PGGM is getting rid of its responsible investment team as part of a new strategy to strengthen its impact on real-world sustainability.
The Dutch asset manager, which runs more than €250bn on behalf of PFZW, the national pension fund for healthcare workers, is in the process of overhauling its investment strategy, process and teams to put more emphasis on achieving environmental and social impact.
PGGM and PFZW have been collaborating on the plans for a few years. They centre on a new ‘3D’ investment strategy in which risk, return and sustainability impact are treated as parallel objectives.
“It doesn’t mean all our investments will be sustainable investments or impact investments,” said Piet Klop, who has been in charge of PGGM’s response investment team for the past three years.
“It’s about knowing what we own and being able to explain all our investment decisions along those three dimensions. It makes sustainability and impact everybody’s business, and puts it on par with risk and return.”
Changes to investment objectives and strategies
Responsible investment at PGGM is broadly split into four categories.
First, it screens out investments with outsized negative impacts, which has resulted in a current exclusion list of more than 2,000 companies.
It then actively engages to improve the remaining portfolio, and makes efforts to align with external sustainability goals like the Paris Agreement.
Finally, it seeks to contribute to those objectives in the real world, which it refers to as ‘impact’.
“Impact is always going to be the cherry on the cake – the cake is made mainly out of the first three,” explained Klop.
“What’s really new under the 3D approach is that we’ve articulated real-world, absolute impact targets for the portfolio.”
Those targets include the level of real-economy GHG emissions avoided as a result of investment decisions, and PGGM’s concrete contribution to improving Dutch healthcare.
Targets on biodiversity and nature loss will soon be added.
“Some of that can be achieved through active engagement, but mostly it will come from asset allocation,” noted Klop.
New teams and no more responsible investment department
PGGM is in the process of creating a “total portfolio management team”, to help ensure the goals are met holistically, rather than through specific asset classes.
Klop said this focus will also make it easier to attain the targets, because PGGM can essentially overweight the impact in some strategies to compensate for the fact that are they harder to achieve in others.
“We’re still working out how much space we will get for dynamic asset allocation to help us hit the three goals PZFW has given us,” he added.
“Even though this process required me to give up my old job, I still think it’s a good idea,”
Piet Klop, PGGM
The approach has involved PGGM disbanding its 16-strong responsible investment team, and reassigning most of them to the new total portfolio management team, where they will continue to oversee issues like exclusions and standard setting.
There are also plans to set up a dedicated research team, where other members of the responsible investment unit will be placed.
“Some of the deep expertise that used to be in the responsible investment team will go there,” said Klop.
Others will be placed in PGGM’s investment, strategy, performance and reporting teams to meet demand for more sustainability expertise to manage the 3D approach.
“So there will be a scattering, but two concentrations of expertise in the new research and total portfolio management departments,” explained Klop.
He added that, while the decision should be seen as a doubling down on sustainability and impact, rather than a retreat, care needed to be taken to ensure the reshuffle of his former team doesn’t “lose us critical mass by spreading the expertise and authority too thinly”.
“Sustainability will always need a champion or a watchdog, so we may need to define that role more clearly as we go through this process, either at the total portfolio management level or elsewhere in the investment hierarchy.”
But, he said, “the stars at PFZW and PGGM feel aligned”.
“In my years at PGGM I’ve been through reorganisations that failed, either because the incentives or policies weren’t in place, or there wasn’t enough support from PFZW.“This time around, it’s on the client’s orders that we do this, so everything is there and I think we’ll make a better go of fully integrating impact and sustainability this time.”
The roll-out is expected to be complete by the end of 2025. Klop’s new job role is yet to be decided.
“Even though this process required me to give up my old job, I still think it’s a good idea,” he said.
“We need to integrate this stuff, and move responsible investment from a sideshow to the main stage.”
APG makes investment teams responsible for engagement
In a similar move, at the beginning of this year Dutch manager APG disbanded its engagement team, making its fund managers within its various investment teams responsible for engagement themselves.
Estelle Beretta, head of stewardship and sustainable investments at APG, told a recent Morningstar conference that finding enough people to engage is a big challenge.
“Engagement is very labour intensive. You often have to dig deep to get the right information. People often don’t realise how much work engagement is until they are involved in it,” she added.
“We asked ourselves: ‘Where are the most employees in the asset management industry?’ They are the portfolio managers, ie, the managers of investment funds and discretionary mandates. We have therefore placed the responsibility for engagement with the fund managers and implemented a reorganisation for that,” Beretta continued.
According to Beretta, the European Sustainable Finance Disclosures Regulation (SFDR) played a role in the decision to fully transfer the responsibility for and execution of engagement to APG’s decentralised investment teams. This has to do with the explicit inclusion of ESG risk characteristics in investment processes.
Most of the former APG central engagement team has now been transferred to the investment teams, to work with the portfolio managers. APG employs hundreds of these managers worldwide. A new team, led by Beretta, will continue to coordinate APG’s broader engagement approach.
By Sameer van Alfen
This article was first published on Pensioen Pro, IPE’s Dutch sister publication.
Read the digital edition of IPE’s latest magazine
Sophie is IPE's ESG contributing editor.
She is the founder of Real Economy Progress and a senior associate at the University of Oxford.
Sophie's journalistic experience includes being editor of Responsible Investor and Environmental Finance.View full Profile
No comments yet