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Responsible investing

Sustainable and socially responsible investing is of great importance to APG and the pension funds we work for. But why exactly? And what is that all about, socially responsible investing? What do we invest in? And what do we not invest in? What are the objectives that we and our pension funds have in mind? Read all about that - and more - here.

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Sustainability, Long-term investment
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183 Publications

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APG sets up Noordzeker consortium to develop offshore wind farms

Published on: 15 November 2022

For the first time, APG aims to participate in the development of a large offshore windfarm from scratch. Noordzeker, a consortium that is being created on behalf of ABP, is preparing a bid on up to four lots in the North Sea.  

A huge windfarm will be developed off the coast of IJmuiden (Netherlands) as part of the Dutch government’s ambition to massively expand offshore wind energy. IJmuiden Ver (IJVER) will be divided into four lots, which are to collectively generate 4 gigawatt (GW) of clean electricity – enough to power more than 5 million households. In line with ABP’s ambition to invest in the Dutch energy transition, APG is setting up a consortium to participate in the tender and play a leading role in the further development of North Sea wind energy.

New approach

 “We have of course invested in wind energy before, both on land and offshore, also in the Netherlands,” says Bart Saenen, Senior Portfoliomanager Infrastructure. “But this will be the first time we will be participating in all phases – tender, development, construction and operation – of an offshore project. To this end, we are teaming up with a leading renewable energy developer. We are excited to take on a prominent role in realizing the Netherlands’ offshore wind energy ambitions on behalf of ABP and its beneficiaries.”

The Dutch government recently announced plans to massively expand wind energy production on the North Sea. In 2030, North Sea wind should supply 21 GW or about 75 per cent of current Dutch electricity consumption and this is scheduled to grow to approximately 70 GW by 2050. Prospective sites for the development of windfarms are to be auctioned in stages – with the IJVER lots up for auction in 2023. Tender conditions incorporate both a financial component and qualitative criteria relating to, among other things, system integration and ecology.

Spur innovation

“The Dutch government wants to spur innovation to find and scale-up solutions for system integration and to tackle ecological challenges,” Bart says. “Building a windfarm is one thing but we also need to balance the supply of and demand for wind energy, for instance by integrating battery storage and using hydrogen as an energy carrier. The construction and operation of windfarms also impacts bird and marine life. Noordzeker will work with Dutch research institutes, universities and environmental organizations to find ways to reduce negative impacts and even strengthen eco-systems.”

The competition is likely to consist of large windfarm developers, energy utilities and oil & gas companies. “The Dutch government has announced that qualitative criteria on system integration and ecology will  play an important role in the tender process,” Bart explains. “Together with our partners in Noordzeker we will be able to make a unique offer based on our long-term commitment to the Dutch energy transition and North Sea offshore wind, our successful track-record of building strong long-term partnerships and APG and ABP’s firm roots in Dutch society.”

Financial and societal returns

Investing in the development of North Sea windfarms is expected to provide good and stable returns for ABP’s participants – especially since we are investing for the very long term. And it provides important societal benefits, as ABP also points out. “We invest Dutch pension assets and combine forces with Dutch and European companies to enable offshore energy production. We thus contribute to a reliable and sustainable energy supply for Dutch households and companies. That is good for the pensions, our climate, energy security and employment.”   

Interested parties need to submit their bids by the end of 2023 and selection is expected to take place in 2024.

Volgende publicatie:
“We need governments to help unlock sustainable investments in emerging markets”

“We need governments to help unlock sustainable investments in emerging markets”

Published on: 10 November 2022

Governments increasingly call on investors to contribute to the financing of sustainable development in emerging markets. APG’s pension fund clients want to contribute and have set targets for investments in the Sustainable Development Goals. To help them fulfil their ambitions, APG actively looks for Sustainable Development Investments (SDIs) and has launched the SDI Asset Owner Platform. In emerging markets, however, it can be challenging to find sustainable investment opportunities. Ronald Wuijster, CEO Asset Management at APG, calls on governments for help.


One of the challenges for investors is that there is often insufficient accurate and reliable information to assess whether companies are contributing to the SDGs. That is why APG joined forces with PGGM, AustralianSuper, and British Colombia Investment Management Corporation to establish the SDI Asset Owner Platform (SDI AOP) in 2020. The platform uses artificial intelligence to determine whether and how much companies contribute to the SDGs with their products and services.

In 2021, BlackRock – the world's largest asset manager – decided to use the platform’s data. The platform now represents over USD 10 trillion in assets under management. The SDI AOP is encouraging international investors to join the platform with the aim of making it a global standard for investing in the SDGs.

 

Finding investable SDI opportunities in emerging markets is challenging

Even with the data challenge being tackled, it can still be difficult to find investment opportunities in emerging markets which, ironically, offer most growth potential for sustainable development. Still, although availability is limited, we do see a trend of growing issuance of green bonds by different emerging market debt agencies. These bonds are earmarked to specific sustainable projects and/or have made their revenues conditional to achieving specific sustainable targets. We welcome this development, which is certainly of interest to us.

 

Another way of financing sustainable development is through private debt originated by Development Finance Institutions. We like this instrument, because it allows us to finance specific individual projects on the ground or to target specific regions, sectors or SDGs on behalf of our clients. However, the scalability we need is not always available. Also, these loans are buy-and-hold. That is not necessarily a problem as we are in it for the long term, but our clients may change their preferences over time and may ask for a change in the investment portfolio. More flexibility would help to allocate more capital to this investment category.

A flexible and scalable solution: ILX Management’s SDG-focused private credit fund

We need innovative solutions to attract private capital. This year, APG invested in a platform for loan participations in emerging markets, ILX Management’s new SDG-focused emerging market private loan fund. APG is the first investor in the fund, allocating USD 750 million on behalf of Dutch pension funds ABP and bpfBOUW.

 

The fund will pool loans from various DFIs, building a broad and diversified portfolio of medium and long-term finance to projects and companies with a focus on clean and renewable energy, sustainable industry and infrastructure, inclusive finance and food security. Potential investment examples include the development of port facilities, solar power farms, sustainable agriculture and loans to local businesses.

 

Investing in the fund allows us to invest in individual projects and to decide what we do and do not want to invest in, in line with our clients’ sustainability requirements. At the same time, we still benefit from the underlying DFIs’ long-standing track records in originating and managing private sector projects in emerging markets.

Equally important, the investment helps us to diversify and improve the risk profile of the emerging market debt portfolio. This is because private loan investments tend to have low volatility and a weak correlation with the more liquid credit investments that trade on public markets.

 

Hurdles: risk aversion and protection constructions

We depend on DFIs to make the loans available. However, there are a couple of hurdles to take. First of all, DFIs tend to find climate-related projects more risky. With our long-term approach we can play a role by taking over or sharing some of the risk. Governments in developed countries can also help stimulate this type of investments, for example by providing investors with a first-loss guarantee.

Second, some countries 0ffer quite a lot of sustainable investment opportunities, but these are not always accessible to DFIs as local banks want to keep these opportunities for themselves. The governments of such countries can help by opening up the market, unlocking private capital from foreign investors and speeding up the realization of climate ambitions.

We call on governments to help boost SDG investments in emerging markets

It is possible to scale up private investment in sustainable development opportunities in emerging markets. There are hurdles, but if institutional investors, Development Finance Institutions and governments work together, we can overcome them.

Volgende publicatie:
Bridging the gap together

Bridging the gap together

Published on: 10 November 2022

In approximately two months, the world population will reach 8 billion people. With $ 125 trillion in assets under management, the top 400 leading financial institutions can have an important impact on their lives and the world they live in. But with little time left to turn the tide, it is crucial we join forces - not only with our peers and in our own financial habitat but also and especially with NGOs, governments, science, and society, says Ronald Wuijster, CEO of APG Asset Management.

 

 

On 9 November, the World Benchmarking Alliance published the Financial System Benchmark, ranking the 400 most influential financial institutions on their contribution to achieving the SDGs. APG and our largest pension fund client ABP have been allies of the World Benchmarking Alliance for years. Obviously, we are proud that we are the second highest-ranking pension fund investor and that we are in the 30th overall position in this benchmark. It is nice to be acknowledged for our efforts to invest responsibly, respecting planetary boundaries and human rights. At the same time, an average score of 31 points out of 100 tells us that we still have work to do, with little time left.

 

Emerging markets face disproportionate climate risks

The presentation of the Financial System Benchmark was at COP27 in Egypt, Africa. And that had a reason. Despite its low contribution to greenhouse gas emissions, Africa is highly vulnerable to climate change, as are many emerging countries. As financial institutions, we can help mitigate this, but we need to join forces.  It is cooperation that can make change happen.

Investing hundreds of billions on behalf of our pension fund clients, we want to take significant steps to make this happen by allocating more capital to the Sustainable Development Goals in emerging markets. After all, they offer most growth potential for sustainable development. However, it can be challenging to find investment opportunities there because of the accessibility of the market, the relatively small size of the SDG projects, and the higher risk compared to, for instance, Europe and Asia.

 

We need to join forces

Innovative investment solutions are necessary. In January 2022, we were the first to invest in the ILX Fund, with a USD 750 million commitment on behalf of pension funds ABP and bpfBOUW. This fund is a way to finance specific sustainable investment opportunities in emerging and developing economies. But we need to scale up. And for that we need the help of governments, for example by providing investors with first-loss guarantees or opening up the market. Together, we can unlock private capital and speed up the realization of the Sustainable Development Goals.

 

This does not only apply to emerging countries: it applies to the whole world. The Emissions Gap Report 2022, dated October 27, 2022, is very clear: "Only an urgent system-wide transformation can avoid climate disaster." This report also includes an entire chapter about the importance of the finance system: chapter 7, 'Transforming the finance system to enable the achievement of the Paris Agreement.'

 

The way forward is unity, partnerships, and collaboration. Not only with our peers and in our financial habitat but also and especially with NGOs, governments, science, and society. We need to meet our counterparts. A one-on-one meeting with the CEO of Greenpeace Netherlands, Anna Schoemakers, made me think. Our differences were far more minor than I ever anticipated - our similarities and common goals far greater. At APG, we started with 'the Reflection Board,' a group of challengers of our board, with people like Gerbrand Haverkamp, the CEO of the World Benchmarking Alliance, and Rutger Hoekstra, associate professor at Leiden University and author of ‘Replacing GDP by 2030’. They do not spare us, fortunately. Together we are trying to bridge the gap.

 

Ronald Wuijster is CEO of APG Asset Management

Volgende publicatie:
“Stay radical! And keep engaging as many companies as possible”

“Stay radical! And keep engaging as many companies as possible”

Published on: 4 November 2022

At first glance, the worlds of APG Asset Management CEO Ronald Wuijster and Greenpeace Netherlands Executive Director Anna Schoemakers could not seem much farther apart. Still, it turns out they care deeply about the same topics. In a frank discussion, Ronald Wuijster explores what APG and Greenpeace can learn from each other and how they can each play their role in tackling two of the major challenges of our time: climate change and biodiversity loss.

At the time of writing, Anna Schoemakers is already traveling on the Rainbow Warrior III from Amsterdam to the COP27 climate conference in Sharm el-Sheikh in Egypt, picking up climate activists along the way. While she understands change takes time, she focuses on immediate action here and now. “Every day I work for a more green and peaceful future,” she says. “Climate and biodiversity are the issues closest to my heart.”

 

Ronald Wuijster uses a longer time horizon. His portfolio managers at APG aim to contribute to a sustainable world by integrating climate and biodiversity risk into investment decisions and investing in opportunities for the longer run. “To transition well, you need time. At the same time we do see that change is very urgent.”

 

Action here and now versus a longer-term transition

When asked about this dilemma, Schoemakers acknowledges that the transition from fossil fuels to renewable energy takes time, but she chooses not to focus on that message. To make people aware of the urgency, Greenpeace aims for immediate action. Take climate adaptation, for example, such as building dikes to protect countries against rising sea levels. “My personal mission is to stop taking fossil fuels out of the ground as our source of energy,” Schoemakers explains. “My more nuanced rational side thinks about adaptive strategies as well, but I would not bring them to the table first. I’m afraid that when I do that, companies and governments won’t see the urgency of having to change anymore. We need to keep the pressure on.”

 

Greenpeace does not have the decision making power or the money to shift things, says Schoemakers. “But we do have the people, the voice and our actions. This way, we make sure we get in the media and make room for the actors that do have the decision making power, so they can maneuver.”

The risk of our approach is that things move too slowly, while the risk of Greenpeace’s approach is that we end up with energy shortages and all sorts of problems for human beings.

As a long-term investor, APG has the opportunity to look for solutions in the long run. “We also see some adaptive strategies that can play a role,” says Wuijster. “Still, we see that time is running out. We need more time for a solid and smooth transition than we have. The risk of our approach is that things move too slowly, while the risk of Greenpeace’s approach is that we end up with energy shortages and all sorts of problems for human beings. Our dilemma is that if you focus on 2050, this is so far out that there’s no sense of urgency to change. What we do is engage with companies, to make sure they understand our requirement for them to contribute to the energy transition. And if they don’t, we will divest.”

