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APG Asset Management

PRI reporting framework 2018

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
100 %
Total actively managed listed equities 200%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

One of APG's investment beliefs is that the risk-return profile can be improved by factoring in non-financial elements in the investment process. To APG Asset Management Responsible Investment is a way to improve the investment portfolio's risk-return profile while simultaneously contributing to sustainable development. In order to enable this APG focuses on companies' financial performance as well as the way in which companies deal with the theme of sustainability and how the Executives of the companies deal with their shareholders. The best way to achieve this goal is to incorporate ESG as an integral part of our investment processes.

For corporates in capital markets, a so-called Inclusion Policy has been developed to enable us to meaningfully and systematically identify companies that are considered to be leading or lagging on ESG. In order to assess a company’s ESG performance APG developed its own framework whereby we review practices and policies related to the UNGC themes. Companies’ performance is assed in comparison with their peers, while still requiring them to meet industry specific normative ESG expectations. Where companies are considered lagging behind, we can only invest if we believe that they can be influenced through engagement to improve. The phased implementation of this policy has started in 2017. Every investment choice has to explicitly balance risk, return, costs and ESG so that our portfolio becomes more responsible and sustainable.

In addition to the Inclusion Policy,  APG has a carbon reduction target for the equity portfolios and an investment target for Sustainable Development Investments (SDIs). APG has also continued to apply its corporate governance framework in our engagement and voting activities.

In addition to a strong focus on integration, APG has minimum standards and an exclusion policy built into its investment processes. On behalf of our clients we exclude companies that are involved in the production, sales and/or distribution of anti-personnel landmines, cluster munitions, chemical and biological weapons, and nuclear weapons made in violation of the Nuclear Non-Proliferation Treaty. APG also expects companies to operate in line with the UN Global Compact principles and, in its Responsible Investment Policy, APG also states that it may exclude companies that fail to act in accordance with the principles of the UN Global Compact and show no signs of changing their practices. The exclusion policy was last evaluated in 2015 and on a semi-annual basis we determine the latest exclusion list of companies. Per January 2018 we exclude 19 companies that are directly, or through ownership, involved in production of anti-personnel landmines, cluster munitions or nuclear weapons in violation of the NPT, we exclude 3 companies that we consider to be in violation of the UN Global Compact principles.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

          NGOs, voting research, news and media, company documents, Bloomberg
        

Indicate who provides this information 

02.2. Provide a brief description of the ESG information used, highlighting any different sources of information across your ESG incorporation strategies.

The majority of acquired ESG information is company related, including ESG ratings and scores, analysis of policies and performance on specific issues, news and controversies related to ESG issues, and broker analyses of ESG issues. Part of this information is made available to portfolio managers via a centralized knowledge management system (KMS) in which we track our engagement with companies as well as other relevant research, financial and ESG information. For more in-depth analysis, more detailed reports are used.

We procure specialist research that establishes how companies perform against specific standards (e.g. UNGC principles) or verifies the involvement with controversial weapons (cluster munitions). The latter forms the basis for our exclusion policy. If we deem companies to potentially be in breach of the UNGC principles, we start an intensive engagement program that could ultimately result in exclusion if the company does not show sufficient progress over a period of time.

We also acquire ESG research at a country level that provides insight into the risks of investing in countries, due to the absence of relevant legislation and processes  orthe lack of an institutional governance framework. This information is used by some investment teams in their country allocation models.

02.3. Indicate if you incentivise brokers to provide ESG research.

02.4. Describe how you incentivise brokers.

APG is compliant with MiFID II and as a result has a direct research contract with brokers. We do not disclose the actual amount or percentage paid for ESG research as we consider that confidential.

02.5. Additional information.[Optional]


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

Information about APG's engagement and voting activities is made available to the investing teams using the following tools:

  • The Knowledge Management System,
  • An analysis of country risk data.
  • Alert systems that communicate when relevant new shareholder meeting information becomes available,
  • The disclosure of our voting record, and
  • Regular joint meetings between the investment and GRIG teams.

Additional ad-hoc requests for specific information can also be made and are handled on a case-by-case basis.


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

APG has minimum standards and an exclusion policy built into its investment processes. On behalf of our clients we exclude companies that are involved in the production, sales and/or distribution of anti-personnel landmines, cluster munitions, chemical and biological weapons, and nuclear weapons made in violation of the Nuclear Non-Proliferation Treaty. APG also expects companies to operate in line with the UN Global Compact principles and, in its Responsible Investment Policy, APG also states that it may exclude companies that fail to act in accordance with the principles of the UN Global Compact and show no signs of changing their practices. The exclusion policy was last evaluated in 2015 and on a semi-annual basis we determine the latest exclusion list of companies. Per January 2018 we exclude 19 companies that are directly, or through ownership, involved in production of anti-personnel landmines, cluster munitions or nuclear weapons in violation of the NPT, we exclude 3 companies that we consider to be in violation of the UN Global Compact principles.

Screened by

Description

APG has minimum standards and an exclusion policy built into its investment processes. On behalf of our clients we exclude companies that are involved in the production, sales and/or distribution of anti-personnel landmines, cluster munitions, chemical and biological weapons, and nuclear weapons made in violation of the Nuclear Non-Proliferation Treaty. APG also expects companies to operate in line with the UN Global Compact principles and, in its Responsible Investment Policy, APG also states that it may exclude companies that fail to act in accordance with the principles of the UN Global Compact and show no signs of changing their practices. The exclusion policy was last evaluated in 2015 and on a semi-annual basis we determine the latest exclusion list of companies. Per January 2018 we exclude 19 companies that are directly, or through ownership, involved in production of anti-personnel landmines, cluster munitions or nuclear weapons in violation of the NPT, we exclude 3 companies that we consider to be in violation of the UN Global Compact principles.

04.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

The exclusion policy including the screening criteria are evaluated and reviewed by the client twice per year.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

          Exclusion policy including implementation is part of our risk management framework, and the process is audited by an external third party.
        

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

The external fund manager or international portfolio manager is instructed to sell the position immediately. An investigation is conducted to assess the background of and reason for the breach of the policy in order to establish whether and, if yes, which additional measures are needed to prevent future breaches.

06.3. Additional information.[Optional]


(C) Implementation: Integration of ESG issues

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate which ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

The percentage for social factors will increase in the run up to 2020 as the Inclusion Policy, which also includes social factors is fully implemented.


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]

Company inclusion classifications and the carbon reduction targets are formally updated on an annual basis. However, portfolio managers/analysts and members of the responsible investment team will have access to so-called pro-forma classifications, which are based on latest input data and thereby can monitor developments between formal update moments.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2a. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.3. Describe how you integrate ESG information into portfolio weighting.

ESG considerations are included into our systematic investment strategies across all portfolio’s, both managed internally and externally . Due to our carbon reduction target, ESG information is integrated in portfolio weighting.  

10.4a. Describe the methods you have used to adjust the income forecast / valuation tool

Proportion of actively managed listed equity exposed to investment analysis

10.2b. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.4b. Describe the methods you have used to adjust the income forecast / valuation tool

On a case-by-case basis, where material, the following approaches are used: Fundamental research, broker research, independent consultants for cash flow forecasts, adjustments to discount rate for ESG risk.

10.5. Additional information.

Many of the above type of indicators are only applicable to active fundamental strategies. APG’s Listed Equity portfolio is managed for more than 50% via active systematic strategies.


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