(November 6, 2013) — Dutch pension supremo PGGM, which manages €150 billion in healthcare sector pension assets, has laid out a handy guide to impact investing for other investors interested in the sector.
Impact investing, which takes the ethos behind social, responsible investing and environmental, sustainable, and governance investing a step further, has been gaining momentum over the past few years and PGGM has been deeply involved in the sector.
One major proponent of impact investing is private equity godfather Sir Ronald Cohen, who helped launch Bridges Ventures, a fund manager that invests in social projects around the world. He told aiCIO that his latest mission was to get more institutional investors involved in the sector.
Tim van der Weide, PGGM’s advisor for responsible investment, has published the following outlines for those wanting to get in on the act.
1. How we do it at PGGM
“Our definition is that our impact investments have to meet regular financial criteria, but at the same time they have to have the intent of societal impact. That is measurable so we can account for the impact to the pension funds whose money we manage and their beneficiaries. Our process is that we don’t label afterwards, if it is impact investment it needs to be taken into account in the due diligence, because it means we want to measure the societal impact of that investment.”
2. Step one: look at what the pension fund is
“One first step in designing an impact investment strategy is to look at what client preferences are and start investing in a theme that’s very close to the fund. You need an alignment with clients, that is financial alignment and also impact alignment, what the clients want. I think what your clients think are important issues is important. In the Netherlands many pension funds are sector related, so impact may start with their sector. For example, we work for the health care sector among others so we’re also looking at impact investment in health care sector.”
3. Involve the participants of the pension fund
“Our largest client surveys their beneficiaries every quarter on what they think about responsible investing and whether we should do more. There are an overwhelming proportion of beneficiaries that respond positively. The beneficiaries themselves are a driving force in ultimately driving PGGM to invest in impact investments for our clients.”
4. Interweave the strategy for impact investing in the entire portfolio
“We support investment teams on how impact investment could be incorporated into their decisions. We are organised in a way that every investment team should be looking for these types of investments. So we don’t have a separate team that solely does impact investment.”
5. Give impact investments this stamp from the start
“There is no difference in terms of due diligence in how we assess our impact investments compared to other investments. The only thing is that we are more stringent on labelling them as [impact investments] because they have to meet certain criteria to be labelled as such.There is added due diligence to determine whether they are truly sustainable.”
6. Turn to external consultants when necessary
“Use of external resources to assist in due diligence may be necessary if an investor does not have the necessary in-house expertise. We sometimes have external advisors to assess the sustainability, but that is normally done on an ad-hoc basis depending on the nature of the investment.”
7. In all cases, set targets on the minimum impact investments to realize
“The way these deals originate is still a little unstructured. Right now they can originate through our responsible investment department, through meeting somebody who has a great fund or great opportunity. They also come through the more ordinary processes that we have – for instance through our private real estate portfolio or infrastructure deals, deals may pop up that also have a societal impact. We set targets on the total amount of impact investments to make sure there is a focus on seriously looking at them.”
Related content: Your Next New Asset Class: Impact Investing & Taking a Hit for Impact Investing: How Big Funds Can Encourage Smaller Peers