities will also be able to create more value for investors,” she said.
Røge Lund stressed that ATP was not using the data from the ESG questionnaire to create ratings or scores.
“We will work with the raw data and make analyses, which companies and funds can use for their own benefit and make their own comparisons – it is not to find the poor performers, but to have conversations with companies and funds based on the level they are at,” she said, adding that for ATP, ESG was a development, not a competition.