How do you turn a supertanker? By degrees.
Institutional investors that last year declared their “alignment” with the 2030 Sustainable Development Goals and other impact frameworks are now confronting the hard work of actually managing their investments toward those goals.
PGGM, the Dutch pension fund manager with $272 billion under management, took the plunge and mapped its investments with the help of the Impact Management Project, an industry-wide effort to agree on the fundamentals of measuring and managing impact.
The bottom line: Across its whole portfolio, PGGM suggests that about 50% of its holdings “signal that impact matters.” It “engages actively” with another 28% of its holdings, contributing expertise and helping companies measure their impact.
About 8% of its invested capital grows new or undersupplied capital markets, primarily through its ‘Investments in Solutions’ program created for its main client, PFZW, the Dutch healthcare pension fund, which has committed to invest €20 billion ($24.8 billion) by 2020 toward climate change and pollution, food security, healthcare and water scarcity, which correlate to five of the 2030 goals. PGGM has invested about €12 billion ($14.9 billion) towards the €20 billion target. With its own carbon index, PGGM excludes persistent violators of the Global Compact Principles and the least carbon-efficient companies in each sector.
PGGM was forthright in acknowledging that about 12% of its portfolio “possibly contributes to negative effects.”
The process may be more significant than the conclusions. PGGM was the first large multi-asset class investor to go through the Impact Management mapping exercise. The framework assesses investments across five dimensions. In addition to quantifying what impact, how much and at what risk, the framework attempts to tease out the impact of the investment itself by asking what would have happened anyway.
The biggest lesson of the mapping exercise was the paucity of data on who is actually impacted. “We learned that a lot of value chains are missing key information to manage impact — especially around the question of ‘who?’” Olivia Prentice of the Impact Management Project told ImpactAlpha.
‘Right now, we’re just accounting for and trying to quantify impact. The next step is trying to use this information to maximize impact,” said Piet Klop, PGGM’s senior advisor for responsible investment.
He said the organization is undergoing a culture-shift. “It’s so easy to be cynical about the baby steps were taking, but it’s a pretty special thing for a pension fund to even care about impact. It’s quite something to hold ourselves accountable and pursue measurement and eventually management of impact.”