PGGM maps portfolio’s impact

PGGM is one of the global leaders in implementing a framework that aligns its investments to the UN Sustainable Development Goals.

For one, it has developed taxonomies, together with fellow Dutch giant APG, that identify the so-called SDIs (sustainable development investments), which contribute to the SDGs.

It has also helped other Dutch investors and the country’s central bank develop a guide of SDG impact indicators.

And since 2015, it has had a policy of investing €20 billion ($24 billion) using these indicators, specifically in solutions for food security, water scarcity, healthcare and climate change.

As part of that policy, the impact of those investments has to be measurable, and the €220 billion ($268 billion) fund recently embarked on an exercise to see the impact its portfolio was having on people and the planet.

It partnered with the Impact Management Project (IMP), a collaboration of more than 700 organisations, to map its portfolio, showing where it avoids harm, benefits stakeholders and contributes to solutions.

One key finding of this process was the revelation that there is a difference between intended impact and real impact, says PGGM adviser, responsible investment, Cedric Scholl.

“This needs to be really measurable, not just [based on intentions],” Scholl says.

IMP’s process involves collecting data and measuring the impact of companies across five dimensions. Investors can then determine whether their impact goals have been met, and work with investee companies to improve their positive impact or reduce their negative impact.

The five dimensions are:

What: What outcomes does the effect relate to, and how important are they to people experiencing them?

How much: How much of the effect occurs in the time period?

Who: Who experiences the effect and how underserved are they in relation to the outcome?

Contribution: How does the effect compare and contribute to what is likely to occur anyway?

Risk: What risk factors are material, and how likely is the effect different from expectation?

The mapping is designed to encourage a business to reduce its negative impact and increase its positive impact. It categorises investee companies in three ways: those that avoid harm; those that avoid harm and also want to generate benefits for stakeholders; and those that aim to avoid harm, generate benefits and to contribute to specific solutions.

The process provides a lens for an investor to understand the impacts different businesses want to make and the extent to which investment in those businesses aligns with the investor’s own intentions.

PGGM’s results

The results of PGGM’s mapping were intriguing.

It found that 4.5 per cent of its portfolio is allocated to investments that are “benefiting people and the planet” and 2.5 per cent is allocated to investments contributing to positive outcomes.

These seem like small numbers considering that PGGM is one of the leaders in sustainable investment.

But the numbers do not show a clear picture. It was difficult for PGGM to classify its investments because of a lack of data, particularly in criteria like how under-served people are who are experiencing the outcomes.

Scholl says one of the biggest surprises to the team at PGGM carrying out the mapping was how difficult it was.

“We put things in the ‘avoid harm’ column, and while a lot of those also contribute to benefiting people, we don’t have any data on [to what extent] so we couldn’t categorise them as such,” he explains. “Lack of data is the biggest problem.”

Olivia Prentice, from advisory firm Bridges, which is the facilitating organisation of the IMP, says PGGM’s experience underscores the need for more data.

“PGGM is far ahead of other investors, for example, by delivering against the SDGs,” Prentice says. “But when they scrutinised their data, they realised they didn’t set impact goals, so they couldn’t measure that. This demonstrates the risk behind [just having intentions]. You have to collect the data.”

While it is not the investor’s job to determine the best data for the underlying company to collect, she says because investors are not asking for it, they are contributing to the problem.

The issue of what data to collect is an enduring problem in impact investing. For example, collecting information on job creation doesn’t measure how a person’s life has changed because they found work. Prentice suggests that more information is needed from the people benefiting from impact investment.

“At the moment, impact investing is…driven by the intentions of an investor, rather than by the people close to the impact,” Prentice says. “We need to give more power to the people close to…where the capital is allocated, including frontline enterprises like charities.”

Scholl says it would be helpful if companies were more active in data collection.

“This is part of our call to action. It is necessary to have more focus on how companies contribute to solutions,” he says. “We hope someday we will favour companies [based on] those indicators, and we hope we can grasp the more positive contributions investments can make. At the moment, we can’t, but we have a desire to make decisions based on this type of information.”