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APG Asset Management

PRI reporting framework 2020

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe We map risks for increasing technological developments and improvements through deterministic scenarios under the title “good globalization" (similar to a 2-degree scenario). In ALM studies this scenario shows lower investment risks and substantially increases in the coverage ratio of the pension fund, allowing for a yearly inflation indexation.
Describe See question 13.4 for an elaborate discussion on climate change scenario analysis undertaken.

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]

APG works with pie-charts to score asset classes on various characteristics (e.g. return, risk, diversification, interest rate hedge and inflation hedge factors, costs, complexity and liquidity). In response to client request, APG has also developed a pie-chart characteristic for responsible investment and applies this to all asset classes. APG Fiduciary Manager developed a methodology that provides insights into the potential of asset classes to contribute to the objectives of the sustainable and responsible investment policies of our clients. These results are included in the review of the Strategic Investment Plans. In addition, they are part of the mandating cycle, particularly as part of the Framework.


SG 13 CC.

13.4 CC. Describe how your organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, its results, and any future plans.

Describe

In 2018, we have mapped climate risks and opportunities in the portfolio by using scenario analysis. We have used both a 'business-as-usual' scenario and a '2-degrees' scenario. On a sector level, we have assessed the most significant climate factors, and how these may impact on growth and cost levels in the sector. We have done this for 26 economic sectors covering roughly half of the portfolio, using the time horizons 2022 - 2030 - 2040. In 2019, this analysis has been extended to cover sovereign debt. The majority of countries within the investable universe have been assessed using a similar setup and similar time horizons.

The image that arises from this analysis is that the effects of climate change are large and comprehensive in 2040. In the run-up to 2040, the transition is gradual for a global and diversified portfolio such as APG's portfolio. However, the transition can be accompanied by disruptive changes and unexpected inflection points that we will have to monitor closely.

Before 2030, we see major transitions already taking place in the 2-degree scenarios, with corresponding risks and opportunities, in particular for the following sectors: utilities, real estate, cement, oil & gas, aerospace, food and consumer goods, automotive, semi-conductors and electrical equipment, agriculture, chemicals and the construction sector.

Sectors that are especially vulnerable, but also show opportunities, for the physical impact of climate change are in particular: agriculture, forestry, real estate, oil & gas, food processing, road and rail transport, mining, utilities, health care, construction and water utilities.

From the analysis on climate risks in sovereign debt, we have concluded that exposure to countries with a high climate risk (physical and transition) is very limited and roughly equal to the exposure of the benchmark.

Apart from mapping the sector effects, we have also included climate factors in the macro-economic models that have been used in the strategic investment plan. Two scenarios in particular ('the climate trap' and 'good globalization') have included the possible effects of climate change for growth, inflation and other economic variables.

We will perform a second iteration of the scenario analysis in 2020.  

Describe

As part of our active, long-term approach to investing, portfolio managers integrate climate factors into their investment processes, Some examples are: Accounting for carbon pricing, reduced volumes of fossil fuels and other financial impacts in investment cases, e.g. a 15% annual reduction in coal transport for investments in US rail transport companies.

  • In illiquid asset classes, an investment rationale focused on next-generation assets. Long-term risks are included in due diligence and subject to sign-off by the GRIG team.
  • Analysis of companies' transition strategies and capex plans, particularly in transition sectors such as oil& gas and automobiles.

Describe

For many years APG has been engaging with companies on climate change and the energy transition. The scenario analysis has highlighted climate related risks and opportunities in other sectors which are perhaps less obvious, such as food and agriculture. These insights will be used in our further engagement with companies and investments on the impacts of climate change.

13.5 CC. Indicate who uses this analysis.

specify

          Risk Management / clients
        

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.

Describe

Depending on the specific investment strategy, the time horizon of the investment is shorter than the time horizon used in the scenario analysis (up until 2040).