 

A simple, clear message versus nuance and completeness

As chair of the World Economic Forum biodiversity initiative, Ronald comes across a whole range of academic definitions of biodiversity, such as diversity in landscapes, the number of species or even diversity in DNA. Here too, Greenpeace chooses to make complicated things simple, to reach as many people as they can. Schoemakers: “For us, biodiversity focuses on oceans and forests. In our messaging, we do not explain the whole complex issue and the longer timelines required. We keep our message simple: ‘Save the oceans’ or ‘Save the forest’. And then we count on our nature organizations, scientists and other organizations to identify and analyze the underlying issues.”

 

“Of course we also look at the science, and we do understand the complexity of, say, the energy transition and that you cannot simply cut off everyone and leave them in the cold, but that’s not our key message. We do not have the time or the place to explain this at length. That could be your role.”

 

When Wuijster asks her what she would advise APG, she answers with a smile: “Stay radical! And keep explaining the story. Why are we doing this? Why do we need more sustainability? And keep engaging as many companies as possible and don’t let them get away with endless planning and calculations. In the end it will deliver a better place to live.”

Volgende publicatie:
Voting during annual general meetings: this is how it works

Voting during annual general meetings: this is how it works

Published on: 2 November 2022

Annual general meetings (AGMs) and voting on agenda items are key events in every shareholder’s calendar. But what is the function of an AGM? Why is voting so important? And how does a major shareholder like APG manage the logistics of voting the shares it holds on behalf of its pension fund clients?

Senior Responsible Investment and Governance specialist Mirte Bronsdijk gives us a refresher course on the world of AGMs and voting and explains why the new voting platform which was developed together with APG’s proxy voting service provider, is so important.

 

First let’s go back to the basics: what is an AGM and why is it held?

“An AGM is the only time in the year when company representatives officially ‘meet’ the shareholders. Holding an AGM is mandatory, and they normally occur within six months of the end of the financial year. At the meeting, directors share the past year’s business performance and present the outlook, including new strategies or policies. Shareholders have the opportunity to ask questions and then vote usually on a number of standard agenda items such as the election or re-election of directors, approval of directors’ remuneration and the payment of the dividend. Shareholders also have the right to vote on matters that directly affect share ownership, such as stock splits, share buybacks or a proposed merger or acquisition.”

 

Are AGMs really important or just a formality?

"The AGM is a key event because it is the only time shareholders can vote and thus directly influence a company’s behavior. Although some agenda items may not seem significant, indirectly they can strongly impact how a company operates and shape its future policy. For example, at APG, we might vote against new board members if their appointment does not contribute sufficiently to diversity, or against a remuneration policy that fails to incorporate sustainability criteria. In this sense, voting is a very powerful tool. As an active investor, we exercise our right to vote wherever possible for all the companies in which we invest on behalf of our clients.”

 

Why has APG developed this new voting platform?

“In 2021, APG voted at over 5,000 shareholder meetings all over the world and on more than 53,000 individual proposals. This is basically why our new voting tool is so important – we vote at so many meetings on so many topics it provides more transparency on the details and enables users to look at and analyze voting data in numerous ways. The search function enables the information to be filtered by meeting date, company name, sector and market as well as giving statistics on how we voted on specific agenda items. For APG, it is also vital to be transparent on how we carry out these important stewardship activities on behalf of our clients.”

 

Does every shareholder attend the AGM?

“No, not every shareholder attends the meeting. And you don’t have to physically attend to vote. In the past, more shareholders– both institutional and retail – used to attend AGMs in person. However, since the pandemic a new trend of holding virtual AGMs or in some cases hybrid versions (online and in person) has become increasingly common. For a large investor like APG, physically attending many meetings is just not feasible as we hold shares in thousands of companies and vote on behalf of multiple clients. This is one of the reasons why we employ the services of a proxy voting service provider which allows us to vote AGMs by proxy.”

 

How do you cast your vote at an AGM and how do you know what to vote on?

“If you attend the AGM in person you can vote ‘live’ during the meeting. For the AGMs we don’t attend in person, we can find the agenda and the voting items in our online voting system. In such cases we submit our votes in advance. APG’s voting decisions are based on expectations set out in our Global Corporate Governance Framework where we explain our underlying corporate governance principles, how we meet our investor responsibilities, and how we vote on main AGM agenda items for the shares we hold in our portfolio.”

 

What exactly is proxy voting?

“The term proxy vote refers to a ballot cast by an individual or company on behalf of a shareholder who cannot attend the AGM in person. Shareholders receive a proxy ballot that enables them to let someone attending the meeting vote on their behalf. A proxy can either be instructed on how to vote or can be given the discretion to vote as they see fit. Companies that manage billions of euros worth of assets like APG usually outsource most of their operational voting to proxies. We use proxy voting for well over 95% of our voting activities. Our proxy voting service provider votes on behalf of our clients in accordance with the detailed guidance laid out in their voting policies.”

 

Are you obliged to vote as a shareholder, and can you vote even if you only own one share? “Every shareholder has a right to vote irrespective of the number of shares they own. But it is normally one share, one vote; so small shareholders have less influence. Shareholders can also choose not to vote if they don’t want to, or they can abstain if they want to show that they have made a conscious choice not to support or vote against a specific agenda item. The number of APG abstentions and the percentage of votes for and against management proposals can also been found in the voting platform. In 2021, we abstained on 1520 proposals and did not vote on 44. Overall, we voted in line with management recommendations in 80% of cases and against them for the remaining 20%.”

 

Can shareholders join forces and align votes to support or block a proposal?

“If shareholders are not satisfied with a specific decision, they can – within the legal boundaries – convince others to join them in voting for or against a specific proposal from company management. But a shareholder or group of shareholders can also put forward their own proposal or resolution. These can attract a lot of attention, also from the media, and often have an ESG angle, dealing with issues ranging from compensation and labor relations to animal welfare and climate. The voting platform also enables users to look up by company how APG voted on any specific proposal – management or shareholder. For example, in 2021, we voted on 44 Shell agenda items, 2 of which were shareholder proposals. And at Shell’s 2022 AGM, we supported the shareholder climate resolution put forward by Follow This.”

 

Are there any plans to further develop the voting platform?

“Although we are already reaping the benefits of the new voting platform – all the statistics in this interview were quickly sourced using it – we do want to develop it further. As this information is just as important for our clients, we have also developed similar individual platforms for ABP, bpfBOUW and SPW which will go live soon. Another element we would like to incorporate are explanations as to why we voted against specific proposals to give greater insight into how we implement our clients’ voting policies in practice.”

 

The voting platform can be found on the APG website by scrolling down to the bottom of the page under Policies, Guidelines and Reports on Responsible Investment.

Or directly accessed via this link: VDS Dashboard (issgovernance.com)

Volgende publicatie:
APG in joint venture to build dominant self-storage platform in Asia

APG in joint venture to build dominant self-storage platform in Asia

Published on: 27 October 2022

Self-storage asset class in Asia has strong tailwinds, resilient cashflow and abundant growth potential

 

APG Asset Management N.V.(APG), the investment manager for the largest pension provider in the Netherlands, and CapitaLand Investment Limited (CLI), a leading global real estate investment manager with a strong Asia foothold, have entered into a joint venture to establish an Asia-focused self-storage platform.  APG and CLI have committed an initial equity investment of S$570 million with an option to increase their investment up to S$1.14 billion, in the proportion of 90:10, to fund the acquisition of Extra Space Asia (ESA) and its expansion needs. Post acquisition, the company will be re-positioned into an operating company/property company structure to facilitate future expansion.

 

ESA was founded in 2007 with two facilities and has since grown into one of the region’s largest self-storage businesses with about 70 owned and leased facilities across six Asian gateway cities – Hong Kong, Kuala Lumpur, Seoul, Singapore, Taipei and Tokyo – with more than 70% of its net property income being generated in Singapore.  The portfolio comprises more than 1 million square feet of net lettable area with an occupancy of over 90%.  The acquisition of ESA comes with an experienced management team holding a proven track record in sourcing and managing quality self-storage facilities.

 

The self-storage industry in Asia is supported by strong fundamentals such as high urbanisation rates, high population density, an increasing proportion of renters and an explosive growth of ecommerce.  With much lower penetration rates compared to the more mature self-storage markets in the USA and Europe, there is a long growth runway for self-storage platforms in Asia.

 

APG and CLI were attracted by the sector’s strong fundamentals, growth potential and belief that the fragmented nature of the sector in Asia presents opportunities for consolidation.  The acquisition of the ESA portfolio will allow APG and CLI to achieve immediate scale across key Asian gateway cities with strong presence and brand recognition.  The platform has also been allocated capital for expansion and will benefit from CLI’s global ecosystem of assets, customers and digital platforms to expand and grow the business.

 

Mr Graeme Torre, Head of Real Estate for APG Asset Management Asia, said: “The self-storage sector is ideally accessed at scale and with local execution capability.  This new partnership immediately offers us both.  On behalf of our pension fund clients, we are delighted to be partnering with CLI and the ESA team to expand this platform throughout the Asia region.  This asset class is fully aligned with the theme of urbanisation, which has been one of our core investment beliefs for many years and is a key tenet of our environmental performance aspirations.”

 

Mr Patrick Boocock, CEO of Private Equity Alternative Assets, Real Assets, CLI, said: “Self-storage is one of the alternative asset classes that has remained impressively resilient during the pandemic and looks set to continue benefitting from strong growth tailwinds supported by favourable demographics and lifestyle trends in Asia.  This is an opportune time to enter the emerging sector with a new platform that will augment CLI’s funds under management and fee-related earnings.  We view the self-storage platform as an extension of CLI’s logistics platform, well-positioned to capture the increasing demand for flexible storage and last-mile delivery requirements in tandem with the growth of ecommerce.”

 

Ms Patricia Goh, Managing Director, Southeast Asia, CLI, said: “As CLI grows as a real estate investment manager, we are pleased to embark on this strategic partnership with APG.  CLI and APG are fully committed to the vision of creating a dominant Asia-focused self-storage platform that delivers long-term sustainable value to investors.  Both parties will leverage each other’s strengths to grow this platform, with CLI contributing our expertise in fund management and operational know-how to manage the platform.  With the foothold gained through acquiring ESA, we will next look at scaling the platform through mergers and acquisitions as well as conversion of existing assets into self-storage facilities.” 

Volgende publicatie:
Thijs Knaap at BNR on interest rate trends and declining corporate profits

Thijs Knaap at BNR on interest rate trends and declining corporate profits

Published on: 25 October 2022

Has interest rate development reached its peak? That is a prediction APs chief economist Thijs Knaap does not want to make. As long as inflation is high, you will also see high interest rates. In terms of macroeconomic growth, however, things are against us, and when growth declines, interest rates often decline with it. So those two factors work against each other. Which one is stronger remains to be seen, Knaap thinks.


Other topics discussed during BNR Nieuwsradio’s investor panel included the decision by flash trading company Flow Traders to legally establish itself in Bermuda and the reorganization of Philips, which is cutting 4,000 jobs, including 400 forced layoffs in the Netherlands. The company is under pressure, due to a costly recall of its sleep apnea devices, but says it is also suffering from macro-economic developments.


Canary

Knaap: “We know that at some point, macroeconomic problems are going to affect corporate profits. So, the question is: Is Philips the proverbial canary in the coal mine? If you look more broadly at companies’ third-quarter results, you see that while sales are still rising, profits are falling, due to rising prices. This is especially true in Europe, and the decline is stronger than expected.”


As usual, the panelists were also asked about a recent investment transaction. Knaap: “We recently acquired a 49 percent stake on behalf of ABP in Gemini, a solar power project currently under development near Las Vegas. The project will provide energy for more than 400,000 households at peak times.”


Listen to the entire broadcast here (in Dutch).

Volgende publicatie:
“We're making a strong return and are being a good neighbor”

“We're making a strong return and are being a good neighbor”

Published on: 25 October 2022

APG acquired a 49% equity stake on behalf of ABP in Gemini, a solar power and battery storage project currently under development in the Mojave Desert in Nevada, USA. Sean Hannon and Ellen Bizon, senior portfolio managers on APG's Infrastructure Americas team, talk about what this investment says about the future of renewable energy and storage in the US, and the role large investors play in that.

 

Gemini is the largest solar-plus-storage project currently under development in the US. Everything about is huge. At its heart is a 690 MW solar array with over 2.5 million panels and a 380 MW battery system. The project covers 10 square miles. Every year it generates 2,200,00 MWh of renewable energy. The project created 2,500 jobs during construction and is projected to bring over $450 million of financial stimulus to the regional economy. It's safe to say this is not only an investment in just an asset but in the US energy transition itself. “We have a firm belief that renewable sources will play a very large role in the US energy transition”, says Sean Hannon.



Why should Dutch pension money be invested in the US solar market and in the US energy transition?

Sean: "The energy transition is a global issue, that requires global solutions. A ton of carbon that we can prevent from entering the atmosphere helps people everywhere. The solar resource available in the Western United States, where Gemini is located, is not only strong, but also predictable which makes these investments attractive for our pensioners on a risk-return basis. While we at APG look to invest in good projects in our own backyard, to maximize our impact on the energy transition, a global focus is key. For example, the Gemini Project’s land footprint, if overlaid on Amsterdam would cover 1/6 of the city, so looking to other regions for these mega projects is necessary.

