Reducing the carbon footprint of portfolio companies

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12851208 - imprint of the shoe on mud with copy spaceWhen it comes to de-risking and finding opportunities related to climate, PGGM is taking steps to reduce the carbon footprint of its portfolio companies and find new investment opportunities without making concessions on returns, said Eloy Lindeijer, chief investment management member of the executive committee of the Dutch pension fund service provider PGGM.

Speaking at the OPTrust’s climate change symposium, Lindeijer said PGGM developed a policy to reduce the carbon footprint of companies in their listed equity portfolio. They set a target of a 50 per cent reduction in carbon footprint over four years.

“Meanwhile, actually emissions of the companies that we own have risen, so effectively we have to do more than 50 per cent to actually beat that target,” he said.

He said they are trying to measure the performance of what they’re doing over time to make the system more intelligent.

“So far, the performance contribution has been positive, about 20 basis points of return has been added to the public equity portfolio through this risk management measure,” Lindeijer said. “And the big challenge for us is to incorporate more and more forward-looking information, because the carbon footprint data is all backward looking, so one of our big challenges is, ‘how are we going to make it more intelligent?’”

He said they are trying to engage with companies to get more information, so they can make more informed judgments.

Lindeijer said trustees have also given them the mandate to invest up to $20 billion euros on the opportunity side, which can only be pursued without concessions to returns. He said that they have not invested this all and at the current rate they don’t expect to commit more than $16 billion by 2020.

He said the impact themes they identified include climate change mitigation, food security, water security and access to health care, which are all interrelated.

Lindeijer said these opportunity investments have contributed to better risk-return over the total portfolio and have delivered above benchmark returns in their private markets book.

“For those of you that are maybe still hesitant to move into these directions because you’re not confident how it will impact return, I think the good news for us is that we have a couple years now of experience that what we’re doing here is kind of a jump into the unknown, but it’s actually contributing to a better portfolio.”

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