You selected an `Other` option in table SAM 02.1 above, please specify
Policy, industry initiatives, engagement and voting
You selected an `Other` option in table SAM 02.4 above, please specify
E.g ability to comply with our policy for example on exclusion and our CO2-target
Describe how the ESG information reviewed and discussed affects the selection decision making process.[OPTIONAL]
Regarding LE and FI: If a manager is not a PRI signatory we don't select them as our manager. If an existing manager scores badly in the 'planet' category of the PGGM Selection and Monitoring Framework (SMF), we engage with the External Manager in order to improve integration of ESG risks and opportunities. Combined with a low score in other categories, a low Planet score can be a reason for dismissal
Regarding Private Real Estate: Regarding Private Real Estate:
PGGM invests in a large number of real estate funds and joint ventures throughout the world. ESG considerations are fully integrated into the screening, selection and monitoring processes of real estate funds. Our real estate team seeks out suitable real estate investments throughout the world. Our objective: to achieve a sound and stable long-term return.
We firmly believe that financial and social returns go hand in hand. We also believe that ESG factors influence the risk return profile of our investments. On the one hand, we therefore try to create value and on the other hand we try to reduce the risks associated with ESG factors. The following example illustrates our approach. In various locations throughout the world we invest in existing, somewhat older office buildings. We believe that we can add value by making these office buildings future-proof. This goes hand-in-hand with investments in the exterior and interior of the building. We want to significantly reduce energy use. Sometimes we are amazed how you can significantly reduce energy use with just simple measures.
PGGM, as a shareholder in funds, also asks for attention to be devoted to the real estate portfolio’s sustainability. We insist on the need for having proper insight into the energy and water consumption of the buildings in which we invest. Only then is it possible to take sensible measures that reduce this consumption. Over the course of 2019, PGGM has increased its energy consumption and water consumption data coverage and is working hard towards more asset-level data.
In shareholder meetings we challenge the management of real estate funds to set firm objectives in this area. We are now seeing real estate funds that are aiming to have a carbon-neutral footprint by 2030. However, we cannot make the world more sustainable by ourselves. This is why PGGM, in an industry context, works on sustainability reporting requirements for real estate funds through organizations such as INREV. The greater our insight, the better we can direct our efforts.
PGGM also supports initiatives such as GRESB. The more parties provide insight into their sustainability performance, the better. This puts pressure on the entire market. Last year, 96 percent of the funds in which PGGM Private Real Estate has invested, took part in the study – the last four percent concerns maturing investments. As such the real estate funds selected by us comply with our requirement that they must report in GRESB terms, so that we have proper insight into the degree to which they integrate sustainability into their operations. Of our real estate funds, 95% (with a €12.7 billion real estate value) received a green star in the GRESB methodology. A green star in fact means that sustainability policy and management are good and that results are measured in terms of energy use, CO2 emissions, water consumption and waste management. 35% of our portfolio, 29% a year earlier, performs in the highest GRESB category. These real estate funds are in the upper twenty percent of the relative GRESB rankings.
The most recent GRESB scores clearly indicate that the PGGM Private Real Estate investment portfolio structurally improved more than the benchmark. While the rest of the real estate world is taking steps towards increased sustainability - clearly indicated by GRESB for years - we are progressing faster. At the same time, the real estate portfolio managed by PGGM also shows a structural financial outperformance in relation to the index. In other words, our real estate yields relatively more financial return and has a relatively high degree of sustainability. While we need longer data series to be able to determine whether sustainability pays off financially, for us this is proof that financial return and sustainability (avoidance of CO2 production) can go hand-in hand. With this message we are engaging our real estate managers throughout the world.
Regarding Private Equity: In the selection stage, we make an assessment of our investment partners to determine that ESG risks and opportunities will be treated appropriately and in line with our responsible investment strategies and beliefs. In order to integrate ESG into the investment process, the first step involves completion of the ESG questionnaire by the respective private equity deal team during the due diligence phase. This questionnaire, our ESG Integration Assessment, has seven questions drawing from the PRI’s Due Diligence Questionnaire. It includes metrics such as RI policy and responsibility in the fund, involvement in industry initiatives (i.e. UNPRI signatory), ESG integration in day-to-day activities, ESG monitoring, and ESG reporting, resulting in a score of 1 (worst) to 5 (best). The PGGM PE team uses the framework to score the GPs in the due diligence period before investment and then also for monitoring. The scoring of GPs is summarized within the final investment proposal (FIP), the document upon which the relevant Investment Committee(s) take a decision on whether or not to commit. During the deal team process, PE investment professionals, challenged by the Risk Analysis team and supported by the RI team when necessary, consider the ESG risks and opportunities of each investment. The PE Investment Committee is committed to showing an improvement in ESG implementation within the portfolio over time.
With regard to Infrastructure, PGGM is mainly making direct investments, the PGGM fund investments are largely on a run-off path, hence new manager selections are currently made. The ESG assessment can have effect on the existing fund investments in case they exhibit severe underperformance, which is not the case.