 

We're going to need these renewable sources, and APG – on behalf of its pension fund clients - will be willing to put capital behind it. Over the course of the last five to ten years there have been many shifts in the US market, whether it is through changes in tax law, in regulations or in what renewables are capable of. But because of our belief in renewables, we've been able to invest continuously throughout this period. Whatever tomorrow may bring, we will continue to adapt and we will be able to move with the market and with the facts on the ground."

 

That sounds quite confident. What developments do you see?

Sean: "One thing that will have a big impact is the US’ recent Inflation Reduction Act that might be better called the Renewable Energy Act. Previously tax benefits and other incentives for renewables would expire after one or two years and now they will be in place much longer. This greatly benefits those who want to do long-term planning like APG and our pension fund clients. The act also takes away many hurdles around tax benefits for storage assets, like the batteries in this project. Those are now much better positioned going forward in the US."

 

Ellen: "It's interesting to add that the US has deployed a lot more batteries than the rest of the world. Last year storage capacity tripled, and it is becoming increasingly important for a stable supply and for the performance of the electricity grid. Battery capacity will also increase in other geographies. I hope that with our experience and the lessons we learned about how batteries are used operationally and how that relates to the investment case, we can help the rest of our global team."

 

What makes this particular project stand out for you?

Sean: "First of all what attracted us is the scale of it. Gemini is the largest asset in terms of megawatts we have ever invested in. Many renewable energy projects don't require that much equity to build them, but this deal allows us to put a lot of capital to work in a single project we believe in. We also like the fact that there is a 25-year contract for its revenues. This provides a stable cash flow for an extended period of time and that is a great match for a pension investor's needs. Finally, we were very impressed by the development team at Quinbrook and how they planned and structured this project. All the things that generally concern us and that we dig deep into when we make an investment, they were able to properly mitigate."

 

Looking at this deal the other way around: why did Quinbrook select APG as a partner?

Sean: "Because we have invested so much in solar already, we are very familiar with some of the issues and structuring considerations in these kind of projects. As as we went through the due diligence process, Quinbrook definitely came to understand that we are experienced in this sector. We were focused on all the right issues, and as new issues came up or as rules changed, we didn't have to take a big step back and think long and hard about what that would mean. We soon developed a partnership, a dialogue between equals. I also think that since Quinbrook is going to develop other projects, they are attracted to the fact that APG will continue to have capital. So it's possible, if this continues to go well, we could expand on our partnership in the future."

 

Because of its size alone, the Gemini project has an enormous impact on its environment. How did APG as a responsible investor take this and other ESG considerations into account in this deal?

Sean: "Most renewable energy projects indeed have huge footprints. With Gemini we're talking about a project with a size of ten square miles. This means there is almost always an endangered species to consider, in this case it is the desert tortoise. We developed a rehoming plan for the impacted tortoises and built a little turtle-only highway where they can cross if they need to. Another key consideration is that we're building on federal land that is next to tribal land of the Moapa indigenous people. We have already invested in another solar project that is actually on their tribal land. We're very familiar with how to be a good neighbor and how to make sure that the economic benefits are going where they should. We've taken care that the tribe is not just OK with the development but that they're fully on board and have a voice as stakeholders in the project."

 

How do the Moapa benefit economically from this project?

Sean: "First let me say that the Moapa are big believers in respecting the environment and they are very supportive of solar energy. They have made a decision to develop solar projects on their land in a way that will bring immediate benefits to their people, protect the land and provide ongoing opportunity for future generations. During construction of the project some tribal members have been working on it, and we have also paid for the storage of some of the major pieces of equipment on their land. And sometimes in renewables projects you have payments that go to the local community, in this case these will go to the tribe."

 

How important are ESG criteria in a project like this, could they be showstoppers?

Sean: "We work very hard to both identify the ESG concerns around a project up front and then ensure they will be mitigated before we invest. Engaging the Moapa tribe for their support and working to protect the desert tortoises are good examples of how we successfully address ESG issues that arise during the process. Either of these could have been a showstopper. We also make sure our partners have strong ESG policies and practices. That goes a long way to avoiding red flag issues. With Gemini for example, our partners had already considered that they need to source solar panels from suppliers that have appropriate labor and human rights standards. The contracts as our partner wrote them are pre-wired to deal with such an issue. If someone violates these principles, they are out of the project. And of course, our partners have to meet APG’s ESG standards. If the seller's standards were insufficient, we would work those in the contract or it would be a showstopper for us."

Gemini Facts & Figures

  • Gemini features a 690 MW solar array with over 2.5 million panels and a 380 MW battery system capable of storing more than 1,400 megawatt hours of solar power.
  • Gemini is located in the Mojave desert in Nevada. It has the potential to generate power equivalent to the demand of all Las Vegas residents.
  • The Gemini project created 2,500 jobs during construction and is projected to bring over $450 million of financial stimulus to the regional economy.
  • Every year Gemini will produce 2,200,000 MWh of renewable energy, equivalent to a Carbon displacement of 1.5 million metric tons.

Volgende publicatie:
What does a pension administrator do with climate data?

What does a pension administrator do with climate data?

Published on: 21 October 2022

What does someone who focuses on climate data at a pension administrator actually do? Lucas Wouters has been working as a Climate Data Specialist in APG's GRIG (Global Responsible Investment & Governance) team for six months now. So we took this opportunity to learn more about what his work exactly entails and what challenges he faces.

The reason for Lucas’ interest in climate data is less abstract than you might think. It began in his childhood, watching the National Geographic television channel and leafing through the ‘Bosatlas’ (Dutch atlas, ed.). “I saw maps of the Netherlands with indications of where the water level could be in fifty years’ time. I really like that visual and tangible aspect, so that's what I focused on at college.” After his bachelor’s in Earth & Economy and master’s in Hydrology, he carried out research in a number of areas, for example, on the impact of hailstorms in the Netherlands and floods in Africa. He now focuses on climate data in the broadest sense of the word.

What does a Climate Data Specialist do exactly?

“Climate change brings both risks and opportunities for our investments. This is why APG wants to integrate climate and climate change data into our investment analyses. These data are incorporated into models, for example to calculate the probability of floods or hurricanes and their severity. But in order to assess how effective a model is, you have to know, for instance, the formulas and assumptions on which it is based. I often worked with these types of models during my studies. Colleagues responsible for making APG’s investments, ask me to assess the climate models they use for their specific asset class. This is how we monitor whether the models we are using are correct and correspond to the most common climate scenarios and latest scientific developments. You could consider it an additional check.”

How does this help a pension administrator?

“APG and its pension fund clients want their investments to contribute to the goals of the Paris Agreement to keep the global warming below 2 degrees, and preferably below 1.5 degrees. We could reach a tipping point at 2 degrees, with disastrous and irreversible consequences for humans, animals and nature. If you look at the damage caused by the recent floods in Pakistan, it makes you want to prevent similar and even more serious catastrophes from occurring in the future. That is one side of the equation. At the same time, you also want to protect your investments because climate change is a risk you have to take into account. Our investments will be impacted even with global warming of 1.5 degrees. The better the available data, the better we – as pension administrator and investor – are able to integrate climate risks into our investment analyses and act on these.”

So, an important part of your work consists of checking models. How do you find these models?

“The information generated by the models comes from data providers. They sometimes use data from NASA or ESA satellites and radar data from meteorological institutes or measuring stations from all over the world that show, for instance, the quantity of water available on earth at any given time. Data providers first analyze the data and then it comes to us and I assess the relevance of the information and estimate the climate risks. We also gather data ourselves through different (online) sources to conduct our own analyses.”

What kind of climate risks should we consider?

“There are physical risks, like droughts or floods, and transition risks. The latter are related to the transition we are currently going through from an economy that runs on fossil fuel to a more sustainable one. Adjustments are needed to realize this transition, such as the implementation of a fees structure linked to companies’ CO2 emissions. Measures like this can have consequences for the value of investments in such companies, for example in the case of a cement manufacturer emitting a lot of CO2.”

Can such models help predict, for example, whether the risk of hurricanes in the Caribbean is increasing?

“These types of models are only accurate to a certain degree, especially when it comes to hurricanes. Although there is a risk that the climate will become increasingly unstable with a higher chance of hurricanes, some research also shows that although the intensity is increasing, the frequency is decreasing. There are also scientific simulations that show that hurricanes could reach Europe more often. The seawater temperature is rising, which means hurricanes that form in the Caribbean can retain their intensity for a longer period of time. Models show that these hurricanes may be diverted to Europe more often, coming ashore in Ireland, for example, just as hurricane Ophelia did in 2017. Although there may be a greater likelihood of this happening and scientists understand the underlying mechanisms in a broad sense, it is still very difficult to make accurate predictions. That said, we see increasing confirmation that in some places on Earth, the weather is being influenced by climate change.”

How do you translate climate data from a model into a specific investment?

“Not all data sources and analyses can be translated directly into a certain type of investment. When I started working at APG six months ago, our Real Estate Team had already made use of two data providers to create a tool for their real estate investments. That tool is now also being used to evaluate investments in other areas such as infrastructure and the agricultural sector. These are all physical assets, involving a company with one building at one location, for instance. In such cases, our models can be used to assess how high the risks of flooding is at that specific location. When it comes to an investment in a company with hundreds of locations all over the world, things become a lot more difficult. Let's say one of the facilities is disrupted because of a forest fire: What effect would that have on the company as a whole? This requires in-depth analysis of the company’s supply chain risks or, for example, the transition risks in one specific country where the company operates, and what the effects of this would be on its valuation.”

Which asset classes do you deal with most frequently in your work?

“When it comes to the physical risk, I often work with real estate, infrastructure and investments in natural capital, such as commercial forests and agriculture. In these areas, it is also a little easier to determine whether climate risk could have consequences for the investments. For example, a forest fire in a commercial forest. Ultimately, extreme weather is a problem for every investment, but its impact more difficult to determine for some asset classes. In addition to the data on physical risks, there are also data on transition risks. For instance, we envisage a certain scenario in which the world has no choice but to make a transition to sustainable energy, otherwise the problem of climate change becomes even bigger. If a company doesn't care about this and doesn't set any climate goals, alarm bells start to ring for us, and that affects our willingness to invest.”

It can sometimes be quite a challenge to align returns and climate risks

What are the challenges you face as a Climate Data Specialist?

“Working with data in different resolutions and timescales is already a challenge in itself, especially to make those data useful and available to people, such as portfolio managers, who need them for their work. This is compounded by the fact that the consequences of climate change are still uncertain in some areas. You can’t be absolutely certain that the likelihood of floods of a certain depth occurring is twice as high as it was last year, or that in an overall wetter Netherlands there may also still be certain areas that have become dryer. Another challenge is the fact that APG's activities also involve generating returns. We need to do this in order to provide a good pension in a sustainable world. These aspects also have to be considered and part of the way we do this is by pricing in the risk of climate change.”

And how is this done?

“You could argue that climate change is a risk for returns, but that argument doesn't always easily translate into a financial impact. It is a learning process. Portfolio managers look at the opportunities an investment offers and have a clear view on this. I often have a good idea of the risks that climate change poses for such an investment. In that sense, it can be sometimes be quite a challenge to align returns and climate risks.”

You started working at APG six months ago. What aspect of your work gives you most satisfaction?

“Evaluating the good and bad aspects of data providers and sources and sifting through the data until you come up with a clear recommendation. This also involves asking investors whether or not they have taken certain factors into account if they want to use the data to make an investment decision and thinking along with the investment teams about how the risks can be calculated. My recommendation often only partially determines whether a certain investment choice is made. It usually comes down to brainstorming about how to integrate the risks into the investment analyses. Another part of my work that I enjoy very much is answering questions from our pension fund clients. They may have certain ideas relating to their climate policy that we then assess in the context of the current market situation.”

If you look at the goal of limiting global warming to 1.5 degrees, where do we stand?

“According to the Intergovernmental Panel on Climate Change (IPCC)), given the current level of CO2 emissions, it is likely that global warming will exceed the 1.5 degree threshold between 2030 and 2050. The World Meteorological Organization (WMO) even predicts that there is a 50/50 chance of global warming temporarily rising by more than 1.5 degrees in the next five years. At the same time, there are also scientists who think we may well exceed the 2-degree threshold. When it comes to fighting climate change, there are two options: mitigation and adaptation. Mitigation means preventing climate change by eliminating further CO2 emissions. In the case of adaptation, you assume that some degree of global warming will occur as a result of human activity, but take measures to minimize the impact by, for example, building dykes or growing crops that are more resistant to extreme weather events. We will need a combination of both mitigation and adaptation to succeed. In any event, we’ll have to do our utmost to combat climate change. But while doing this, we must also be prepared for more extreme weather conditions throughout the world and try to limit the consequences as much as possible."

Volgende publicatie:
Financing the transition of the highest carbon emitters with sustainability-linked bonds

Financing the transition of the highest carbon emitters with sustainability-linked bonds

Published on: 14 October 2022

Sustainability-linked bonds offer resource-intensive industries a viable solution to finance change and work towards a greener future. But there are plenty of challenges. Four of APG’s experts in this field explain how large investors can play a role in this transition. “We believe it is our role is to help push the market in the right direction.”

