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APG Asset Management

PRI reporting framework 2018

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

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

13.1. Indicate if your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at portfolio level is calculated.

Is this scenario analysis based on a 2°C or lower scenario?

          Economic analysis, impact on asset allocation
        

SG 13.1a CC. Pleased describe the resilience of your organisation’s strategy, considering different future climate scenarios.

Strategy affected
Changes to strategy
Description of scenario and time-horizon
How analysis has been used
          The value of our investments could be significantly, negatively influenced by climate change. For example, through policy risks, technology risks, changing consumer demand preferences or physical impacts. 

On the other hand, we identify investment opportunities that contribute to a low-carbon economy, such as renewable energy, energy transmission, energy efficiency and water management.
        
          We have adopted various mitigating measures with respect to climate change. For example, our clients have adopted a carbon reduction target for the Listed Equity portfolio and have set targets on desired exposure towards sustainable investments, Renewable Energy and SDGs. In addition, we have set internal guidelines, for example with respect to the exposure to coal in illiquid asset classes.
        
          We distinguish between a ‘business-as-usual’ scenario which represents the situation where there is an ineffective or late response to climate change by policy makers, and a ‘faster transition’ (2-degree) scenario in which a faster but gradual transition is started which ensures climate change is slowed down and temperature increases stay within 2 degrees.

In terms of time-horizons, we distinguish between the short term (0-3 years), medium term (3-10 years) and long term (>10 years).
        
          In response to the scenario analysis, APG has conducted an analysis into the potential effects of a faster transition (2-degree scenario) on its investments related to energy. Various recommendations came out of this analysis which have since been used in investment analysis, especially within illiquid investments with a longer time horizon.
        

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]


SG 14. Long term investment risks and opportunity

14.1. Describe the process used to identify short, medium and long-term risks and opportunities that could have a material impact on your organisation and its activities.

As part of the Tactical, Dynamic and Strategic asset allocation processes, scenario analysis is used to determine key-risks which are subsequently discussed with our clients and addressed in the asset allocation.

14.1 CC. Describe the processes used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisation and its activities.

Risks and opportunities related to climate change are primarily gathered through a bottom-up process involving the portfolio managers of the various APG Building Blocks (= asset classes). As part of their investment analysis they take climate risks on the short, medium and long-term into account

APG’s GRIG team has a coordinating role, including dedicated resources and managerial responsibility to further the climate change agenda across the organization, as part of the company-wide strategy AM2020.

14.2. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following you act on.

14.2a cc. Please describe how you define “short”, “medium” and “long term”, and describe your material climate-related issues over these time horizons.

Definition
Description of material climate-related issues
Short term
          0-3 years
        
          We reckon that  in our diversified global portfolio climate-related risks  will not materialize for us in the short term but rather in the medium and long term.
        
Medium term
          3-10 years
        
          We distinguish the following risks which we believe are relevant to us in the medium term: 

Policy risk: The consequences of more stringent climate policy for companies and investors, e.g. the introduction of a CO2 price, stimulus policy with respect to cleaner alternatives or restrictive policies on CO2 intensive industries.

Technology risk: The consequences of the availability of cleaner alternative technologies that will replace CO2 intensive production methods or products (e.g. EVs or wind energy) and/or the results of reduced usage of fossil fuels through energy efficiency. 

Preferences of consumers: The consequences of changes in demand for products due to changing preferences of consumers towards cleaner alternatives (e.g. energy demand).
        
Long term
          >10 years
        
          We distinguish the following risks which we believe are relevant to us in the long term: 

Physical impact: The consequences of changes in weather patterns including a higher frequency and intensity of extreme weather events (floods, damages from storms), as well as the structural changes in weather patterns (e.g. draught).
        

