“We are an involved shareholder; not an activist”

Sustainable, responsible investing is gaining popularity, including at APG. For Claudia Kruse, who is in charge of APG's sustainable investment policy, this can’t move fast enough. But experience has taught her that patience and dialogue are the best ways to achieve sustainability. Even now, during these Covid times.

She’s not one to brag, but it’s certainly something to secretly be proud of. German Manager Magazin placed her prominently among the world’s 100 most influential female top economists in the last issue of 2020. Women in decisive positions who, the authors say, strive for “einen anderen Kapitalismus”. This is not surprising. Coworkers praise her smarts, her boundless energy and genuine heart for sustainability. That heart was already in the right place during her student days in the early 1990s. “As students at the time, we were very concerned about the climate report Our Common Future, drawn up under the leadership of the Norwegian Prime Minister Brundtland. She called on the world to become more sustainable; that got me thinking. And that just really never stopped.”

In her role as Managing Director Global Responsible Investment & Governance, as her full job title states, she can now look back on some notable achievements. The UN organization Principles for Responsible Investment calls APG one of the leaders in responsible investment. The Dutch Association of Investors for Sustainable Development (VBDO) named ABP (the largest fund that APG works for) as the most sustainable Dutch pension fund for the third year in a row and bpfBOUW as the second one. Kruse also plays an important role in the establishment of the SDI Asset Owner Platform, an initiative of APG and PGGM that helps investors assess companies on their contribution to the Sustainable Development Goals. Simple question, difficult answer: how does Claudia Kruse get it all done? Where are the challenges? And what needs to be improved?

To start with the now: what about companies’ sustainability ambitions now that they have to pull out all the stops due to the Covid crisis? Will that diminish?

“No, it doesn’t look that way. The Covid crisis seems to be raising awareness around climate, people’s wellbeing and the importance of good health. At the same time, it is true that some companies and countries are now struggling. This could contribute to them losing sight of the United Nations’ Sustainable Development Goals. These Sustainable Development Goals include good education for all, clean water, climate action and accessible healthcare.”

APG invests some 560 billion on behalf of the funds. In this world, aren’t returns ultimately more important than achieving sustainability goals? 

“Returns are important to us too, of course. We want our funds’ participants to continue to be assured of a good pension. But in addition to returns, the factors of risk, cost and responsible investment are important as well. We always consider these four factors in conjunction with each other. But every investment must be responsible in its own right. Both we and the pension funds we invest for are convinced that responsible investment does not have to come at the expense of the returns. In other words, we expect to achieve at least the same returns from responsible investment as we would from non-responsible investment. So why not do it? On average, investing responsibly has earned us a return of 7% per year in recent years.”

What are you not yet satisfied with?

“I think we can give the outside world even more insight into what we are doing to increase sustainability, what we are achieving - and what we are not (yet) achieving. And why we are seen as leading the way.”

APG took the initiative to create the SDI Asset Owner Platform. Why?

“We launched this platform last summer, together with PGGM, AustralianSuper and British Colombia Investment Management Corporation. Together we have more than 1 trillion (a thousand billion - ed.) dollars in assets under management. With the help of artificial intelligence, investors can find out whether and how many companies are contributing to the Sustainable Development Goals with their products and services. Investors are very keen to understand this, but it has often been difficult due to a lack of reliable data. Our platform provides them with a common definition, taxonomy and data source for their investments. We are ultimately doing this for our clients’ participants to whom we want to offer an affordable pension in a sustainable world.”

There is much to be done about investing in fossil fuels. There is also dissatisfaction at companies themselves. Shell, for example, saw managers leave because they felt the company was too slow to switch to renewable energy. Yet APG remains on board. Why?