 

Sectors like steel, cement, chemicals and some forms of transportation support many of our basic needs. But these hard-to-abate industries are also collectively responsible for nearly a third of global CO2 emissions. As a major sustainable debt investor, APG is taking a proactive stance in looking at ways to support this challenging but vital transition and is committed to playing a role in the development of the sustainability-linked bond (SLB) market. Finding instruments to help finance these changes requires APG to tread carefully as a responsible investor.

 

“Through constant engagement with the market, we believe we can implement our clients’ investment policy and help companies make the transition,” says New York-based Simone Andrews. She works together with fellow fixed income responsible investing expert in Amsterdam, Willem Hettinga, US credit analyst Joshua Linder and EU credit portfolio manager Oscar Jansen. They draw up investment guidelines and liaise with issuers, banks and peers to critically assess new issue structures and ensure the sustainable integrity of this growing market.

 

Different pathways to transition

Promoting transition in these hard-to-abate sectors is challenging and expensive; each industry requires a different approach and has a different timeframe. “For the automobile industry there are credible avenues using EVs but these are expensive and mineral intensive while large-scale change in the chemicals sector is further away, although there are potential solutions to explore, for example, using hydrogen to drive net zero goals,” explains Andrews. “In determining how to invest, we first evaluate potential bond investments to ensure they meet our financial risk and return requirements, as well as identifying investments that contribute to the SDGs. We also leverage our Guidance on Sustainability-Linked   and have developed a specific but related framework for different industries according to the challenges they face and the transition stage they are in. For example, we have recently documented our guidelines for financing the transition in the aviation industry.”

 

Flexible SLB structure gives companies more options

There are pros and cons to all types of bond structures. In the past, issuers and investors including APG have generally preferred the use-of-proceeds structure, of which green bonds are the most common flavor, because they have a clear link to projects that create real world impact. But things are changing as the increased flexibility the SLB structure offers becomes more widely acknowledged.

 

“In the case of green bonds, the money is earmarked for specific projects, so it is easier to determine whether an issue is green enough to fulfil investment requirements and then to monitor how the proceeds are spent and calculate the impact of the investment. But a company has to have sufficient upfront and credibly green spending requirements to make this feasible,” explains Hettinga. “We have seen examples of green bonds issued by energy and mining companies, where the proceeds may have been credible, but the rest of the company’s strategy is not truly focused on transition. Such issues are not always well received by the market, so it is also in the company’s interests to use a structure that fits.”

 

Most companies in hard-to-abate industries are inherently not so green – the transition time frame is longer, and it is much harder to set aside spending purely for decarbonization. The SLB structure enables these companies to align issuance with their overall corporate sustainability strategy, by setting targets in the form of Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs). Hettinga: “For companies that choose this structure, the quality of the goal setting is key. There should be clear communication on the rationale and process for selecting the KPIs, which should, in turn be realistic but still ambitious and clearly linked to the company’s transition path and goals.”

 

Credible and comprehensive long-term transition plans

Many hard-to-abate industries have a high relative proportion of Scope 3 (or indirect) emissions[1]. These are more difficult to address than direct (Scope 1 and 2) emissions as they often occur beyond a company’s direct control and require it to focus on change throughout its entire value chain. This also strengthens the case for the SLB structure, where a long-term plan can be established with KPIs that can reflect the progress made on transition in all areas of a company’s business. “We turned down an issue that laid out ambitious reduction plans for direct emissions (Scopes 1 and 2) in its KPIs but incorporated no target for the indirect emissions that made up 98% of the total emissions”, explains Jansen. “We prefer to see KPIs that incorporate a broad transition plan with absolute emission reduction targets, clear spending programs and concrete time frames.”

 

Intensive engagement with issuers and underwriters

“As a major investor, APG has an important role to play by providing feedback to issuers to create a virtuous circle where a landmark deal for a sector can set a positive precedent. We do this by being transparent on what our standards are, by staying in close contact with issuers and determining parameters together with them,” explains Linder. This process may require our responsible investment experts, portfolio managers and credit analysts to go back to the drawing board and dive deeper into the issuers’ business to determine an acceptable level of ambition for KPIs and targets. Jansen: “This approach enables us to fine tune our guidelines for specific sectors and gives the banks that underwrite the bonds and the issuers a pathway to follow, also by making it clear upfront when we will and won’t invest.”

 

Supporting the SLB market

The annual APG roundtable on the sustainable bond market plays a key role in keeping major players aligned. Now in its fifth year, this event has gained increasing traction and attracts a diverse group of investors, underwriters and other stakeholders who exchange views on ways to promote and develop the labeled bond market. Andrews: “In the 2022 roundtable we focused on the role SLBs can play in financing the energy transition and zoomed in on the aviation sector, this discussion contributed to APG’s guidance on how to approach the challenges and opportunities in this industry”.

 

Some dedicated green bond investors are not in favor of what they deem to be the looser structure of SLBs and the potential for greenwashing. But other ESG investors are supportive of the market’s development as it opens up opportunities to a broader group of issuers. Linder: “Some of the criticism is valid, but we believe our role is to help push the market in the right direction. It’s more art than science – a balance of wanting to help the market grow, while maintaining its integrity, and accepting that some issuers are further along in the process than others.”

Scope 1 covers all direct emissions from the activities of an organization. Scope 2 are indirect emissions from energy used by an organization to sell its main products or provide its main services. Scope 3 emissions are all other indirect emissions

 

Volgende publicatie:
APG acquires 49% equity stake on behalf of ABP in large US solar project

APG acquires 49% equity stake on behalf of ABP in large US solar project

Published on: 12 October 2022

Gemini is currently the largest solar and storage project under construction in the US. The $1.2 billion project, which is located near Las Vegas, is projected to generate 690 megawatts (MW) of solar energy and provide 1416 megawatt hours (MWh) of battery storage. Gemini is expected to generate enough clean energy to power more than 400,000 households during peak periods and save 1.5 million metric tons of CO2 annually. The project is scheduled to become operational in 2023.

 

The size, scale and integration of battery storage makes Gemini one of the most advanced clean energy projects under development. APG is acquiring this stake in Gemini from Quinbrook Equity Partners, a specialist investment manager focused exclusively on energy transition infrastructure, and its portfolio company Primergy Solar. According to Quinbrook, APG was selected as an equity partner because of ‘its sophisticated approach to the Gemini project and to the US renewables market more generally.’

 

Financial returns and positive impact

“As a responsible investor, we are always looking for infrastructure investments that bring long-term financial returns for our pension fund clients and that have a positive environmental and social impact,” says Steven Hason, Managing Director and Head of Americas Real Assets at APG. “This transaction provides an ideal opportunity to invest in a state-of-the art energy project that will provide clean, renewable electricity for Nevada.” 

 

APG has been an active infrastructure investor since 2004, investing over € 17 billion to date. APG’s investments include assets in the power & utilities, energy, transport infrastructure and telecommunications sectors. In the US, APG has several direct investments in utility-scale solar and storage assets.

 

Volgende publicatie:
"Without Asia-Pacific, we won’t achieve climate neutrality by 2050"

'Without Asia-Pacific, we won’t achieve climate neutrality by 2050'

Published on: 11 October 2022

Asian companies emit a relatively large amount of CO2 compared to their Western counterparts. So if you can convince the ten companies with the largest emissions per Asian country to reduce their CO2 emissions, that will make a difference. And that is exactly what the Climate Focus 10 program is aimed at, which APG carries out on behalf of its pension fund clients. Yoo-Kyung (YK) Park, Head of Responsible Investment & Governance Asia Pacific, on Asia-Pacific's crucial role in global emissions reduction.


On September 15, 2022, Samsung Electronics announced its new environmental strategy and has joined the RE100 initiative. Samsung is the largest company in South Korea and, among other improvements, wants to aim for net-zero emissions by 2050. This is partly due to  APG’s engagement efforts through its Climate Focus 10 program.  The companies in this program are all active in CO2-intensive industries, such as chemicals, iron and steel, energy, telecom, semiconductors and consumer electronics. The aim of the program is to persuade the largest CO2-emitting companies in a country to reduce their CO2 footprint, with APG focusing on South Korea and Japan for the time being. Yoo-Kyung Park, who is South Korean herself, is responsible for the engagement with these companies. 


Why are the emissions of Asian companies so high, compared to American and European companies?

"There is not really a sense of urgency about climate change among many Asian companies. A significant proportion of Asia is made up of developing markets and, fundamentally, more focused on growth and less so on their climate impact. But given the scale of these companies and their climate impact, if we want to achieve net zero emissions globally by 2050, we simply need to have Asia-Pacific on board. Without these countries, we will not achieve that net-zero target." 


Why does APG choose to engage with South Korean and Japanese companies first?

"As OECD countries, Japan and South Korea have already developed markets, having gone through the process of industrialization and economic growth. As part of the OECD, in addition to economic performance they have also paid attention to non-economic indicators in the last decades. For example, education and healthcare, but also environment and sustainable development. Companies from OECD countries are therefore more receptive to calls from outside to become more sustainable than companies from emerging markets such as China and India, where the level of prosperity is lower. The emerging countries are the next step in our Climate Focus 10 program."


What does APG expect from the ten companies it engages with in South Korea?

"We want them to start by making a commitment to co2 emissions reduction. Just before the annual shareholders' meeting, we send the companies in question a letter addressed to the board. This letter contains questions like: Is your emission reduction target ambitious enough? Are you investing enough in this? Do you communicate sufficiently with shareholders about your emissions, so that they also understand the risks involved? We ask the companies to announce their emission reduction target at the subsequent shareholders' meeting. Six months later, we approach the company again to determine whether it has made progress. And we will continue this, and various other levels of engagement, until we see improvements."


What were the results of those efforts?

"All the companies in Korea that received a letter from APG in February 2022 have replied to it. A number of them, including Samsung, appeared to have made some progress. Hyundai Steel, for example, did not yet have a long-term target for its emissions reduction; now it does. LG Chemical previously only revealed scope 1 and scope 2 emissions, now also scope 3 (see box). This is important, because the greater the insight into emissions, the more a company can do about it. Posco Chemical did not yet have any emission reduction targets; now it wants to have net zero emissions by 2050 and has expressed an ambition for 2030."

The Greenhouse Gas Protocol


The Greenhouse Gas Protocol is the most widely used protocol worldwide to calculate greenhouse gas emissions. It distinguishes between three scopes:


Scope 1: direct CO2 emissions, caused by own sources within the organization. This concerns emissions from own building, transport and production-related activities.


Scope 2: indirect CO2 emissions, by generating purchased and consumed electricity or heat.


Scope 3: the emissions caused by the use of the company's products. At Shell, for example, this is the emissions that come from cars when burning gasoline.

These companies probably don't always welcome you with open arms. Is a letter and a conversation a year enough to convince them to reduce emissions?

"No. By themselves, South Korean companies do not take the subject seriously, at least not seriously enough. Especially if they have to make substantial investments to reduce their emissions, they do not take action – unless there’s a business threat right around the corner. So in order to create more pressure and urgency, we go public with our concerns. During the past shareholder season, I rolled out a media campaign  to local South Korean and international media which has certainly contributed to national awareness about CO2 emissions among the general public. If media attention doesn't help, we can also file a shareholder resolution as a last resort. But that is a method that we prefer not to use. We prefer to remain in dialogue.


Which companies in South-Korea are the most difficult to persuade of the necessity of emissions reduction?

"We mainly get a lot of pushback from companies that use a lot of electricity for their production process: steel producers and semiconductor manufacturers. There is only one electricity provider in South Korea and that is government-owned. Nearly 70% of their electricity is generated from fossil fuels – mainly coal. When we ask these companies to use more renewable energy, they point at the electricity provider and its monopoly position. They say: we can't use more renewable energy because we have no influence on the electricity company and there are no alternative, more sustainable suppliers of electricity."


And what is your answer to that?

"That we expect big players in an industry to try to reduce their energy consumption on the one hand, but also lobby the South Korean government to make the power generation of the state electricity company more sustainable."


How critical are South Korean asset managers of the companies they invest in, when it comes to emissions?

"When local asset managers hold South Korean companies to account for their emissions, they do so behind closed doors, not publicly. They relate to the Korean government in a different way than a foreign investor like APG. In that respect, I’m in a relatively favorable position: with APG – and its pension fund clients – I have a large asset manager behind me and I can make use of both means: a conversation behind closed doors and publicity."


The Climate Focus 10 program runs until 2030. How optimistic are you about South Korean companies and their emissions reduction in the next 7-8 years?

"The top ten emitters in South Korea are made up entirely of multinationals. They are companies with global marketing and global supply chains. So they know very well what needs to be done when it comes to reducing emissions. The attitude of these companies has always been: we are not committed to emission targets, but we are working on it. We say: you first have to make a commitment to be able to do something about it. South Korean companies are just starting to arrive at that stage. The awareness is there, but progress is slow. The coming years will prove to what extent their commitments will be followed by actions.

