Hans Op ‘t Veld, the principal director of responsible investment at €231bn Dutch pension investor PGGM, is “convinced” that the trend for calling out greenwashing is going to spread to impact investing.
“ESG has already become much more regulated,” he said, pointing to recent moves by policymakers in Europe to “safeguard against unsubstantiated claims to protect investors”.
Updates to the directive for institutions for occupational retirement provision (IORP II) and Markets in Financial Instruments Directive (MiFID II), for example, included requirements for greater transparency around how ESG factors are being considered in investment decisions and risk management.
“But impact is going through the same process now,” Op ‘t Veld continued. The Sustainable Finance Disclosures Regulation (SFDR) is the clearest example of this shift, he said, as it requires investors to explain if and how they contribute to environmental and social objectives, rather than simply how they manage ESG risks.
“Some investors are currently rather liberal with their claims on impact, which I’m quite concerned about,” he said, adding that in many cases, the investment industry is not aware of the shift of focus from ESG to impact.
“This means that impact data is still run in proprietary frameworks that haven’t seen the scrutiny that other data has seen […] In the past, investors were of the view that you could probably resolve accusations of greenwashing by pointing to the third-party data provider and saying: ‘Well, that’s what they told us, and we don’t have any better information than that.’ But it’s different now, and you need to be able to substantiate and defend the data yourself.”
In 2019, PGGM teamed up with APG, AustralianSuper and British Columbia Investment Management Corporation to begin that process. They created the SDI Asset Owner Platform, which began as a set of definitions of around 300 business activities that support the aims of the UN’s Sustainable Development Goals (SDGs) – everything from gender equality to marine conservation.
On the back of those definitions, the platform created data sets for around 10,000 listed companies to assess whether their products and services aligned with those aims. Shortly afterwards, it created data sets to help members understand what portion of a company’s revenues undermined the SDGs, too.
“The beauty of this information is that we can use it to engage with companies,” said Op ‘t Veld. “We can point out when all of the wonderful things they say on their website or in press releases don’t quite match with their revenue lines, for example. And that information is based on audited data, so it’s hard for them to contest.”
”We can point out when all of the wonderful things they say on their website or in press releases don’t quite match with their revenue lines”
Hans Op ‘t Veld, the principal director of responsible investment at PGGM
On top of its four founding asset owners, the SDI Platform now has nine more members including CBUS, the pension fund for Australia’s construction industry, and Dutch pension scheme PGB Pensioendiensten.
Major investment managers like BlackRock and NN Investment Partners also subscribe, bringing the total assets under management of the group to around €11trn.
“I’m pretty jealous of the resources that some of these asset managers have,” Op ‘t Veld said, “so it’s good to have them on board for their expertise as well as for the financial benefit.”
Subscribers pay to access the platform, but the four founders are currently “putting considerable resources” into keeping it going. In the future, Op ‘t Veld hopes it will be cash positive, but that’s a way off, he said.
Last week, the SDI Platform announced the introduction of a new data set: a forward-looking assessment of firms’ investments into technological innovation.
“We see so many acquisitions being made by companies nowadays, and we don’t always understand how they fit in with their talk around transition and becoming more sustainable,” noted Op ‘t Veld. “What are they actually buying?”
He said that quite often, on closer inspection, the deals related to technologies that could contribute to environmental and social solutions – especially around the energy transition.
The data has to be collected separately from the platform’s other analysis because such spending isn’t captured in revenue streams.
“The new data resonates particularly well with American investors, because even if you’re not investing in impact because it’s good for the world, these technologies often prove to be quite lucrative,” he said.
He added that a number of funds beta tested the model and “found some interesting alpha capabilities which fulfil that classic investment approach of just making money”.
This is particularly important in the current US context, as politicians move to rein in sustainable finance efforts. Over the summer, BlackRock found itself at the receiving end of warnings from 19 state attorneys general who claimed the investment titan’s commitment to climate goals risked “sacrificing” pension savings. Such challenges are growing across the country.
But Op ‘t Veld said he is still optimistic.
“I’m hopeful about the direction of travel, but less about the speed at which we get there. In the US, it’s become a stop/start process depending on the political landscape,” he said, praising current efforts by the US Securities and Exchange Commission (SEC) to bring in climate disclosure rules.
“Two years ago that would have been impossible,” he noted in reference to the Trump Administration’s ‘anti-ESG’ stance. “But does that mean that in another two years it will be impossible again?”
Already, there are signs of trouble. Since the SEC announced its plans for climate disclosures, the US Supreme Court has ruled that agencies must have a mandate from Congress to pass regulation that has major economic or political impacts. The judgement related the Environmental Protection Agency, but it has clear implications for the SEC’s sustainability efforts.
This political volatility makes Op ‘t Veld think that the most meaningful pressure will not come from rulemakers but from pension beneficiaries, who he argued have more consistent views over time. Australia is an example of a relatively conservative state on matters of ESG, he suggested, but one where pension savers have been loud and effective at pushing their funds – sometimes through the courts – to consider environmental and social issues in their investment decisions.
The next step for the SDI Asset Owner Platform is likely to be working out how to use data to assess the contribution of investments to a socially response (or ‘just’) transition, including one that supports emerging markets, Op ‘t Veld predicted.