Institutions making major effort to use investment acuity to make world better
Asset owners are focusing significant efforts on figuring out how 17 goals aimed at ending poverty, protecting the planet and ensuring prosperity for all fit into their investment portfolios.
The United Nations' sustainable development goals were adopted by world leaders in 2015, officially coming into force Jan. 1, 2016. The aim is to mobilize efforts to meet those goals by 2030.
Among the 17 goals are efforts to achieve zero hunger, provide clean water and sanitation, and to conserve and sustainably use the oceans, seas and marine resources.
Institutional investor executives said they are now reflecting on — or have already implemented — ways to align their investment portfolios with the goals.
Some pension funds are further along in the journey. The $337.2 billion California Public Employees' Retirement System, Sacramento, is starting to map its current portfolio to the sustainable development goals to find "connectivity," said Anne Simpson, investment director of sustainable investments, speaking on a recent panel discussion at the annual Principles for Responsible Investment in Person conference, held in Berlin.
CalPERS recognizes the importance of the goals, which Ms. Simpson added were "not just a moral imperative," but an "economic necessity" given the fund's size. CalPERS has "nowhere to hide from the world's problems and the world's risks," and the goals present a framework under which these can be examined, she said.
15 are sustainable
Dutch firms APG Asset Management, which runs the assets of the €394 billion ($465.4 billion) Stichting Pensioenfonds ABP, Heerlen; and PGGM, whose clients include the €188.5 billion Pensioenfonds Zorg en Welzijn, Zeist, have worked out that 15 of the 17 sustainable investment goals are investible, and have also developed a set of taxonomies to help with the task. They have also termed investments that are in line with the U.N.'s goals sustainable development investments, and APG is targeting €58 billion by 2020.
Piet Klop, senior adviser responsible investment at PGGM in Zeist, said the firm is actively investing in strategies on four themes, which map to five of the goals. PFZW had already chosen its four focus areas — climate, water, food and health — before the goals were released. "We are targeting €20 billion in such investments in solutions by 2020 across a variety of asset classes. This goes beyond alignment; we are very actively seeking opportunities where we can have impact at market rate returns," said Mr. Klop.
While the in-house priority for the moment, up to 2020, is those four themes, PGGM also wants to position itself for all of the sustainable development goals beyond 2020.
"If that's the menu of themes, then we want to be playing in that bigger space of all investible SDGs. Another reason that we want to do this is we want to make sure we don't undersell our investments," said Mr. Klop. That €20 billion target is just 10% of the portfolio — "a lot of good things happen in the other 90% of our portfolio, some of that can be labeled or mapped to other SDGs. … We're looking at the rest of the portfolio for any other impact you can map to all of the SDGs," he added.
One of the funds that supported the sustainable development investments initiative is the 348 billion kronor ($42.7 billion) AP4, Stockholm. Tobias Fransson, head of alternative investments at the fund, said executives have mapped investments against the goals. Its 2016 annual report outlines a number of investments demonstrating the fund's alignment, including an investment strategy focusing on children's rights, which addresses a goal to reduce inequality. AP4's work to reduce climate risk in its assets over many years addresses goal 13 — fighting climate change. Approximately 24% of the fund's global equity portfolio is invested in low-carbon strategies, according to the report. The fund also has investments in green bonds, which contribute to the financing of sustainable projects.
"We are currently working on integrating sustainability and the SDGs in our investments. We will focus on the climate and environment-related SDGs as we find they are most relevant to us: significant financial impact, investible, builds on our internal experience and competence, supports the SDGs and are in line with our mission and values," said Mr. Fransson.
Executives at the 250 billion Danish kroner ($39.7 billion) PKA, Hellerup, Denmark, decided to use the sustainable development goals as a framework for investment in 2016. When the fund publishes its annual ESG report in March, it will outline how the fund delivers against the goals.
"There are two ways of doing things: one is to look at a current portfolio and try to map everything against the SDGs, and say 'we're good,' (but) that's not where we focus," said Pelle Pedersen, head of responsible investment at PKA. "A lot of investors have put too many resources into that instead of saying 'we have the SDGs and we can use those as a framework and common language, and show our intention'" — the second way of doing things, he said.
Mr. Pedersen said the fund has about €2.8 billion invested in real projects in line with the goals.
Other investors are just getting started on their work.
The €36 billion Fonds de Reserve pour les Retraites, Paris, "monitors and prevents extra-financial risks that may have an impact not only on its investments, but also its reputation," said a spokeswoman at the pension fund.
"Indeed, risks for the FRR may arise from failure by a company in which it invests to observe universally recognized principles, such as those of the United Nations Global Compact and good governance, but also the international treaties ratified by France," she said. "Those engagements are synthesized in our (socially responsible investment) strategy" covering the period 2013 to 2017.
She added that FRR will launch its new socially responsible investment strategy next year, for the period 2018 to 2022, and the question of moving to a focus on the sustainable development goals will be presented to the responsible investment committee. "At this stage, FRR never refers to SDG while selecting, accounting or monitoring its asset managers," added the spokeswoman.
A spokeswoman for the €26 billion Etablissement de Retraite Additionnelle de la Fonction Publique, Paris, said executives are working on how to implement the goals in the fund strategy and are at the very beginning stages on the topic.
And as executives at the $213.7 billion California State Teachers' Retirement System, West Sacramento, "review our own ESG policy with our governing board, we will review the SDGs fit within our policy," said a spokeswoman in an email.
Executives at Brunel Pension Partnership Ltd., which runs the £28 billion ($37.5 billion) Brunel Pension Partnership, Bristol, England, are exploring how to use the sustainable development goals framework "as we go forward with developing the asset pool," said Dawn Turner, CEO.
"We are looking at what others have done successfully in this field, but are aware that this is a new and exciting area. Brunel has made a clear commitment to using the sustainable development goals as part of its how it delivers its services and engages with stakeholders."
The goals "offer an effective way to look at opportunities and risks, to translate the impact of our investment activities into real economy outcomes and provide a useful means of engaging with stakeholders," added Ms. Turner. She added that executives will consider the goals, as appropriate, regarding manager selection, monitoring and reporting.
Meanwhile, the NZ$35.7 billion ($25.7 billion) New Zealand Super, Auckland, has not conducted a specific analysis of the goals relative to the portfolio, said a spokeswoman. Its current approach to responsible investment is based on a number of investor and corporate standards relevant to the U.N.'s goals, such as the U.N. Global Compact's principles.
The spokeswoman said the most relevant piece of work completed by the fund relates to the goal on climate change. In August, the fund announced a reallocation of NZ$950 million in capital to lower-risk companies from those with high exposure to carbon emissions and reserves.