Volgende publicatie:
APG and bpfBOUW win prizes at Pensioen Pro Awards

APG and bpfBOUW win prizes at Pensioen Pro Awards

Published on: 5 October 2022
APG won an award in the Asset Management category on Tuesday evening, during the Pensioen Pro annual conference. The award was received by CFRO Maarten Blacquière. BpfBOUW took home the awards for responsible investment and long-term investing.


The jury awards the Asset Management prize to APG for the iSTOXX APG World Responsible Investment indices launched in September 2021. With this way of index investing, APG, together with index provider Qontigo and asset manager BlackRock, is responding to the growing demand for sustainable customized index products. This is not only a sustainable solution, it also contains passive elements. As a result, the costs are lower, which makes it attractive for smaller funds in particular to invest responsibly. A special feature of the index series is that the return-risk effects can be tracked on a daily basis. “It's good that APG is doing this. An important development for a sustainable world”, the jury believes.

Unique product
Maarten is proud of the employees of APG Asset Management who have won this award. “The indices respond to the demand of pension funds to have part of their investments managed cost-effectively according to an index strategy. At the same time, they want to see conscious policy choices with regard to responsible investment reflected in the full investment portfolio. Standard index products do not offer this capability.”

BpfBOUW
BpfBOUW, one of the funds for which APG manages the assets, took home the prices for responsible investment/esg as well as for the long-term investment of the year. The fund received the latter award because of its long-term focus on social real estate, with investments in, for example, mid-rental rent and lhbtiq+-friendly care apartments. “Social real estate for a good old age helps society as a whole: better living, but also mobility in the housing market”, concludes the jury.

 

 

Photography: Sander Nieuwenhuys

Volgende publicatie:
“In the Netherlands, large investors will need to invest more in infrastructure”

“In the Netherlands, large investors will need to invest more in infrastructure”

Published on: 16 August 2022

553 billion euros. That is APG’s total invested assets worldwide (position as of the end of June 2022). The goal: a good pension in a livable world for the funds’ participants. The portfolio is diversified, of course. From investments in wind farms in Zeeland to Australian listed shares in stores. And from safe bonds to the somewhat more fluctuating trade in gold or soy. Who are the people behind these investments? What drives them? What choices do they make? And why?

In this episode of the series The Investors: Jan-Willem Ruisbroek, head of investment strategy infrastructure at APG.

Ruisbroek has every reason to be a happy man. APG was recently voted Real Assets & Infrastructure Investor of the Year at the IPE Real Estate Awards 2022 in Amsterdam. For the second year in a row. APG is “once again demonstrating strong leadership in the global infrastructure investment strategy,” according to the jury report. According to the jury, while other large infrastructure investors boast of investing in the energy transition, for example, APG looks further and also invests in digital infrastructure. “This award shows that our strategy is considered sound and distinctive. It is a nice compliment for what we do”, says Ruisbroek.

According to the jury’s report, APG looks further ahead than many other large infrastructure investors. Still, there will be a lot of gains to be made in the infrastructure field. In what area is there work for you?

“In the Netherlands, institutional investors, including us, will have to invest more equity in infrastructure. Large investors abroad often invest more than 20 percent of their assets in infrastructure, but this is much less for Dutch investors. The extra money is badly needed. For example, the International Energy Agency estimates that more than 4 trillion dollars, that's 12 zeros, are needed annually to achieve a so-called net-zero society worldwide. That is, total global greenhouse gas emissions are less than or equal to those removed from the atmosphere. That 4 trillion must flow primarily to new infrastructure projects such as power grids and renewable energy sources.”

 

APG’s infrastructure investment strategy is based on five so-called megatrends. One is geopolitical: for example, take a more assertive stance on China. That country invests enormous amounts in infrastructure projects in developing countries. What if China starts using its enormous financial clout in the Western world as well?

“That is already happening. In recent decades China has also invested a lot in Europe. In recent years this has become less common, because governments want to keep their vital infrastructure in the hands of parties ‘close to home’. In general, local pension funds are happy owners of infrastructure, because of their long-term interests and social involvement.”

 

You started at ABP/APG immediately after you finished your education and haven’t left since. Didn’t you miss out on some opportunities as a result?

“I graduated at a good time because there was a lot of work for students, just like now. There were a number of parties interested in me but I immediately had a very good connection with the man who would later become my first boss at ABP. He said, ‘I like you and want you, here’s an offer.’ At the time, I was also charmed by everything I saw at ABP, like the size and the impact. We have everything here, pretty much all the investment markets. That’s important when you start working, because you have a lot of choices. I remember saying during my job interview that anyone who is 24 and says they know exactly what they want is bluffing. Because when you are just out of school, you don’t know exactly what you want. Personally, I wanted to work for a really cool employer more than anything and take my time poking around there, finding out what made me the happiest. And that’s how it went.”

 

You’ve been focusing entirely on infrastructure since 2008. What makes investing in it so interesting to you?

“The type of companies we invest in are interesting to me, above all, because of the essential role they play in society. When people plug something electrical into a wall socket, they often don’t realize the enormous infrastructure behind it. That is, until there is no power for a while. The social importance of companies that provide people with an essential commodity, such as electricity, data or mobility, also greatly appeals to me. Just like the essential role that all these companies play in the major social issues of our time, such as the energy transition and the digitalization of the world. We will only be able to achieve energy transition if the infrastructure for it is in place. What also attracts me is that we invest in private companies. In private companies you are often closer to the company and you can think more actively about the strategy and what you want to achieve with such a company than with listed companies.”

 

One of the ways to influence private companies is to take a seat on a non-executive board. You do that regularly. How do you wield that influence in practice?

“I am on the supervisory board of two companies that we invest in, which means that I supervise the management. The companies we invest in are often smaller than the listed companies, of which you might buy a small pick of shares. We regularly have a large stake in the private companies we invest in, which gives us the right to appoint a commissioner. In our team we have something like twenty or thirty supervisory directorships. That takes up quite a lot of time. As a supervisory director you are involved in assessing and approving the business plan and the long-term strategy, but you also have to contribute to the deliberations on the management's appointment policy.”

The best companies see sustainability as an opportunity rather than a cost

Developments in the world of infrastructure follow each other in rapid succession. How does your team find out where the interesting new projects are to invest in?

“You really only find out by being active in the market and networking a lot, because there is no central place where shares are traded. If you want to invest in a French wind farm, for example, you just need to know that shares are for sale. So, our work largely consists of calling people, meeting people and traveling to projects we invest in. Advisors from investment banks also visit us regularly. They know where interesting transactions can be expected and where money can be made. And we do make money, because our infrastructure portfolio has done well since 2006. In the sixteen years of our existence, we have achieved an average return of about 9 percent per year. That’s not bad.”

 

Sustainability is important, including to APG. Doesn’t focusing on it come at the expense of returns?

“Focusing on sustainability certainly does not have to come at the expense of returns. In fact, the best companies see sustainability as an opportunity rather than a cost. We are seeing that the best management teams of the companies we invest in have the courage to roll up their sleeves and actively look for business cases around sustainability. And that is exactly what we are looking for and also achieving in our companies. We may also invest in a less sustainable company, such as a port. But we only do that if we can make its business operations more sustainable. For example, generating green energy by installing windmills there. Or making the port part of the supply chain of sustainable products. As an investor you can also ensure that the port makes land available for the import and export of hydrogen. Ports are also increasingly profiling themselves as maintenance centers for offshore wind farms. In short, there are plenty of opportunities to make an infrastructure project sustainable.”

 

APG also invests in toll roads. What kind of influence can you exert to ensure that a toll road becomes more sustainable?

“One way is to install charging stations for electric cars, install solar panels at gas stations and make sure people travel more spread out over the day. This reduces the chance of traffic jams and therefore also the pollution.”


You and your team invest in a variety of projects worldwide. Which infrastructure project do you really jump out of bed for?

“A good example is the investment we announced a few months ago on behalf of our pension fund client ABP in the Dutch company Groendus. It’s a somewhat smaller acquisition than we normally do, but we see great growth potential in it. What Groendus does is look at energy supply for companies in a different way. Instead of just offering an electricity connection, meter, solar panels or charging station as individual products, for example, they provide an integrated energy product. In effect, it is saying to these companies: ‘You get one product and we take care of the solar panels, car charging stations, smart meters and batteries. In addition, we connect you to a digital platform where energy surpluses can be traded with companies in the area.’ My heart beats faster for such a project because it is the next phase that we are all entering in the energy transition.

 

What I also think is important to mention is that a toll road may not be the sexiest enterprise from the outside. But if you look closely at the strategy of such a company, they are going to play a central role in the new mobility. For example, they will ensure that you can drive electrically by installing sufficient charging points along the toll road. They also want to contribute to a smooth journey by, for example, ensuring that you do not have to stop at a toll booth and by sharing information about how busy it is on the road. But also by offering other forms of transport that are more suitable for getting from the toll road into the city. For example, getting out of your car at a parking lot on the outskirts of town and traveling on a scooter. Toll roads are therefore part of a larger mobility issue and that is why I love these projects.”

Who is Jan-Willem Ruisbroek?

Earned a Bachelor of International Business at the Maastricht University and a Masters at Financial Economics at the Erasmus University in Rotterdam. Started working at ABP in 2006 and worked on an online Masters in Infrastructure Engineering at Monash University alongside his work.

“That master’s degree comes under civil engineering. I did that to educate myself a bit on the technical aspects of infrastructure. During that study, I think I was in my late twenties, I was sitting by the side of the road with a clicker for a study assignment, counting traffic to understand traffic patterns. People sometimes ask what on earth that has to do with the financial sector. I explain that investing in infrastructure is work that brings together technical knowledge of the infrastructure project, such as a toll road, and the financial aspects of such a project.”

Portfolio
Has a total value of 24 billion. APG’s infrastructure team consists of 40 employees. Half are in Amsterdam and the other half are spread across the offices in New York and Hong Kong. As head of investment strategy, Ruisbroek is responsible for all infrastructure investments.


Returns
Average of 9 percent per year since 2006, the year that ABP/APG got an investment team that is fully focused on infrastructure.

Volgende publicatie:
A year of intensive engagement, important progress and challenges

A year of intensive engagement, important progress and challenges

Published on: 22 July 2022

When it comes to investing, APG not only considers the expected returns, risks and costs, but also the extent to which an investment is sustainable and responsible. We do this on behalf of our pension fund clients. Because what use is a good pension if the world around you is no longer fit to live in from either an environmental or social perspective? This question, taken from our Report Responsible Investing 2021, really sums it up. A summary of the key points of the report.

 

Engagement with companies that still need to improve in the field of ESG is an indispensable part of our approach for responsible investing. Last year, we held conversations with a total of 498 companies on behalf of our pension fund clients about their progress on several themes related to ESG. We talked to 66 companies about human rights in 2021. We also entered into a dialog with 70 companies, including Amazon, about safety at work and the right of employees to unite, among other things. APG joined the Platform Living Wage Financials (PLWF) last year at the request of bpfBOUW. The goal of this platform is to encourage companies to pay employees a wage that enables them to make ends meet. We are mainly focusing on food producers, such as Coca-Cola and Mondelēz.

 

SDI Asset Owner Platform
Another area in which progress has been made, is the further development of the SDI Asset Owner Platform. This platform was co-founded by APG in 2020 and uses artificial intelligence to determine whether and how many companies contribute to the Sustainable Development Goals with their products and services. BlackRock – the world's largest asset manager – decided last year to start using the platform’s data. This has taken us yet another step closer to our goal of making the platform a standard for investments in the Sustainable Development Goals.


CO2 footprint
APG is also making progress in reducing the carbon footprint of the equity investments we manage for our pension fund clients. This footprint has decreased by 48 percent compared to the reference year 2015. In line with ABP's policy, in 2021 APG sold its investments in companies that derive more than 30 percent of their revenues from coal mines or more than 20 percent from oil sands. Last year too, APG invested € 20.8 billion in the Sustainable Development Goal ‘Affordable and Sustainable Energy’ on behalf of our pension fund clients. Our investment in this goal has led to a reduction of the climate risks in our clients’ portfolios and made a contribution to the energy transition. APG invests, specifically for ABP, via the ABP Nederlands Energietransitiefonds (ANET) in innovative solutions for the Dutch energy transition.


Challenges

There are also some challenges left to be tackled. Our pension fund clients, for example, are looking to accelerate their sustainability ambitions. New legislation is also coming our way and we are dealing with the increased urgency of climate change and loss of biodiversity. In order to address these challenges successfully, APG is cooperating where needed with like-minded investors and other stakeholders.

Our pension fund clients will be strengthening their sustainable ambitions further in 2022. This year, on behalf of the funds, we are increasing our focus in a number of areas including climate change, biodiversity and circularity. A stricter voting policy will be applied to shareholder meetings, paying particular attention to climate. We will also take a more critical look at the renumeration for directors and the progress on diversity within the companies we invest in.

 

Curious about the entire Responsible Investment Report? Read it here.

Volgende publicatie:
Are natural gas and nuclear energy sustainable?

Are natural gas and nuclear energy sustainable?

