NETHERLANDS – PGGM, the €133bn Dutch asset manager, is to check the more than 2,800 companies in the FTSE All-World index in which it has invested against a specific ESG index to encourage the companies to improve their sustainability policies.
Using a model developed in-house, the asset manager has been assessing the companies' performance based on 70 environmental, social policy and governance (ESG) criteria.
Marcel Jeucken, managing director for responsible investment at PGGM, said: "Our goal is to generate more responsible passive market returns in a cost-effective way and with a broad reach."
Jeucken said he was unaware of any other ESG index of such scale, which PGGM deploys for almost €34bn of equity investments for its five pension fund clients.
One of them is the large healthcare scheme PFZW.
PGGM said it would combine the ESG index with an active engagement and exclusion policy.
Meanwhile, PGGM has decided to divest from 210 companies and has placed 79 – mainly larger – enterprises on a watch list while it conducts a dialogue with them.
"After one year," Jeucken said, "we assess whether we want to continue investing in these companies, or whether we will still sell our stake. However, our impression is that a ranking in the ESG index is important to them."
PGGM said the assets released through divestment would be reinvested in companies that complied with the ESG index.
According to Jeucken, one of the main challenges for PGGM was "mining" the relevant information from public sources about the companies involved.
"In emerging markets in particular, corporate communication about ESG is still limited, or there is a language barrier," he said.
Further, the dialogue itself, as well as the implementation of ESG measures, often requires great effort, he said.
The asset manager has been tasked by its clients to avoid investing in companies that manufacture or trade in controversial weapons, or violate human rights and decline to enter a dialogue about improvements.
PGGM said it voted at more than 3,100 shareholder meetings, conducted a dialogue with 746 companies and excluded 42 enterprises from investment last year.