Case study by APG Asset Management
APGs infrastructure team invests on a global basis, primarily in unlisted equities in infrastructure businesses. We invest in all infrastructure sectors, including transport, energy, utilities, telecommunications, and social infrastructure such as hospitals and schools. ESG aspects form an integral part of our investment process. We exercise our shareholders rights and take account of environmental and social issues in our investment decisions. When considering an investment or when invested in a fund or an asset, we ensure that environmental, social and governance risks are understood. Where they are potentially material in terms of financial and/or reputation, such risks should be avoided or mitigated.
- Our approach to responsible investment in infrastructure is based on APG’s Responsible Investment Policy.
- ESG issues are considered at all stages in the investment process through a detailed ESG due diligence questionnaire.
- Sign off from the ESG department is required before an investment can be made.
Mainstreaming ESG considerations
The role of ESG within infrastructure should be read in the context of APG’s Responsible Investment Policy and how we implement the policy on behalf of our clients, for example Dutch pension funds. The policy has three main goals:
- to contribute to risk-adjusted financial returns;
- to demonstrate social responsibility;
- to contribute to the integrity of financial markets.
Several infrastructure investments that help APG achieve its risk-return objectives at the same time make significant contributions to addressing major environmental and/or social challenges. This includes investments in renewable energy, water and wastewater services, environmental services, and schools and hospitals. Through our direct and indirect investments, we actively seek to source investment projects that provide this double benefit to our clients.
“When considering an investment or when invested in a fund or an asset, we have developed an ESG due diligence questionnaire to ensure that environmental, social and governance risks are understood and factored in.”
Sander Paul van Tongeren (Senior Sustainability Specialist Global Real Estate and Infrastructure) APG Asset Management
Integrating ESG considerations in investment decision-making
When considering an investment, we ask the external manager to complete a due diligence questionnaire. ESG-related questions include:
- whether the manager is a signatory to the PRI and if they support the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the Universal Declaration on Human Rights and the ILO Core Labour Standards;
- if it has an ESG policy in place and if it publishes a report on its responsible investment activities;
- to describe how ESG factors are integrated into every stage in the investment process, from investment appraisal/due diligence, through ongoing management, to exit;
- to describe the key ESG risks associated with the investments proposed, and how these will be managed and mitigated, and what indicators or metrics will be used to monitor these risks;
- to indicate the ambition level with regard to offsetting or mitigating the negative environmental or social impact: partial, full or how far beyond the minimum required compliance levels?
When negotiating agreements for funds we aim to agree on specific ESG criteria and restrictions. Where possible we will use our role on advisory boards and other positions to exercise positive influence over ESG performance in both our externally managed infrastructure funds and our co-investments. In the dialogue with companies we make clear what standards we expect in relation to sustainability and shareholder rights. We work together with other investors when we believe that such cooperation helps achieve our objectives. Where possible, for both fund and co-investments, we ask managers to list potential ESG risks and to draft related action plans how to address them. In the annual reports of the manager, a summary of the ESG risks and performance is enclosed, highlighting progress against previous periods.
Investment proposals are subject to review and approval by the APG infrastructure team, the Alternative Investment Committee (AIC), and if necessary, the Committee of Investment Proposal (CIP), which is chaired by our Chief Investment Officer. Before we make a commitment to a fund, the effectiveness of the proposed governance structure is assessed. This assessment focuses on the appropriate checks and balances that need to be in place to ensure a rigorous investment decision process. In general we would expect that unanimous approval by an investment committee that is independent from and/or superior to the deal team proposing a transaction is required. The role of the investment committee in such a structure is to assess the fit of the investment opportunity to the documented mandate and to challenge the investment case.