Published on: 21 July 2022

The use of natural gas and nuclear energy to generate electricity may be labeled as sustainable as of January 1, 2023. However, this will be temporary and subject to certain conditions, as provided in the so-called EU taxonomy Regulation. Johan Barnard, Head of International Public Affairs at APG, regrets the European Commission's decision. But in his new column, he calls for the taxonomy not immediately to be regarded as unworkable.  

 

The so-called EU Taxonomy Regulation is the basis for a catalog of economic activities that may be called sustainable by financial institutions under certain conditions. Previously, the European Commission had already proposed that electricity generation from natural gas and nuclear energy under this taxonomy regulation be temporarily labeled as sustainable. Implementing arrangements of this kind can be rejected by the European Council of Ministers or the European Parliament for a limited period of time, but do not require the explicit consent of the Council or Parliament. However, a resolution in the European Commission to block this proposal was voted down on July 6. Which makes the decision final.

 

The result is that from January 1, 2023, investments in natural gas-fired power plants that replace coal-fired power plants may be called sustainable under the EU taxonomy, as may investments in new or existing nuclear power plants, where for nuclear power plants the main limitation is that there is a strict requirement for the storage of the nuclear waste.

 

If you start looking at the conditions in detail, they differ in several ways from the criteria used for all other sustainable economic activities. At the same time, the practical options are quite limited, however. Member states that want to make investments in natural gas plants sustainable will have to close coal plants. As far as we know, Poland, for example, has no intention of doing so. And even if you are planning to think about new nuclear power plants, it is difficult to bring them under the sustainable category. This is because the new rules stipulate, among other things, that a Member State must then have achieved final disposal of highly radioactive waste by 2050. Dutch policy is to work with temporary storage and the plan for final disposal was not until 2130 at the latest. France does meet all the requirements of the new decree for nuclear energy.

 

It is important to recognize that early last year, and thus well before the war in the Ukraine, it was clear that the EU Member States had very different opinions on the question of to what extent and for how long nuclear energy and natural gas should continue to play a role. France, in particular, insisted that nuclear power did not produce CO2 emissions, while Germany was working to get out of nuclear power entirely. Because the number of countries joining France was quite small, France and the European Commission thought about broadening the issue to gain more support. This was achieved with the story that replacing coal with natural gas would be good, especially when natural gas plants will soon be made suitable for hydrogen. With this, the German position began to wobble and Eastern European member states were willing to go along with it in the direction of nuclear energy. It is conceivable that the Commission's proposal was intended to support President Macron, just before the recent presidential elections, for fear of a victory by one of the Euro-skeptic candidates.

 

A cynical view of the additional delegated regulation to the Taxonomy Regulation may therefore be that it is largely of political symbolic value. And that in itself is objectionable, even if the practical consequences are not that great. It is precisely this point that the Dutch pensions industry has stressed several times in the run-up to the decision. The sector understands that, in the context of the climate transition, intermediate steps may have to be taken, which enables an economic activity being first made less harmful than it is now, only to be made climate-neutral at a later stage. It would be a good idea to introduce an “amber” category for this purpose, but it is confusing to start calling those kinds of activities that are not yet fully sustainable sustainable. too. Especially since you know that within a few decades you have to get rid of them again.

 

The usefulness of a taxonomy that defines which economic activities can be considered sustainable, rests first of all on a solid scientific basis. But also on a broad acceptability to a large group of stakeholders of the final classification. Given the strong opposition from a wide range of NGOs and the division in the European Parliament (and really also between member states - more on this later), it is clear that the credibility of the taxonomy as an instrument has been damaged.

 

NGOs Greenpeace and ClientEarth are considering legal action against the EU. And Luxembourg and Austria have even already announced the start of such a procedure at the European Court of Justice. It will be positive if there is indeed a review by the European courts. In particular, the question seems important to me whether the Commission's additional delegated act has remained within the powers entrusted to it under the Taxonomy Regulation, or whether real legislation and thus positive decisions by the Council and Parliament would actually have been required here. Incidentally: this positive majority probably does not exist in the Council.

 

Meanwhile, it is important not to throw the baby (the taxonomy) out with the bathwater. Institutional investors such as Dutch pension funds and pension administrators continue to need an uncontested language to speak to stakeholders about sustainable investments. The additional delegated act prescribes that reports on sustainable investments must indicate separately which part of these sustainable investments relates to natural gas and nuclear energy. It therefore remains possible to look at reliable figures without natural gas and nuclear power.

 

And even more fundamentally, the taxonomy does not affect the investment freedom of institutional investors. If the taxonomy regulation considers an economic activity to be sustainable, an institutional investor need not invest in it. That makes sense because, of course, the classic considerations of risk, return, and cost still play a role. And in the case of natural gas and nuclear energy, that you can be of the opinion that the taxonomy regulation sets the bar too low. If an economic activity is not sustainable according to the taxonomy, an institutional may continue to invest in it. This is hardly surprising, given that the vast majority of the economy is not yet sustainable enough to meet the requirements of the taxonomy regulation. What is not allowed is to call something sustainable that is not, according to the taxonomy regulation. The expectation is that institutional investors and their clients themselves will steer towards sustainability, in addition to the aforementioned classic considerations of risk, return and cost.

 

I regret that this decision has come about. At the same time, it is fortunately not going to make a difference to institutional investors who want to divest from fossil fuels, including natural gas. The ugly element added to the taxonomy thanks to the Commission also need not get in the way of better dialogue with stakeholders. After all, it remains visible to what extent, if any, nuclear power and natural gas are hiding among the investments that are sustainable according to the taxonomy regulation. However, efforts should now be made to prevent this kind of political intervention in the taxonomy or only allow it with the explicit consent of the Council and Parliament.

 

Volgende publicatie:
"We always try to separate the signal from the noise"

"We always try to separate the signal from the noise"

Published on: 18 July 2022

553 Billion euros. That is APG’s total invested assets worldwide (position at june 2022). The goal: a good pension in a livable world for the pension fund participants. The portfolio is obviously diversified. From investments in wind farms in Zeeland to Australian listed shares in stores. And from safe bonds to the somewhat more fluctuating trade in gold or soy. Who are the people behind these investments? What choices do they make? And why?

 

In this episode of the series The Investors: Henny Crauwels, responsible for investments in the Communications Industry at APG.

 

The playing field for Henny and his long-time colleague Frank Dekker is well defined: large companies in the telecom, media and social media sectors in developed markets. The portfolio includes a diverse range of stocks: from KPN and T-Mobile US to Netflix and The New York Times and to Facebook and Twitter. Their aim is not to outsmart the market on a day-to-day basis, their 'opponent' to beat is the index that reflects the average value of all the companies in their 'universe'. "Everything we do is relative", explains Henny. "If the index drops 40 percent and our portfolio loses only 38 percent, we're doing a relative good job and we're saving lots of money for the pension funds." In fact, they have beaten the index in nine of the past twelve years, by an average of 2.5 to 3% per year. This year they are on track to do the same.

 

What does it take to beat an index more often than not?

"We take a very structured approach to investing. We look at how relevant markets are organized and at the relative strengths of the companies in those markets. In the telecom part of our portfolio for example, a market with three incumbent mobile operators is generally more attractive to us than one with four or five plus a number of challengers. The latter means more competition, lower prices, less stability and more risk. We also take into account what impact new regulations or the issue of new licenses might have, and the potential for new entrants and mergers and acquisitions."

 

And how do you identify which companies will be most successful in an attractive market?

"For individual companies we try to assess how their long-term competitive position will develop. For telecom providers an important indicator is the quality of their customer service. So we collect and buy data on churn, the amount of customers that leave. But we also want to know how well their digital transformations are going, because that will determine how well they can interact with their customers in future. Therefore we try to form an opinion on the quality of their leadership, their innovation culture, their ability to attract new talent and so on. In telecom trends usually play out over quite a long period. So when you get your fundamental analysis and your investment case right, you could benefit for years."

 

Sustainability and ESG criteria play an important role in the investment policy of APG. How does that apply to your specific portfolio?

"These criteria play an increasingly big role. We invest on behalf of pension funds like ABP and of course their participants, and these funds have a big social and media exposure in the Netherlands. They do not want to be associated with anything unethical. But it's not straightforward. In our sector the most problematic issue is how social media platforms handle privacy concerns and content moderation. A platform with a very strict privacy policy may be safe for children to use, but such a policy also makes it attractive for criminals who trade in say drugs or guns. At the time of the Arab Spring uprisings, Facebook was praised because it empowered people who sought freedom and democratic reforms. Since then it has also been condemned as the platform that was used to incite ethnic violence against the Rohingya in Myanmar and for Russian interference in the US elections."

 

Are ESG criteria important in investing because you think companies that apply them will be more valuable in the long term, or because of idealistic motives?

"Both."

 

But what do you do when idealism and a profitable investment are in conflict?

"Sometimes they are indeed, and that can present a real dilemma. If a social media platform can be easily used to spread lies, hate speech and racism, that might well be reason for us to no longer invest in them. But for investors like us, it's easier to exclude say Twitter from our portfolio than a company like Facebook: it's too big, it has generated impressive returns and may well continue to do so for years. And at the end of the day we're here to make enough money to be able to pay the pensions now and in the future."

 

Engagement is another important pillar in APG's investment policy. Can you influence the way these companies deal with the content that is shared on them?

"As APG we're big enough to get a meeting with someone at say Facebook, but it's not like Mark Zuckerberg will clear his agenda when we want to see him. We have, often together with other investors, an ongoing dialogue with some social media platforms about these issues. And we can use our voting rights as shareholders. It's hard to tell however how much impact we have. Sometimes you think they're trying hard to improve but are really struggling with this issue too. Other times you get the impression they just listen and nod politely but in fact only care about growing their businesses."

 

Talking about Twitter: what do you make of the spectacle that Elon Musk's takeover bid has become?

"As a long-term investor we always try to separate the signal from the noise. Much of what we hear in this case is noise I think. And when the stock jumps 40 percent or so when a takeover plan is announced we'll just accept that we missed that. You can't invest on the possibility alone that a company may become the target of a takeover. There always has to be an underlying story, and the market is not too positive about Twitter's story. They don't have a good track record when it comes to implementing successful new features, their content remains primarily text-based while user preferences tend more towards visual content, and they aren't the platform of choice in performance advertising that can very precisely target certain users. Those are the real signals that we base our investment decisions on."

 

Do you see new technology, regulations or trends in consumer behavior that will reshape the communications sector in the coming years?

"There is a lot of talk about the Metaverse of course. What's relevant to us today is that Meta is investing billions in it. In general however it's too far out and too difficult for us to put a value on it because there simply are no use cases yet. It's like with the early days of the internet, no one could foresee then how it would develop into what it is today and how it would change our lives. 5G is another important and more proven new technology that will enable many new services. From my perspective the risk for telecom companies is that, like with 4G, it will be the Googles and Amazons that will develop the most profitable services, while the telco's merely provide the basic infrastructure. That's why we're positive about a Canadian telecom company for example that is actively developing 5G-based services for agriculture and e-health."

Who is Henny Crauwels?

Henny studied International Economics at Tilburg University and afterwards wanted to pursue a career abroad. "Hailing from the south, my orientation was toward Brussels or Paris, but somehow I ended up in Amsterdam." His first job there was in investment research. After six years he became a stock investor when he moved to SFB (formerly the Sociaal  Fonds Bouwnijverheid, that later became part of APG. Henny lives with his partner Alide in the center of Amsterdam. They have no children. He likes to hike, visit architectural highlights and once in a while plays the piano. Spain is his favorite country.

 

Investment Philosophy

“Money follows eyeballs. For media companies and social media platforms advertising income is essential, so the more visitors, viewers and readers they attract the better. Therefore we study closely how well these companies are able to reach various target groups, how efficiently they can convert ads into sales, and how well they can sell their propositions to advertisers. For telco’s it’s more about the market structure, and changes in competitive environment. This could be due to regulation but also technology shifts."

 

"The worst thing that could happen when you start as an investor is that your first four trades become fantastically successful. Then you start to believe you know it all and are infallible. But that's impossible when you're dealing with the future. You always have to be aware that there is risk involved and things might turn out very different than you expected. If 60 percent of your decisions are right and 40% are wrong, you're still a pretty good investor."

 

On his 12-year collaboration with Frank Dekker:

"Frank and I have very different personalities but we very much respect each other's professional opinions. Frank is a lot younger and he is focused on opportunities and taking chances. I tend to look at risks first, and have to see something to believe it. Sometimes Frank is able to get me enthusiastic about a certain investment, sometimes I'm able to talk him out of one. It also works the other way round and we get regular proof that our different perspectives and the way we challenge and complement each other lead to success. That's what keeps things working between the two of us."

 

 

Facts & Figures 

Where could APG invest in in terms of telecom and media?

Interactive media: Google, Meta Platforms (Facebook), Snap, Twitter

Broadcasting: Fox, Prosieben, Discovery, Paramount

Interactive home entertainment (gaming companies) Activision Blizzard, EA

Cable & satellite: Comcast, SES, Charter

Advertising: (Advertising agencies) Publicis, WPP

Movies & entertainment: Netflix, Disney

Telecommunications: Vodafone, KPN, Deutsche Telekom, Orange, Verizon, AT&T, T-Mobile USA

 

How much?