13.7 CC. Indicate whether a range of climate scenarios is used.

13.8 CC. Indicate the climate scenarios your organisation uses.

Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          political action and global collaboration
        

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

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

This reflects a target exposure to renewable energy. No specific framework of taxonomy is used.

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

other description

          Overall energy exposure of the portfolio, climate dashboard with 20 indicators indicating speed of the low-carbon transition.
        

14.4. 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 2019 Responsible Investment Report we have published an annex containing TCFD disclosures.

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/

14.5. Additional information [Optional]

Apart from the tools described in SG 14.3, we are tracking a set of 20 indicators to gain insight in the speed of the transition to a lower-carbon economy. Examples of indicators that are tracked are: oil and gas demand, investment in renewable energy, number of EV's etc.


SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Climate-related targets
          To achieve desired exposure to climate-related opportunities
        
          Exposure (NAV) to renewable energy
        
          The total NAV of investments that have exposure towards renewable energy
        
Portfolio carbon footprint
          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.
        
Other emissions metrics
          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)
        

14.7 CC. Describe in further detail the key targets.

Target type
Baseline year
Target year
Description
Attachments
          2015
        
          2020
        
          Renewable Energy
        

          2015
        
          2020
        
          Carbon Footprint
        

          
        
          
        
          
        

          
        
          
        
          
        

          
        
          
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risk management processes used for identifying, assessing and managing climate-related risks.

Please describe

We have established a Climate Risk Policy which describes the climate risk approach. The APG AM Climate Risk Policy covers the entire investment process, from investment beliefs towards evaluation. Climate related considerations are included in the Strategic Asset Allocation, mandating process, portfolio management and in the Annual Mandate Review cycle. This policy is dependent on the availability of tooling and measurements, which is a field still very much in development.

The traffic light model and the climate dashboard are the primary tools for measuring climate related risks and opportunities. These tools are available to the portfolio managers of the different asset classes managed by APG. Investments that are made in areas of the portfolio who are designated ‘high risk’ by the traffic light model, are required to pay explicit attention to climate risk in the investment case, including a rationale why we are prepared to take the risk and how the investment impacts the climate targets of APG and its clients.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

APG is in active dialogue with companies around TCFD adoption. We do this amongst others in the collaborative Climate 100+ engagement. In 2019, we have been able to achieve success in our dialogue with Nestlé. This company announced in October 2019 that it aims to become climate neutral in 2050. The food industry and associated land use are responsible for a quarter of the global emissions. In addition, Oil & Gas company Repsol announced one of the most ambitious climate goals in the sector thus far. The company aims to reduce its net emissions to zero in 2050, which covers not only their own emissions but also those of their clients. Finally, Oil & Gas company BP agreed to enhanced climate disclosure and developing a Paris aligned strategy.


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

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.

15 %

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

15 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

APG actively seeks out attractive investments that deliver products and services that contribute to the UN SDGs (so-called Sustainable Development Investments). For this purpose, we denote the investments contributing to SDG 7 – Affordable & Clean Energy.

Asset class invested

15 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

APG actively seeks out attractive investments that promote sustainability such as renewable energy. We measure our investments in renewable energy and clients have established a target to increase the exposure to Renewable Energy investments to €5 bln in 2020.

Asset class invested

50 Percentage of AUM (+/-5%) per asset class invested in the area

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

100 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

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

Asset class invested

100 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

All of our farmland investments adhere to the Responsible Farmland Principles. In addition, all of our farmland managers have signed a zero-conversion policy.

Asset class invested

5 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

As part of a client target to contribute to education, we measure education related investments in real estate and infrastructure. A large part of these investments are in student education and school infrastructure.

Asset class invested

5 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

APG actively seeks out attractive investments that deliver products and services that contribute to the UN SDGs (so-called Sustainable Development Investments). For this purpose, we denote the investments contributing to SDG 3 – Good Health & Wellbeing

          communication technology
        

Asset class invested

10 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

As part of a client target to contribute to education, we measure communication technology related investments in infrastructure.

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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