The European asset owners aiming to make an ‘impact’
The Luxembourg reserve fund and Unilever’s Dutch pension funds are among a number of European institutional asset owners that are either considering or explicitly preparing impact-related investment moves.
In the Netherlands, the organisation that manages Unilever’s two Dutch pension funds is looking to increase its allocation to impact investments to around 5% of the total portfolio over the next couple of years, according to Michael Kaal, the CIO.
It would fund this allocation with cash returned from its private equity portfolio, which it is running down, he said.
He emphasised that the pension funds were in the early stages of the process to grow their impact investment allocation. They had hired an external adviser to help find managers, but had not yet identified anyone.
That should happen in the next couple of months, according to Kaal.
The pension funds had chosen three themes for impact investments: hygiene, sustainable agriculture and clean energy. These were taken from Unilever’s corporate sustainability plan.
Kaal said the pension funds started making impact investments about two-and-a-half years ago to “dip our toes in the water”. The allocation was around 1% and the portfolio was currently invested in green bonds and carbon-optimised listed equities.
However, the pension funds wanted investments with more impact and were finding that the most interesting opportunities were in private equity or other illiquid assets, according to Kaal.
The investments would still need to offer an attractive risk-adjusted return but the pension funds could consider opportunities with slightly lower return expectations because they were so well funded, the CIO added. The coverage ratio at both funds, which have €5.5bn in assets under management between them, is nearing 150%.
Luxembourg’s FDC preps €1bn sustainability allocation
In Luxembourg, the reserve fund Fonds de compensation (FDC) is moving ahead with impact investment plans it unveiled last year.
FDC has tendered three mandates with a sustainability or environmental angle, one of which explicitly refers to impact investing. The total allocation amounts to more than €1bn.
The fund said it wanted to allocate some €200m to “global equity sustainable impact” investing to generate “a sustainable and measurable impact by investing in the equities of listed companies that have the intention to generate, alongside a financial return, a social or environmental impact”.
The other mandates are for “global equity sustainable approach” (€750m) and green bonds (€100m). FDC said it was open to a range of implementation strategies for the former, citing best-in-class selection, thematic selection, and engagement.
The majority of the FDC’s €17bn portfolio is invested via its investment vehicle €15.7bn Fonds de Compensation de la Sécurité Sociale, SICAV-FIS.
French public scheme eyes water investment
In France, meanwhile, ERAFP is exploring the possibilities of impact investing with thematic focuses on water and food.
Philippe Desfossés, CEO of the €30bn pension fund for public servants, told IPE that the pension fund did not have a specific allocation size in mind, but it would have to be “sufficiently big” otherwise the pension fund would not attract sufficient interest. He suggested it could be around €50m.
Implementation would depend on a number of things, he added, such as whether the scheme would have the right to invest directly in funds or whether it would have to launch a tender and what asset classes it would be able to invest in.
This would in turn depend on the outcome of its outstanding request to the government for a less restrictive investment regulation framework.
NEST sets out green bonds plan
In the UK, the £2.5bn (€2.9bn) defined contribution master trust NEST plans launch an investment grade credit mandate that may include a section on green bonds, according to Diandra Soobiah, head of responsible investment at the pension fund.
It also has infrastructure on its radar, which could include renewable energy investments if these meet the pension fund’s requirements for risk-adjusted returns.
Sioobah said impact was at the centre of every asset class decision and fund manager selection NEST made.
However, she said NEST did not currently have an allocation that it would specifically call ‘impact’, and she indicated some hesitation within the master trust about labelling certain investments specifically as impact investments.
“We’re quite reluctant to pigeonhole ourselves in a definition of impact for fear of upsetting other purely impact-focused investors,” she said.
“I think there is some worry and apprehension in the industry at the moment about watering down what ‘impact’ actually means. We do think it’s important that the term is upheld and we wouldn’t want to do disservice to that.”