“Experts agree that for the time being, renewable energy can only meet the growing demand for energy to a limited extent. Oil and gas will still be needed. I think we can invest responsibly in producers of fossil fuels, but they must make the switch to sustainable energy. And drastically reduce their CO₂ emissions. That is why we invest a lot of time and energy – in some cases in collaboration with other investors - in persuading companies to commit to ambitious climate targets. Make no mistake, we have been in very intensive discussions with Shell and other large oil companies for years. We definitely don’t always agree with each other, but we do have an open dialogue.”

But is that dialogue having a concrete effect?

“Shell announced in April of last year that its product chains must be climate neutral by 2050. This means that, on balance, the energy group will no longer emit any greenhouse gases. This includes not only direct emissions from Shell itself, but also emissions from suppliers and customers. With these plans, Shell is building on the agreements that the company made in 2018 with the partnership Climate Action 100+, a collaboration of large investors, including APG. BP and Total are moving in the same direction, which I think is very positive.”

Critics argue that oil corporations like Shell could close a few refineries right now; then you’d have fewer emissions immediately. 

“It’s more complicated than that! We are primarily a responsible, long-term investor, and we want Shell and similar companies to make a very deliberate transition.”

And other sectors? Take banks, for example: you could withdraw from banks that finance unsustainable projects, such as oil pipelines, etc.

“We recently had another great result in the financial sector. In September, KB Financial Group, South Korea’s largest financial services company, announced it would stop financing new coal-fired power plants. Local competitors have since followed suit. This is important, because South Korea is a country that emits a relatively large amount of CO₂. The fact that we urged this company to adopt a clear and consistent approach to sustainability certainly contributed to this. ABP, our largest pension client, will stop investing in companies that derive a large part of their turnover from coal mines and tar sands, from whose deposits producers extract oil, by 2025 at the latest. Another example is Nestlé. It wants to be climate-neutral by 2050. This is also important, because the food sector and associated land use account for a quarter of global CO₂ emissions. Within Climate Action 100+, we took the initiative to have conversations with Nestlé.”

In addition to environmental considerations, you also weigh social criteria. What has APG achieved in this regard?

“Take the example of child labor in cocoa farming. This is a major problem. A number of large buyers of cocoa - such as Barry Callebaut, Lindt & Sprüngli, Mondelez and Nestlé - have set up audits to detect child labor at suppliers or have committed to buying only certified cocoa. We often work closely with like-minded investors worldwide. Then we have more clout and can optimize the effects of responsible investing for our clients.”

If companies don't become more sustainable quickly enough, will APG sell the shares? Or will you enter into a dialogue with them?

“We would do the latter. When you sell investments like that, you may be sending a signal once, but after that you have lost your influence. Without having changed anything in the real world. So, we engage in dialogue. For example, we ask how the company plans to adapt to climate change. Those conversations usually take place in an atmosphere of openness, where we don’t always have to agree or become involved.”

Do you give them any suggestions?

“No, we leave it up to them. They have to figure out how to shape sustainability; we never sit on their chair. We are an involved, active shareholder; not an activist.”

Investing responsibly also means that APG pays attention to the remuneration of top executives.

“Well, we are not primarily concerned with the level of remuneration, but with the criteria on the basis of which those top executives are paid. We want companies to communicate clearly, for example in their annual report, how they deal with executive pay. What must the directors and the company achieve before they are paid a bonus, variable or otherwise? We are also working on this subject with other asset managers and pension funds.” 

What did this cooperation yield in concrete terms?

“Among other things, we voted down a remuneration proposal from a Dutch company four times last year. Although we would prefer to reach a solution in consultation with the company, of course. We use our advisory vote worldwide when it comes to the remuneration of top managers. We are least likely to vote in favor of executive pay at U.S. companies, partly because they often pay out excessively high severance packages there.”  

Is it all going fast enough for you? 

“No, it definitely isn’t. It could be done faster, but that’s easier said than done. As a pension investor we have a long-term horizon. As for the pace of sustainability, you have to realize that major changes like this often happen step by step. Fortunately, more and more countries and companies are feeling the urgency to become more sustainable. So, I’m optimistic. That’s also in my nature; for me, the glass is always half full.”