PGGM: Impact begins at home

As PGGM, the asset manager for the €237.8 billion Netherlands healthcare pension fund PFZW, develops the next leg in its pioneering impact strategy, it has learnt that impact really does begin at home.

Not only is investing for local impact helping The Netherlands address pressing new themes like the drive for energy security as a consequence of new geopolitical realities, it directly resonates with fund beneficiaries in the health sector, now more connected to their pension pots due to pension reform.

The switch to a defined contribution system that ties pay-outs to contributions and market returns is nurturing a new level of beneficiary engagement and interest in support for investment returns that also directly benefit beneficiaries, says Lars Dijkstra, chief investment officer, asset management at PGGM, speaking to Top1000funds.com alongside Koos Alfrink, head of the direct thematic allocation.

“Our impact investments are highly symbolic for participants in the fund, and in many ways, could have a direct impact on their lives. We want our members to feel the benefits, and for this reason, impact is deliberately close to home,” says Dijkstra, who has been in the CIO seat for the last two years where he is responsible for managing the internal public asset portfolio (around half the total AUM) and all the private assets.

Together with Alfrink, they reel off a range of investments that have boosted energy security, created jobs and efficiency, and supported the lives of the country’s medical professionals from affordable housing to pioneering health-tech that makes medics’ jobs easier.

PGGM’s integration of sustainability sits across the whole portfolio in a pioneering 3D approach that integrates return, risk and sustainability. The strategy is rooted in a know-what-you-own philosophy that involves a conscious decision to invest in every line item through this 3D lens, and is the reason why PGGM abandoned passive investment last year. Outside this, impact sits in a small satellite allocation focused on the energy transition (around €1 billion) Dutch healthcare (€350 million) and biodiversity, where the team are yet to invest. (See PGGM advances 3D investing strategy balancing impact, risk and return.)

All impact investments are made according to the Theory of Change, the framework endorsed by the Global Impact Investing Network, GIIN, that stipulates every euro invested should equate to a real world impact, and is a higher bar for impact than the UN’s Sustainable Development Goals.

Building out biodiversity

As the team turns its focus to developing the biodiversity sleeve, once again, local impact is a central pillar.

Biodiversity mandates will allocate to global themes like water and deforestation via bond and equity investments in multinationals. But the portfolio is also likely to target impact much closer to home in private investments in Dutch companies.

“We will still invest for impact around themes like deforestation in Brazil. But we’ve also learnt that investing with direct equity stakes for impact abroad is harder – it’s easier to have an impact at home,” says Alfrink.

The quest for local impact has led them to develop themes like circularity, food waste and alternative plant based proteins in an approach that will be based on first qualitative and then quantitive targets, especially around food, as the portfolio develops. Measuring biodiveristy impact, they reflect, is much more complex than climate, where carbon reduction provides a clear metric.

“Seventy per cent of biodiversity loss globally is caused by the food supply chain. To find solutions to biodiversity loss you have to talk about the whole food supply chain from farm to fork,” says Dijkstra who cites PGGM’s equity holdings in French food group Danone which has set flagship targets around biodiversity and regenerative agriculture for example, as well as the team’s work with the Task Force on Nature-related Financial Disclosures as key relationships supporting the build out of the strategy, gathering momentum because of the clear synergy between climate and health.

“Healthcare and food are too sides of same coin,” says Dijkstra.

Lessons in impact

But they’ve learnt impact is not easy, especially when it comes to engagement where the investor’s direct stakes in companies come with an active role on the supervisory board and partnering with other shareholders. Yet successful engagement is asset class dependent and like the impact it strives to achieve, most effective closer to home.

Alfrink recalls PGGM’s bruising encounter with oil giant Shell as a good example of the challenges of engagement. In 2024, PGGM divested €2.8 billion from Shell (as well as over 300 other oil and gas groups) following an intense two year period of engagement that ultimately failed to achieve real change at the company.

Today PGGM still designates companies in the equity portfolio as ‘improvers’ if they are classed as having significant potential for improvement in terms of sustainability, and they remain a particular focus of engagement efforts.

“Engagement is really hard work – you can’t change a company overnight,” says Koos.

Positively, the team has seen most progress engaging in infrastructure. Over half the infrastructure portfolio is Paris-aligned following the team’s success convincing management teams of its importance.

Elsewhere, PGGM’s investment in a credit risk sharing mandate has also provided specific opportunities for engagement. These investments involve credit risk in a substantial loan book from global banks whereby PGGM provides banks with tailored capital to support lending to energy transition infrastructure.

“The long term risk sharing relationships provide us with access to the dialogue on how the bank stimulates and supports its clients in these transitions. The way banks steer lending activities and provide guidance to corporates is a very powerful driver of achieving the Paris goals,” says Dijkstra.

getting impact right

As they continue to build out the impact strategy, Dijkstra and Alfrink reflect on the importance of focusing on specific areas. The impact universe is so large, without the strict parameters of climate, heath and biodiversity it would quickly get unmanageable.

“People question the pipeline but a limited universe has so far never been the issue. Europe’s energy and health transition, and addressing biodiversity, presents so many opportunities, it is actually difficult to know where to invest.”

They also counsel of the importance of gaining the trust of beneficiaries and translating the themes they care about into investment mandates.

But it remains too early to truly measure whether the impact allocation has achieved returns and impact.

“We are still focused on expected impact and expected returns. Today I can’t tell you what the realised return and impact is on any given investment yet because we haven’t exited anything yet,” concludes Koos.