14.3. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

14.4. Indicate which of the following tools you use to manage emissions risks and opportunities

other description

          Overall energy exposure of the portfolio
        

14.4a CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Metric Trend
Limitations / Weaknesses
Climate-related targets
          Full portfolio
        
          To achieve desired exposure to climate-related opportunities
        
          Exposure (NAV) to renewable energy
        
          The total NAV of investments that have exposure towards renewable energy
        
          Upwards
        
          Limited data availability on specific exposure of investment to renewable energy generation makes it hard to determine the exact exposure
        
Portfolio carbon footprint
          Minority (only Listed Equities)
        
          Achieve reduction of carbon footprint (is taken into account in investment decision)
        
          Absolute emissions / Normalized Invested Value
        
          The absolute carbon footprint is defined as the share (equity stake) of APG  in the scope 1+2 emissions of the companies in which is invested. 
The denominator is invested value. We correct the invested value to avoid the impact of large changes in market value of the portfolio as well as client allocation decisions on our carbon footprint.
        
          Downwards
        
          Data availability, metric is only backward looking
        
Exposure to carbon-related assets
          Full portfolio
        
          Monitor climate-risk exposure of portfolio
        
          NAV exposure to carbon intensive industries / total NAV
        
          We use a definition for carbon intensive industries as set by the regulator (Dutch Central Bank)
        
          Upwards
        
          Underlying dynamic of metric is not clear (e.g. driven by NAV growth or allocation effect)
        
Other emissions metrics
          Minority (only energy investments excl. liquid commodities/futures)
        
          Monitor climate/energy exposure of portfolio
        
          NAV exposure to various energy sources (e.g. coal, oil, gas, renewables) / NAV of energy investments
        
          Metric applies to the energy investments only
The metric is based on a look-through analysis of the portfolio. Where relevant data is available, we have further split up our position within companies towards the various fuel sources (e.g. in integrated Oil & Gas or Utilities)
        
          Coal - downwards
Oil & gas - stable
Renewables - upwards
        
          Data availability, no alignment analysis yet
        

14.4b CC. Please describe in further detail your key targets.

Target type
Time Frame
Base Year
KPI
Target Methodology
Limitations / Weaknesses
Attachments
          2020
        
          2015
        
          Reduction of 25% in  Absolute emissions / Normalized Invested Value
        
          The absolute carbon footprint is defined as the share (equity stake) of APG in the scope 1+2 emissions of the companies in which is invested. 
The denominator is invested value. We correct the invested value to avoid the impact of large changes in market value of the portfolio as well as client allocation decisions on our carbon footprint.
        
          Only backward looking, not forward
        

          2020
        
          2015
        
          To have €5 billion invested in renewable energy
        
          The total NAV of investments that have exposure towards renewable energy
        
          Limited data availability on specific exposure of investment to renewable energy generation makes it hard to determine the exact exposure
        

14.5. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

APG and its clients have signed the Montreal Pledge and as such we are committed to measuring publicly disclosing the carbon footprint of our investment portfolios on an annual basis.

APG and our clients are committed to TCFD-style reporting and in the 2018 responsible investment reports we will take the first steps in doing so.

As part of a request by the Dutch regulator (DNB), we have reported on the percentage of NAV exposure to carbon intensive industries in line with their definition.

Together with a group of other Dutch Financial Institutions (PCAF) we have contributed to writing a report about approaches to carbon footprinting in various asset classes. The way we calculate our carbon footprint for the Listed Equity portfolio is largely compatible with the PCAF report. This report is available via  http://www.carbonaccountingfinancials.com/

14.6. Additional information [Optional]

14.7 CC. Describe your risk management processes for identifying, assessing, and managing climate-related risks.

Please describe

Climate-related risks (and opportunities) are primarily managed within our so-called Building Blocks (asset classes). There the specific knowledge is present about how climate considerations affect the investments within the Building Block and how these should be managed. Therefore, climate change is currently mostly embedded within the first line of defence within our risk management framework. We will be working in the future to embed climate change into the broader risk management framework.

14.8 CC. Describe your processes for prioritising climate-related risks.

Climate-related risks (and opportunities) are prioritized within our so-called Building Blocks (asset classes) by the specialized investment teams.

14.9 CC. Do you conduct engagement activity with investee companies to encourage better disclosure and practices around climate-related risks?

