Conversation with APG: Let’s create a critical mass of investors to define SDIs
On September 10, together with the Sustainable Development Investments Asset Owner Platform (SDI), we will be hosting a webinar on ‘How to Invest in the UN Sustainable Development Goals (SDGs)’. Ahead of the event, we caught up with one of the founding members of the SDI AOP, Claudia Kruse, who heads up the Global Responsible Investment and Governance team at the largest pension delivery organization in the Netherlands: APG.
In addition to managing EUR 512bn (USD 576bn) (as of April 2020), APG is involved with key external initiatives, such as the UN Global Investors for Sustainable Development (GISD) and the International Corporate Governance Network.
What exactly is the platform?
The SDI Asset Owner Platform enables investors to assess companies’ contribution to the UN Sustainable Development Goals (SDGs). We’re seeing an increasing number of global investors trying to understand the contribution they make, through their investments, to the SDGs. The SDI Asset Owner Platform’s measurement framework helps them imbed the SDGs into their investment processes and allows them to shift more capital to SDIs. It also enables them to report to their clients and external stakeholders transparently and consistently, using a common and auditable standard.
Up until now, a lack of quality data to identify contributions to the SDGs has been an impediment for investors. The platform provides a common definition, taxonomy and data source for investments in the SDGs. Powered by AI-technology, data science company Entis generates SDI classifications for 8,000 companies to date.
There seems to be a lot of ESG-related data out there already. What makes this data any different?
The platform’s offering is uniquely positioned for a number of reasons. First, this is a focused effort on the SDGs and not just a broad-brush ESG exercise. Second, the SDI information offers broad coverage of global capital markets portfolios and focuses on companies’ product or service-related contributions to the SDGs. Third, the data is objective, as it is based on audited financial metrics and our classification is rules-based and auditable. Fourth, the fact that the classifications are aligned with the methodologies of large asset owners ensures credibility. The data is transparent, as positive and negative contributions are not mixed. And finally, unstructured data is processed using artificial intelligence and natural language processing technology. Machine learning ensures both efficiency and continuous improvement.
The Netherlands is known for being early adopters of ESG-related investments. Why?
There are various factors, but a very relevant one is the important role of pension funds in our society. In the Netherlands, we have big pension funds that service millions of beneficiaries and therefore represent a large part of society. In the late 00s, the Dutch media started to pay increasing attention to pension fund investments and revealed, for example, that some pension funds’ (and therefore beneficiaries’) money was going to controversial weapons. This sparked increasing interest among beneficiaries for where their money was going. Pension funds took this to heart and developed policies for sustainable and responsible investment. In general, the Netherlands is very focused on societal responsibility.
In times of crises – like the one we are going through now – can sustainable investing really add value?
First and foremost, sustainable investors are focused on the long term, favoring strategy, fundamentals and long-term value creation. They can identify and align with long-term trends and investment opportunities. In the current crisis, we have been adding concrete value by investing in Covid-19 response bonds. On behalf of our pension fund clients, we have invested over half a billion euros in such bonds, whose proceeds are used to support both health care and the economy. They help fund emergency health measures such as expanding test capacity, training medical personnel and procuring protective medical equipment, as well as support packages for small and medium-sized enterprises in Europe and elsewhere. At the same time, these bonds offer an attractive return. In most cases, APG invests in Covid-19 bonds issued by reputable institutions with solid credit ratings (AA or AAA). The credit risk of AAA-bonds is comparable to the risk of Dutch sovereign bonds, while the interest rate is slightly higher than that of similar bonds.
What are the future plans, now that you launched the platform?
Our work is hardly done. We will continue to refine and extend the platform’s product, continuously broadening and deepening our research and coverage. And, importantly, we hope that more asset owners and investors will join, so we can truly help enhance the financial sector’s contribution to the Sustainable Development Goals.
APG is the largest pension delivery organization in the Netherlands with approximately 3,000 employees that provide executive consultancy, asset management, pension administration, pension communication and employer services. Two of their asset management clients, civil service and teachers fund ABP and the pension fund for the construction sector, bpfBOUW, have set measurable targets for SDIs.