At the moment, the Communications Industry portfolio invests close to 650 million euros.

Volgende publicatie:
Will the power wielded by large investors have a negative effect on sustainability?

Will the power wielded by large investors have a negative effect on sustainability?

Published on: 30 June 2022

Current issues in the field of economics, (responsible) investing, pension and income: every week an expert from APG gives a clear answer to the question of the week. This time: Head of Responsible Investment Capital Markets & RI Communications Anna Pot on whether the increasing size and power of large asset managers is having a negative effect on sustainability.


"The shareholder landscape is changing slowly, but the changes are revolutionary," wrote Volkskrant columnist Peter de Waard a month ago. "Shares are ending up in the hands of a smaller and smaller group of investors who are further away from the companies in which they put their money." In the past, shares were mainly owned by wealthy families, who voted annually at the shareholders' meeting, writes De Waard. From the 1970s onwards, new types of major shareholder emerged, such as banks, insurers and later also pension funds. Nowadays these parties partly outsource their investments to large asset managers such as BlackRock, State Street and Vanguard, companies that focus on index investing, he says. As a result, they do not select shares themselves but instead follow a stock market index, and are therefore less involved as a shareholder. Doesn't this form of passive investing come at the expense of sustainability?

 

Responsible investing
According to Pot, this doesn't necessarily have to be the case. "These large parties are increasingly starting to invest sustainably. They are also investing more and more in establishing their own teams to focus specifically on the responsible investing criteria of their investments. When making investments for their clients, such as pension funds, they increasingly take sustainability considerations into account. There is a positive trend with large asset managers helping to ensure that an increasingly large pool of assets worldwide is being invested sustainably."

 

APG recently launched the iSTOXX APG World Responsible Investment Index, which is managed by BlackRock. “This index product is not actively managed in terms of risk and return, which keeps costs low. However, it is actively managed in terms of sustainability by adding different filters, depending on the client's wishes. These filters can be the exclusion of certain products, investing only in ESG leaders, reducing the carbon footprint, and including Sustainable Development Investments. The market should therefore not classify this type of investment as a traditional index product. Products like these actually form a whole new category. You could call them 'responsible index products'."

We must remain vigilant to ensure that index investing does not result in a watered-down version of sustainable investing

Trend
According to Pot, there are several reasons why the largest asset managers are also focusing more on sustainability. "First of all, customers are requesting it. More and more institutional investors such as pension funds want to invest sustainably. And there is also more demand for sustainable investment products among the younger generation of private investors. Second, is the role of legislation. In Europe, for example, the Sustainable Finance Disclosure Regulation has been introduced, which obliges large investors to report on the extent to which they invest sustainably. Third, the market has developed, offering more opportunities for sustainable investing. For example, more and more data are available on companies’ ESG performance. This is making it easier for large asset managers to make the transition to sustainable investing."


What Pot does see as a worrying development is that index investing involves little or no dialogue with the companies in which investments are made. “And that is what is needed. If asset managers want to contribute to the sustainable transition, in addition to buying a company’s shares, they also need to invest in dialogue to encourage companies to become more sustainable.”


Dialogue
The fact that the largest asset managers wield the most financial power does not have to have a negative effect on sustainability, Pot concludes. "The increase in sustainable investments is a positive trend. And the fact that the index investors offer cheap sustainable index-based solutions supports this trend. That said, we must still remain vigilant to ensure that index investing does not result in a watered-down version of sustainable investing. In our opinion, being an active shareholder means that you delve into the sustainability performance of companies, enter into a dialogue where necessary and vote at shareholder meetings in an informed way. The active dialogue we have with companies to work together to help them become more sustainable is and always will be necessary. In order for this dialogue to continue, we need to remain critical of companies’ sustainability performance. In addition, it is important that we promote our approach on active long-term corporate engagement to other institutional investors. In this way, we can ensure together that sustainability remains high on the agenda."

Volgende publicatie:
Stop greenwashing and stop using that expression

Stop greenwashing and stop using that expression

Published on: 23 June 2022

My son is graduating in Madrid next month and is busy reading for the final exams. No distractions for him, as the Spanish capital hit 40 degrees this week and people simply must stay indoors. The temperature across Europe was 15 degrees higher than it should be last weekend, emphasizing what we have in front of us. To slow global warming, we need to act, and this is not a matter of regulation vs. the industry. We need to act as one to hand over the planet to coming generations to ensure they can build a prosperous future.

In an article last week, it was argued that the ESG-framework has fallen prey to greenwashing asset managers. Questions posed about the relevance of ESG (Environmental, Social & Governance) are outright unacceptable. If market participants are caught mis-selling, they need to change. Regardless if the reason is unrealistic promises about returns or false ESG ambitions. If you think back it is not the first time regulators are looking into how new regulation is being applied. And often they start at the top of the industry in each country to make a point. It was like this when the industry introduced active share as an indicator of active asset management more than 10 years ago and it will happen again this decade. Trust me. But folding ESG now is not an option, just because it gets difficult. Even though the framework might not be perfect, it's a one in a lifetime opportunity to make our industry truly relevant going forward. 

Engagement
The issue here at stake is accountability and we need to be as transparent about ESG ambitions as possible. At APG, our responsibility toward the ultimate pensioners is a good pension (read good returns) yet also on a planet to spend it (read ESG in a broad sense). We consequently deliberately invest under a multi-objective -without pre-set order - of return, sustainability, cost and risk. Article 8 of the Sustainable Finance Disclosure Regulation (SFDR) fits this quadrant of objectives, as the dynamics between our objectives are interdependent and of different importance - case by case, investment by investment. Within this approach we often identify companies that with engagement are expected to execute meaningful change or impact to make the planet better for people and everyone else - hence why biodiversity is increasingly on the agenda as an important part of sustainability.

Where companies might feel tempted to falsely brag about ESG investing it should surely be exposed and corrected. It is however also a fact that the regulation is new and parts of the more detailed instructions on how to report is late and pending. Regulators should acknowledge this fact and work together with the industry to bring us all forward and allow some slippage or at least benefit of the doubt. The core issue with this kind of regulation is that it might actually not lead to a better world. At APG we have, together with other investors, created a system under which investors can translate Sustainable Development Goals (SDG) to actual investments (SDI). We believe the system is solid, transparent, and making it possible to report consistently, set targets and compare. But will it make the world a better place? Probably and we surely hope so. But can we guarantee it? Absolutely not. If you think back to the example of active management, it is again surprisingly similar. No active asset manager can guarantee outperformance. Likewise, no ESG manager can promise that the world will be better, greener, more equal, or less warm. But we are surely all working towards that as a strong ambition.

For long term investors we need to find meaningful ways to measure and demonstrate ESG success

ESG
The conviction that we as investors have a broader responsibility is a mission that we all need to share. In the same way we (mostly) share humanitarian ethics. I get sad when leading investors like Warren Buffet reject the industry responsibility and want to hide behind "clear regulation". It will never be clear. Just like investment returns differs depending on what you compare them to. Old school investors and most current adults have benefitted enormously from "free" nature in terms of access to natural resources and free carbon emissions. Most of our wealth is built on this fact. Asset managers need to come to terms with this uncomfortable reality and address it by transforming themselves into responsible investors. We can do that by making sure we understand and act on sustainability and governance issues. Active management doesn’t have to contradict ESG management. On the contrary, it is a robust part of being long term investors and being able to make informed investment decisions. Thinking carefully about it, all investors should do the same. For that reason it is paramount that the regulators facilitate the transition by clamping down on mis-selling. This is not a change. They have always done so.

For long term investors we need to find meaningful ways to measure and demonstrate ESG success. Those ways all come with important caveats and we need to be humble towards the fact that achieving KPIs is not equal to real impact. Carbon emission is an obvious KPI, yet the calculations are still inaccurate, and we need to be careful not to over engineer target setting on dubious data. Also, tackling climate change requires more than only reducing carbon emissions in our investee companies. This is a different kind of potential mis-selling but far more tragic as we - in a wish to serve the public request for clarity - might end up missing the better transition investments that are so evident in our shared mission to save the planet. It will require strong leadership from the industry to steer through the energy transition and at the same time serve all stakeholders and doing it while securing good pensions for the old age to everybody. This comes with a big responsibility that APG, on behalf and together with its pension fund clients, as leading long term responsible investor is willing to take.

Peter Branner is Chief Investment Officer at APG.

Volgende publicatie:
The Student Hotel secures additional APG investment to accelerate international expansion

The Student Hotel secures additional APG investment to accelerate international expansion

Published on: 21 June 2022

The Student Hotel (TSH), APG, Aermont Capital, Charlie MacGregor and GIC have reached an agreement as part of which GIC and APG will acquire a substantial stake in TSH and commit to invest to fuel further expansion for the hybrid hospitality leader, subject to customary regulatory approvals. The transaction values The Student Hotel, including assets currently under development, at €2.1 billion.

The deal sees APG and founder Charlie MacGregor increase their current stake in TSH. APG first invested in TSH in 2015. MacGregor and Aermont Capital entered into business in 2014 after MacGregor opened the first The Student Hotel in 2012. GIC now joins as a new investor.

TSH’s distinctive hybrid hospitality model, combining student accommodation, hotel rooms, co-working and meeting spaces, bars and restaurants, has proven highly successful. During the pandemic the hybrid model proved resilient as TSH was able to substantially increase room allocation towards students when leisure and corporate travel dramatically reduced, thereby achieving strong occupancy rates and remaining cash-positive. With the hotel and travel market rebounding strongly, TSH is set to benefit from a strong summer while its student bookings for the 22/23 academic year already stand at record levels.

With APG and GIC’s commitments, TSH is able to accelerate its growth strategy to expand into key European cities and grow its presence to 50 hotels from 25 hotels under ownership today, of which 15 are currently operational and 3 are opening in 2022, in Madrid, Barcelona and Toulouse.

TSH is well-positioned towards Millennial and Gen-Z audiences, with its focus on community building through its well-designed, mixed-use facilities and blended spaces, offering co-working and meeting spaces that also attract local start-ups, corporates and neighbourhood communities. The connection with the local communities is especially important as TSH collaborates with local municipalities to revitalise these areas by improving the quality of hospitality services so as to attract talent to cities.

To better address guest needs and increase flexibility across its offering, TSH is investing in technology to implement the first space/time booking platform across its hotels, meaning that guests will be able to book any space in TSH buildings for a defined period of time – from meeting rooms and co-working desks to gym and pool access and ping pong tables.

Charlie Macgregor, Founder & CEO of The Student Hotel, said: “We are very excited to welcome GIC on board, and together with APG, we look forward to bringing The Student Hotel experience to more cities across Europe. We have bold plans and the additional committed capital will allow us to be even more ambitious. I’m very grateful for Aermont being alongside us since 2014, for what has been an amazing journey to where we are today. With our hybrid hospitality model, we have become a game-changer for the hospitality industry and have a major growth platform to welcome more guests to our hotels.”

Lee Kok Sun, Chief Investment Officer of Real Estate, GIC, said: “We are pleased to invest in The Student Hotel as its assets are well-located, enjoy good connectivity to city centres and transportation networks, and are in close proximity to universities and other amenities. We are confident that this investment will generate resilient long-term returns.”

Tracy Stroh, Region Head of Europe, Real Estate, GIC, said, “The Student Hotel’s hybrid hospitality model is unique. Anchored by purpose-built student accommodation that appeals to the student demographic, yet still catering to both business and leisure uses, this flexibility enables TSH to capture opportunities as demand patterns fluctuate throughout the year. We look forward to partnering with TSH and APG to generate more value-add over the long term.”

Robert-Jan Foortse, Head of European Property Investments, APG, said: “We are excited about the opportunity to increase our exposure to TSH, and to support the further growth of the platform. We want to thank Aermont for all of its efforts over the past years, and for being a great partner. Together with GIC, Charlie McGregor and the rest of the TSH team we are looking forward to further expand TSH’s unique hybrid and exciting concept across Europe. We are convinced that TSH will provide an attractive long term, stable investment return for our pension fund client ABP, and its participants.”

Vincent Rouget, Partner at Aermont Capital, said: “Since 2014, we have been the proud partners of Charlie MacGregor, The Student Hotel and its management team, and APG. This great journey which started with one promising project in Amsterdam turned into an unrivalled portfolio of 25 prime assets and projects across 8 countries in Europe. The Student Hotel investment underscores well Aermont Capital’s expertise and experience at supporting operational real estate platforms to fulfil their potential through real estate led strategies. Charlie’s vision of building a truly hybrid hospitality operating model has positioned The Student Hotel at the forefront of both hospitality and real estate trends, and TSH’s future is bright under its new shareholders’ stewardship.”

The transaction is subject to approval from the relevant regulatory authorities.

Volgende publicatie:
“Good ratings are nice, but we’re never satisfied”

“Good ratings are nice, but we’re never satisfied”

Published on: 2 June 2022

APG has been named a market leader in engagement by EY. This is evident from the consultancy’s Engagement Maturity Matrix. A good reason to ask Anna Pot, Head of Responsible Investment Capital Markets & RI Communications at APG, some questions about engagement.

