While investment opportunities in climate-related Sustainable Development Goals (SDGs) such as Climate Action and Clean & Affordable Energy are plentiful, this is not the case for all the SDGs Dutch pension schemes have prioritised, a report by BlackRock has found.
According to BlackRock’s analysis, 39 of the largest Dutch pension funds have chosen a number of focus SDGs that fit with their investment priorities, with the aforementioned goals related to the energy transition being the most popular ones.
“Next to that, pension funds tend to pick a number of SDGs their membership has an affiliation with,” said Ronald van Loon, a bond portfolio manager at BlackRock.
For example healthcare scheme PFZW has picked Good Health and Wellbeing (SDG 3) as a focus SDG, and retail scheme Detailhandel has selected Decent Work and Economic Growth (SDG 8).
To the delight of pension funds, governments, companies and development banks have originated many loans to finance climate projects such as solar and wind farms or the electrification of transport. So investment opportunities in these areas abound.
But this is not the case for all the popular SDGs: while 85% of Dutch pension funds have named SDG 12 (Responsible Consumption and Production) as a focus SDG, only 25% of green and social bond issues address this goal.
A similar mismatch is found in relation to the SDGs 6 (Clean Water and Sanitation), SDG 14 (Life below Water) and SDG 15 (Life on Land). Social and green bonds tend to be issued mostly by governments and supranational institutions such as development banks. Corporates account for around a third of supply, which now totals some €2trn.
According to Van Loon, issuers have an interest to know which issues major investors care most about.
“The fixed income market is dynamic. About 12% of loans mature each year. New loans take their place. So it is possible to respond to demand. If there is high demand for a certain green or social loan, that can be beneficial for the issuer,” he said.
In the fixed income market, investor engagement with issuers also takes place, though this is a less direct form of engagement than in equities. “Issuers of loans also want to know what their investors think is important. We can tell more about that now thanks to this study,” Van Loon added.
APG invests in gender equality bond
APG, the Netherlands’s largest pension investor with more than €500bn in assets under management, has invested $30m in a $100m bond that provides access to capital for women entrepreneurs across a number of Asian and African countries.
The firm said that 100% of the proceeds of the listed bond, which comes with annual interest of 7.25% and has a duration of four years, is supposed to contribute to SDG 5 (Gender Equality).
The money that was raised with the bond issued by impact investor IIX will be loaned to women in developing markets “who are typically excluded from financial markets or face other forms of gender-based discrimination due to structural and cultural barriers to financial access”, according to Lee Anne Hagel, responsible investment credit analyst at APG.
Funds raised will be used to promote “the growth of women-focused businesses and sustainable livelihoods” and directed towards six sectors: agriculture, water and sanitation, clean energy, affordable housing, SME lending, and microfinance, Hagel added.
Gender equality had been one of very few SDGs APG had not yet invested in. In its annual report for 2022, APG’s main client, ABP, said it already invests some €92bn in 14 of the 16 other SDGs.
The investment follows a $750m commitment two years ago to an EM private credit fund managed by ILX, an investment manager focusing exclusively on syndicated loans originated by development banks.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra