Responsible equity portfolio outperforms by 17% at PGGM

NETHERLAND - ESG-driven investment can boost returns by as much as 17%, according to €105bn asset manager PGGM.

During the Responsible Investor conference in Amsterdam, Alex van der Velden, head of responsible equity strategies, said PGGM's €3bn responsible equity portfolio had outperformed its benchmark by 17% since it was launched three years ago.

He said the portfolio had targeted long-term financial returns, ESG integration and active ownership at a limited number of companies.

After fundamental analysis, PGGM - the asset manager of the €100bn healthcare scheme PFZW - put together a portfolio of "financially attractive companies" with a strong ESG profile or with "engagement potential", Van der Velden said.

During this process, he added, PGGM found that corporate culture barriers could be overcome and realised it must move away from "benchmark thinking" and index replication.

He said concentration and sector consequences could be offset through a disciplined investment approach and that a long-term structure was more important than short-term incentives.

He added that the response from companies so far, when offered investments against an ESG policy, had been surprisingly positive.

Jeroen van der Put, director of the €3.5bn asset manager Media Pensioendiensten (MPD), reported a 2.5% outperformance on responsibly managed European and US large caps over the last six years.

MPD, which is the asset manager of the industry-wide scheme PNO Media, has placed 50% if its 32% equity portfolio under responsible management.

Van der Put said: "Try to keep the ESG portfolio as simple as possible, as you really need to understand the themes and the issues - and to keep the costs down."

Both Van der Velden and Van der Put said ESG policies had been encouraged by the participants of their client pension funds.

Alka Banerjee, vice-president of global equities at ratings agency Standard & Poor's India, added: "ESG indices in India and the pan-Arab region have consistently outperformed conventional benchmarks after the financial crisis of 2008.

"Companies with an ESG policy are apparently better managed and aware that ESG factors matter."