 

According to EY (formerly Ernst & Young), characteristics of a market leader are actively driving positive change and setting the market standard for institutional investors. A good result for APG and its pension fund clients. At the same time, public opinion seems to be increasingly critical. For example, some pension fund participants want their funds to invest as sustainably as possible.

 

How can this be reconciled?

“I think two things are important here. The first is that participants and the media in the Netherlands are critical.  When it comes to sustainable investment, the expectations and ambitions among participants and our stakeholders in the Netherlands are high. And that’s actually very good, because fifteen years ago, when we were developing awareness around responsible investment on behalf of our fund clients, it was not such a big topic yet. Today, it is a very important consideration and people have high expectations around it. Pension fund participants are learning more and more about this subject. In that sense, you could say that the pension funds have succeeded in propagating the importance of SRI. And the critical part of the constituency is growing. That means we are offering something that the pension fund participants want from us. In fact, they want us to do even more in this respect.

 

Another important point is that we were compared to institutional investors abroad in this study. There are also many developments in sustainable investment among the other big players but in the Netherlands, we are in the lead. As APG, we are seen as a leader that other parties are happy to work with and support. That leading position also helps us to align other parties with our goal of investing as sustainably as possible. That cooperation with other parties is essential to our success and to achieving our sustainability ambitions as well as those of our fund clients. It is therefore important that we are also seen as a leader in the international field. So, I am very pleased with this result.”

 

When does APG see itself as the leader in responsible investing, when experts like EY think so or when the public thinks so?

“We are never satisfied. We are very ambitious and critical of ourselves and always want better results in responsible investing. After all, our goal is to make the world more sustainable. In any case, it’s nice to see that our efforts are being recognized. And not just by EY. Another example is the Principles for Responsible Investment (PRI), an organization supported by the United Nations. The PRI assesses us annually and it’s always nice when we see growth in that. And then there is the Association of Investors for Sustainable Development (VBDO), which assesses the fifty largest pension funds in the Netherlands in terms of sustainability. Our fund clients are in the top echelons there. Last year, for example, ABP was ranked number one for the fourth consecutive time. In that sense, external assessments are nice, but are they a yardstick? No, they are indications that we are doing well and that we are seen as a leader. Of course, what really matters is the impact of our efforts. For example, a company following up on our engagement requests. Or the fact that we are making our investment portfolio more sustainable. Another example is that more companies are attaching green goals to the issuance of their loans (bonds), or that our real estate companies are operating in an increasingly energy-efficient manner.” 

If a company becomes more sustainable, it is a better investment in our portfolio.

There are many forms of engagement. What is an example of a form in which APG is particularly strong?

“EY specifically mentioned our so-called inclusion policy. This means that we can only invest in a company that lags behind in terms of sustainability if we expect that engagement can lead to improvement. It is a very systematic way of setting priorities in the engagement policy we pursue for our funds. We ask ourselves the question with which important companies in our investment portfolio we can still make gains in terms of engagement. Is it worth our time and energy? Or should we decide to stop engaging with a company if we feel it is not producing enough results? We also take into account that if a company becomes more sustainable, it is a better investment in our portfolio. We score high on this form of engagement, which is very closely related to our investment choices and portfolio. It also earns us a lot of appreciation. It is something in which we are unique, compared to other institutional investors.

 

We also have thematic engagement processes that we perform on behalf of our pension fund clients and that are seen as leading the way in the market. One example is an engagement path on the transition in the automotive industry. We are asking car companies to become more sustainable and to switch to a carbon-neutral business model. That means they have to manufacture electric cars instead of diesel cars. In this sense, sustainability is about climate targets, but in our commitment we also focus on these companies’ personnel policies. Because whereas manufacturing an internal combustion engine car requires five employees, an electric car requires only one. It also requires different skills. As a company, you can do two things. You can say: we’ll lay off our current employees and look for new ones. Or you can try to use your staff differently so that they can keep their jobs. And that’s what our engagement is all about: make sure that as a car company you also have a strategic personnel policy that focuses on training and retaining staff where possible.”

 

There’s probably still room for improvement.

“I think we can make the outcomes of our engagement more visible. Conversations with a company we invest in, for example, can lead to a new policy or committee. But how can you concretely reflect the impact of that? If you take the example of the car industry, it’s about how many people still have a job in the end. It is difficult to communicate that in an effective and honest way. Reporting on the impact of our engagement is therefore an important area for improvement. Making the results of our engagement more visible also touches on the point where we started this discussion: the critical note in the Netherlands. We must continue to bring our efforts into the limelight. Also because we think it is extremely important that participants know how we invest their pension money.”

 

Volgende publicatie:
“I do see companies we invest in that are starting to make a difference”

“I do see companies we invest in that are starting to make a difference”

Published on: 1 June 2022

Despite climate commitments and progress in sustainability reporting, recent research suggests that up to 40% of sustainability claims could be misleading. In an expert panel on greenwashing, Ronald Wuijster, CEO of APG Asset Management, acknowledges the threat posed by greenwashing. At the same time, he does warn against paralyzing cynicism.

 

Ronald Wuijster participated in a panel called ‘Turning up the Heat on Greenwashing’ at the World Economic Forum in Davos. Chaired by Somini Sengupta of The New York Times, the panel also included former US vice-president Al Gore, Danish environment minister Lea Wermelin and Andrew Forrest, chairman and founder of Fortescue Metals Group.

 

“Greenwashing is a major obstacle to solving the climate crisis”

Vice-president Gore kicked off the discussions with a list of alarming statistics. “According to an S&P report on more than 5,000 companies, only 37% have any emissions target at all. Only 24% have net zero targets. Of the companies that have set emissions targets, less than half are aligned with the science-based approach to even 2 degrees, much less 1.5 degrees.”

 

“Greenwashing is a major obstacle to solving the climate crisis,” vice-president Gore stated. He argued that lobbying, campaign contributions, the capture of policy making, and the control of politicians with money and lobbyists have made it impossible to pass climate legislation in the United States. “Our democracy has been paralyzed, bought, captured – it has to stop.”

 

Vice-president Gore does not expect oil and gas companies to drive the energy transition. “Last year, the largest oil and gas companies announced that they are tripling their investments in renewable energy and carbon capture. But they have tripled it all the way up to 4% of their spending. So 96% remains invested in the development of more and more oil & gas deposits. The only company that has truly transformed to a renewable energy company is Danish company Ørsted. And when it did, its value increased five times.”

 

What about hydrogen?
Andrew Forrest, whose Fortescue Metals Group wants to fully decarbonize by 2030, brought up another form of greenwashing. “Oil and gas companies are selling hydrogen as the clean fuel of the future. However, if it’s not produced from green electricity, it will create a lot of emissions in the production stage,” Forrest pointed out. Only one fuel will stop global warming and that is hydrogen made of green electricity.”

 

Investors need to do their own analysis to filter out greenwashing

As a long-term pension investor, Ronald Wuijster also comes across a great deal of greenwashing when analyzing companies. “However, we should not lose hope either,” he argued. “We see a lot of green, social and sustainable bonds and we analyze those bonds ourselves. Roughly a quarter of those would not qualify according to our own standards, but I really do see companies we invest in that are starting to make a difference.“

 

“Companies that are doing well are usually modest about what they’re doing. Companies that sell great stories you should be careful about. Maybe they do the odd project, but if you look at the company as a whole, it’s a different story.”

 

As uniform standards and integral solutions are still lacking, Wuijster sees an important role for investors. ”We need to talk to various stakeholders of a company to check whether its claims are consistent. At APG we combine various data sources to verify companies’ data and then do our own analysis. We follow the value chain to make sure that claims, for example on CO2 emissions reduction, are consistent. We do not simply copy ESG ratings but do use the data as input for our own analysis. And we don’t know everything as investors. On biodiversity, for example, we use the knowledge of Cambridge University and indigenous communities.”

 

Does regulation help?

In Europe, there have been some notable examples of companies being called out for misleading the public. Minister Lea Wermelin sees the population in a lot of countries wanting to do the right thing.  As a result, many companies are making green claims. “That is a good development but what we need to do, is hold them accountable. In the European Union, with the EU Taxonomy we want to make sure people trust the labeling of sustainable products.”

 

Regulation does help, said Ronald Wuijster, but it is not the only answer. “I’m happy with the European Union coming up with strong rules, and at the same time we know that many pages of rules are not necessarily changing companies’ behavior.” As a long-term investor, APG is actively engaging with companies to create awareness and propose solutions, increasingly joining forces with other investors. “The pressure is increasing and that adds to the regulation. It is needed but it should not become a box-ticking exercise. It’s the combination that’s most effective.”

 

 

Watch a recording of the livestreamed session here.

 

Volgende publicatie:
“Investors should act together to protect biodiversity”

“Investors should act together to protect biodiversity”

Published on: 20 May 2022

Investors have an important role to play in conserving biodiversity. Instead of waiting for regulations, investors should develop standards together and put pressure on companies. This is what Ronald Wuijster, CEO Asset Management at APG and chairman of the World Economic Forum's Biodiversity Finance Steering Committee, is advocating.

 

This week, nearly 2,500 international politicians, CEOs, journalists and intellectuals are gathering in Davos, Switzerland, for the annual meeting of the World Economic Forum. Their common goal is to address the world’s economic and social problems.

 

Long term

I am attending for the first time this year. The World Economic Forum’s risk reports are widely circulated and show, year after year, that climate and biodiversity risks are increasing. For me, this is a great opportunity to get an inside look at the organization behind those reports. It is also a great opportunity to get a feel for the changing geopolitical relationships. Global developments such as deglobalization, rearmament and inflation can have important consequences for our investments. In Davos I will have the opportunity to discuss these developments with colleagues, for example, in the meetings with Focusing Capital on the Long Term (FCLT) and the Global Investors for Sustainable Development (GISD) Alliance. As a board member of these organizations, I am committed to investing in long-term sustainable development.

 

As a long-term investor, our investment horizon is infinite. Our clients are Dutch pension funds, and we want to ensure good pensions in a livable world. That world is increasingly threatened by a decline in biodiversity. That was also one of the motivations for me to accept the role as chair of the World Economic Forum’s Biodiversity Finance Steering Committee. Not necessarily because I am a biodiversity expert, but because I want to mobilize investors and companies to jointly address the problem of biodiversity loss. Because it is precisely this joint effort that is needed.

 

Biodiversity: what can investors do? 4 steps

A lot has been written about the urgency and complexity of biodiversity loss. The question is: what can we do about it? International agreements and regulations by governments and regulators can help, in the sense that they can act as a big stick. But a plethora of new rules and regulations also encourages box-ticking. Regulations do not bring about the kind of fundamental change that is needed to ensure that companies have a “nature-positive impact”. That change has to come from within the financial sector.

 

Step 1: Developing common standards together

To achieve this change, I see four concrete steps. The first, crucial step is to develop common standards to assess how our investments contribute positively or negatively to biodiversity. How they are exposed to biodiversity risks. And how we get the data to measure it.  At APG, we are already involved in the development of a number of such standards. For example, we are affiliated with the Taskforce on Nature-related Financial Disclosures (TNFD) and we collaborate with the Partnership for Biodiversity Accounting Financials (PBAF). In addition, we recently signed the Finance for Biodiversity Pledge, in which we agreed to protect and restore biodiversity.

 

Step 2: Identifying risks

Once the standards are in place, it will be easier to clearly identify the biodiversity risks in our investment portfolios, set targets and report on them. That is the second step. Based on the work that is already in place, we have already made a biodiversity footprint of our investments at APG.

 

Step 3: Achieving positive change through engagement

To reduce risks and bring about positive change, we put pressure on companies through engagement - step 3. We are tightening our criteria for companies with respect to biodiversity. The transformation of the food chain will largely have to come from the companies that are currently active in it. This makes engagement with these companies even more important.  Given the complexity of the issue, it is important not only to use our own influence, but also to collaborate with other investors.

 

Step 4: Investing in solutions

Finally, we want to actively invest in solutions that contribute to the protection of biodiversity. For example, we have invested in a large production forest in Chile. This forest is being managed sustainably and has the FSC (Forest Stewardship Council) label. We hope to see more of these kinds of investment opportunities. Public-private partnerships can play an important role in this. The government and pension investors then pull together to make important and substantial investments. We already do this internationally, but in the Netherlands, the opportunities are limited. For several years, ABP and APG have therefore been taking the initiative to talk to government bodies and other pension administrators about more opportunities for public-private partnerships.

 

If we, as long-term investors, take up our roles and join forces, I am convinced that we can make a significant contribution to the preservation of biodiversity. My proposal for a four-step plan is a first step, which I am happy to discuss with fellow investors. Let’s get started.

In addition to his chairmanship of the World Economic Forum's Biodiversity Finance Steering Committee, Ronald Wuijster is participating in a plenary panel on greenwashing in Davos. Other panelists include former Vice President of the United States Al Gore, Danish Environment Minister Lea Wermelin and Andrew Forrest, chairman and founder of Australian iron ore producer Fortescue Metals Group. The panel can be followed here: World Economic Forum Annual Meeting | World Economic Forum (weforum.org), May 25, 5:30 p.m.