Fund Solutions

New Tools, Data, Skills Needed for Sustainable Investment Revolution

PGGM investment chief calls for sector-wide conversation on impact. 

Asset owners need to demonstrate more flexibility and innovation in their approach to sustainable investing, according to leading asset owners speaking at the Alpha Summit event hosted by the CFA Institute this week.  

“When achieving long-term sustainable investment, the investment process of the last 30 years is not the one we should use for the next 30,” said Jaap van Dam, Principal Director of Investment Strategy at Dutch pension fund provider PGGM. 

“The investment process has previously been a narrow focus on financial outcomes, with investors disconnected from the real world. But humanity now faces serious constraints that need solutions – climate change, biodiversity loss, and so on. Society wants us to play a role in solving these issues.” 

Getting to grips with impact 

To be effective in sustainable investing, asset owners must understand the real-world impact of investments, rather than only focusing on managing risk, van Dam said.  

Although a growing number of investors are investing to have a positive real-world impact, the overall pace of change has been gradual to date. The fifth edition of the Global Sustainable Investment Alliance’s biennial review highlighted that US$35.2 billion in assets was being managed under impact investing strategies, compared to US$24.8 billion in 2016. 

PGGM has implemented a “3D perspective” that accounts for risk returns, impact and sustainability throughout the investment process, van Dam said. 

“What are the actual impacts of these invested large pots of money? How do we measure whether our capital contributes or detracts? What does long-term sustainable performance actually mean to the asset owner investing their money? The conversation needs to be had,” he said.  

Geoffrey Rubin, Chief Investment Strategist at the Canada Pension Plan Investment Board (CPP Investments), added that asset owners needed to develop a key understanding of what they are trying to achieve through their sustainable investments, as well as the potential constraints that need to be accounted for.  

“It’s this notion of ‘know thyself’,” Rubin said.  

Solutions and frameworks are being developed to help asset owners and managers compare the impact-related performance of their investments against peers.  

In March, the Global Investing Impact Network (GIIN) launched the beta Financial Inclusion Impact Performance Benchmark, which will provide investors with data across a set of KPIs assessing financial opportunities, resilience and economic development within the financial services sector. GIIN will introduce other impact benchmarks to provide investors with decision-useful data across a wide variety of sectors to best inform impact investing strategies.  

Launched in November and coordinated by five-year consensus-building forum the Impact Management Project, the Impact Management Platform was designed to help improve cohesion between existing standards and support impact-related dialogue between the investment industry and policymakers. 

Understanding the data, working outside of siloes 

To consider impact alongside risk and returns, investment professionals will need to adopt a new and adaptable set of skills, both Rubin and van Dam said.  

As AI and data play an increasingly bigger part in designing, creating and maintaining sustainable investment portfolios, investment professionals must be able to understand and use data effectively, they noted. 

“New investment professionals have to be data savvy,” said Rubin.  

Investors have previously cited challenges sourcing transparent, comparable and reliable data to ensure investee companies are addressing ESG-related risks, impacts and opportunities. Asset owners and managers have turned to third party vendors to provide them with decision-useful ratings and scores, which can be costly. 

Scores also “vary strongly depending on the provider chosen”, according to a 2020 report by the Organisation for Economic Co-operation and Development.  

“Investors need to do the hard work of clarifying exactly what their investment objectives are before they settle on measurement techniques and what kind of data they need,” Rubin noted. 

Asset owners should further look to operate outside of siloes, PGGM’s van Dam said.  

“Change will be faster than it has been historically, so new investment professionals should be willing to bring a change in mindset to the table and reinvent themselves throughout their career.” 

Rubin said asset owners should look to hire and develop ‘T-shaped workers’, individuals who have deep knowledge and specific skills in one specialised area, but they have the ability and flexibility to apply themselves across different disciplines.  

“This is the way our industry is going. Asset owners with teams of T-shaped workers will be able to cover a much wider swath of the relevant investment universe with a workforce that is curious and engaged with one another, as opposed to operating in their different departments,” Rubin noted.  

In February, CPP Investments, which manages C$550 billion (US$432 billion) in assets, announced its intention to pursue carbon neutrality by 2050 via an active engagement strategy. 

PGGM (€268 billion AUM) has committed to one fifth of its investments across all asset classes being linked to UN Sustainable Development Goals, specifically climate and healthcare, by 2025.  

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