Please describe

We monitor the vision of our portfolio companies on the energy transition and we engage with companies on this topic if we assess that their action is insufficient. For example, we participated in a collective engagement with Exxon Mobil Corporation on climate change disclosure, urging the company to annually disclose how it proposes to deal with potential policy measures for combatting climate change, including the strict measures associated with a 2-degree scenario. As the company did not sufficiently respond to our request, we decided to support and co-file a shareholder resolution, which was filed by New York State Retirement Fund and the Church Commissioners for England. The resolution received 62% support at the 2017 AGM of Exxon Mobil Corporation. In a similar way we co-filed resolutions at the AGMs Anglo American, Glencore and Rio Tinto in the past.

Other engagement initiatives:

  • We engaged on carbon emission disclosure with utilities in USA and our top-200 investees in emerging markets;
  • In China, we are engaging with the utility sector on climate risks and stranded assets;
  • We also collaborate in a collective engagement on mitigating deforestation in the palm oil and cattle sectors;
  • Together with other Dutch and UK investors we have engaged with Shell to set carbon reduction targets and be part of the energy transition;
  • During 2017, we have contributed to setting up the collaborative Climate Action 100+ engagement. This engagement initiative led by investors, aims to engage with the world’s largest corporate greenhouse gas emitters to improve governance on climate change, curb emissions and strengthen climate-related financial disclosures.

14.10 CC. Describe how you use data from climate-related disclosures.

We use data from various disclosure sources to inform our climate-related risk management approach:

  • We use emissions data disclosed by companies or estimated by a data provider for calculating the carbon footprint of our Listed Equity portfolio;
  • We use data obtained through the GRESB Real Estate and Infra benchmark to measure and monitor the performance of our investments in Real Estate and Infrastructure with respect to energy efficiency and climate change resilience;
  • We use disclosures from companies to inform ourselves about the strategy of the company in relation to climate change.

SG 15. Allocation of assets to environmental and social themed areas

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

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

11 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

% of AUM

Brief description and measures of investment

APG actively seeks out attractive investments that promote sustainability. We are significantly increasing our investments into sustainable solutions and refer to such investments as Sustainable Development Investments (SDIs). These investments must fulfil the regular risk return requirements, and support the generation of positive social and/or environmental impact through their products and service, or at times through acknowledged transformational leadership. These may include investments in sustainable energy, drinking water and waste water purification, waste disposal, schools, and hospitals.

Asset class invested

% of AUM

Brief description and measures of investment

APG considers Real Estate investments with a 4 & 5 star rating in the GRESB model as Green building portfolios/investments.  

Asset class invested

% of AUM

Brief description and measures of investment

Our forestry investments have to meet minimum requirements addressed by standards of the FSC or an equivalent certification scheme.

Asset class invested

% of AUM

Brief description and measures of investment

We have contributed to the development of sector guidelines for the investment community as a whole. Together with a group of institutional investors we launched the Principles for Responsible Investment in Farmland in 2012 with the goal of improving the sustainability, transparency and accountability of investments in farmland and continue to use these guidelines when investing in farmland assets.

The Farmland Guidelines have been adopted by the PRI and provide institutional investors with guidance on:

  • Promoting environmental sustainability;
  • Respecting labour and human rights;
  • Respecting existing land and resource rights;
  • Upholding high business and ethical standards; and
  • Reporting on activities and progress towards implementing and promoting the Principles.

Asset class invested

% of AUM

Brief description and measures of investment

We hold investments that provide solutions to sustainable development challenges, such as microfinance.

Asset class invested

% of AUM

Brief description and measures of investment

APG actively seeks out attractive investments that promote sustainability. We are significantly increasing our investments into sustainable solutions and refer to such investments as Sustainable Development Investments (SDIs). These investments must fulfil the regular risk return requirements, and support the generation of positive social and/or environmental impact through their products and service, or at times through acknowledged transformational leadership. These may include investments in sustainable energy, drinking water and waste water purification, waste disposal, schools, and hospitals.

Asset class invested

% of AUM

Brief description and measures of investment

APG actively seeks out attractive investments that promote sustainability. We are significantly increasing our investments into sustainable solutions and refer to such investments as Sustainable Development Investments (SDIs). These investments must fulfil the regular risk return requirements, and support the generation of positive social and/or environmental impact through their products and service, or at times through acknowledged transformational leadership. These may include investments in sustainable energy, drinking water and waste water purification, waste disposal, schools, and hospitals.


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