More biodiversity metrics needed for investors, pension funds say

The ability to measure the impact investments have on biodiversity remains a challenge, and more accurate performance metrics are needed, pension fund representatives agreed at the WorldPensionSummit in The Hague on Oct. 10-12.

In a pre-summit workshop following a set of presentations from expert speakers on Oct. 10, delegates discussed the key challenges in making biodiversity-related investments. Delegates said one difficulty, particularly when investing across a large number of companies, is to measure their impact on biodiversity and questioned whether it could be achieved by looking at their strategies and underlying assets and trying to understand that impact, or whether it should be achieved through stewardship.

Earlier in the day, Nando van Kleeff, senior program manager for investor and industry action grants at Randstad, Netherlands-based Laudes Foundation, said in a presentation that institutional investors face other challenges in transition financing as well, such as the real economy moving too slowly and short-termism in the financial sector.

"The challenge there is often (that for) asset owners, if you want to transform the portfolio, you are dependent on what is actually happening in the real economy," he said.

"Short-termism in the financial sector, which is also something if we look at, especially for (the topic of) nature, if we look at the definition of value, we do not say that nature and people are well integrated," he added. "The definition of what value is — it's a monetary designation. … So what we do, we're trying to design policies, pathways to get to that situation where that is taken into account."

Eloisa Vittoria Menguzzo, adviser on responsible investment at PGGM Investments, agreed that performance measurement can be a challenge, particularly because when building an impact investment portfolio, investors have a more constrained universe compared with a general market index-tracking portfolio.

PGGM Investments manages €230 billion ($243.4 billion) in assets for Pensioenfonds Zorg en Welzijn, Zeist, the second-largest pension fund in the Netherlands.

"Also, it is relevant for new, innovative financial instruments because to give you an example, if you are a timber-specialized asset manager that manages forests, the way your profile is in terms of returns and risk is very different than a timber asset manager that invests in carbon credits. It's really different on many levels, so to compare the two in terms of performance becomes challenging," Menguzzo said.

In answer to a question from the audience, engagement with companies could be the answer to facing firms that meet benchmarks on certain metrics but not on others, said Marion Maloney, head of responsible investment and governance at the £5 billion ($6.1 billion) Environment Agency Pension Fund, Bristol, England.

When faced with a situation like that, "I asked a question about whether because it's more personalized, (with) more indicators, can you put more pressure on this little company? (The answer was) that might come into benchmarking, (and it) might be more discerning in terms of what's in there or not. At the moment, the only way I'm finding a way around that is through that engagement," Maloney said.