Jane: [00:00:00] Hello, and welcome to the LSEG Sustainable Growth podcast, where we talk to leading experts about sustainability and finance. I'm Jane Goodland, and this week we're talking to Claudia Kruse, who's the chief sustainability and strategy officer at APG Asset Management, which manages over €500 billion on behalf of Dutch pension funds, most notably ABP, which is the pension fund for government and education sector employees. Claudia is a well-known expert in sustainable investment, having worked with a number of asset managers over the years. And she's also on the board of the Institutional Investors Group on Climate Change. And for a number of years, she was on the board of the International Corporate Governance Network. Before we hear from Claudia, a quick reminder to follow us so you don't miss any future episodes. And also, don't forget to rate us on Spotify, Apple Podcasts, or any other platform you use.
Claudia: [00:01:05 ] Thank you so much, Jane. Great to be here.
Jane: [00:01:08] Now I did say that you're a well known expert in the field, and so many of our listeners will have heard of you before. But for those of us who haven't kind of followed your career tell us, tell us about your career and also your role today.
Claudia: [00:01:21] Yeah. So I entered the field of responsible investing in 2000, initially with a research provider in London, and then I joined a buyside company doing a lot of company engagement and corporate governance, then moved to the sell side in London. And since 2009, I'm with APG in the Netherlands, initially joined as a sustainability specialist and have been heading up the team since 2011 and most recently, as of the beginning of this year, I've taken on a more strategic role working with our CEO on sustainability and strategy.
Jane: [00:01:57] Excellent. Sounds good. So you're very qualified to kind of be here and talk about the topics we're going to talk about today. And you'll have seen a lot of change in the industry as well. So we might kind of pick up on a bit of that later on. But I'd be curious just to sort of understand a bit more about the relationship between APG and ABP and some of the other clients that you work for, just so that we're super duper clear about kind of the relationship and the difference between those organisations.
Claudia: [00:02:24] Yeah, absolutely. I think that is really key. So the Dutch pension fund system is such that you have very large sectoral pension funds, and we serve a number of Dutch pension funds, and we are the fiduciary manager to them. So we are owned by asset owners. They are our largest shareholders and we also serve them and only serve them. That means that they set the investment policy and we implement on their behalf. And as APG, we also have a pension administration part of the business. We serve 1 in 5 Dutch families, or more than 4.6 million participants in the Netherlands. So companies like us, we have a very strong societal role to fulfil, as do, of course, our pension fund clients and our CEO Annette Mossman. She, for example, is very much focussed also on the topic of financial literacy, especially for women. So we do take that wider responsibility very seriously.
Jane: [00:03:21] I think it actually unlike some asset managers, APG has got really high profile in the Netherlands because of this kind of penetration in the pension fund market. So it's really important that you ensure that you're meeting the needs of those end savers as well. Okay. So let's talk a bit more about APG’s responsible investment philosophy and approach. Tell us a bit more about that.
Claudia: [00:03:42] Yeah. So, you know, we are very dedicated to providing good and affordable pensions to the beneficiaries of our pension fund clients. And we also would like to contribute to a more sustainable world and a more sustainable economy. And we believe that that is possible by investing responsibly. So the view that we take is that when investing, what matters is risk, return, costs and the sustainability profile of the investments that we make.
Jane: [00:04:13] So how does that then manifest? You talked earlier a bit about your pension fund clients have they set the policy and then you implement it. Is that different policies for different clients, or how does that kind of play out in real terms in terms of portfolio management?
Claudia: [00:04:28] So our clients are very explicit in the expectations that they have and the investment policy that they define. ABP has defined very clear investment beliefs, and two of those relate specifically to responsible investing. And that links to the balanced assessment of risk, return, cost and sustainability. And it also links to the fact that we know we have an influence on society, and society has an influence on us. So there is a there's an interaction between the investments that we make and, and the society that that we live in.
Jane: [00:05:10] So can you tell us a bit more about APG’s responsible investment philosophy, but then also how that kind of manifests in real terms?
Claudia: [00:05:20] Yeah, absolutely. So our clients have a very large and diversified portfolio, and it is that portfolio that we need to manage responsibly on their behalf. ABP has defined investment beliefs, two of which relate directly to responsible investing. And a core belief that we have is that investments have to be assessed in terms of risk, return, costs and the sustainability profile of those investments, and that really guides us in the investment decisions that we take across all asset classes. And every asset class, of course, is different. So we do have to take a bespoke approach to those. Some of them lend themselves more towards stewardship activities, and others lend themselves very much to delivering on investment targets. Investing in solutions to help address sustainability challenges that we face. And I think, you know, as the asset manager, the fiduciary manager, the pension funds, it is our duty as well to be at the forefront of industry developments. So we have long been investing into technology, into AI, really trying to find the best possible solutions in a cost effective manner to be able to deliver affordable pensions to our clients. And it is sort of that twin belief that we can help them to provide affordable pensions to their participants, and that we can contribute to a sustainable economy at the same time.
Jane: [00:06:51] And so your job, Claudia, are you kind of directing portfolio management teams or guiding and supporting those teams to embed sustainability factors into their investment process, or is that kind of already done and sort of matured? Where are you on this journey of integration?
Claudia: [00:07:10] Yeah, so as a company, what we have done, we've recently really stepped up again in capacity to in terms of our expertise across the firm. Our approach is one whereby portfolio managers, of course they select the investments. So they have to have the expertise supported by responsible investment specialists to be able to identify investments, to engage with them, to monitor them, and also to decide when is it no longer appropriate to remain invested in a certain entity. Then we also have a very strong risk department who has dedicated expertise and keeps growing its team in order to provide the risk assessment. The second line risk assessment developing tools for monitoring the portfolio's climate risk exposure and others. We have a fiduciary department, which, in the setup of a Dutch pension fund system, is the one that advises the clients on its policies. And then also operations are, for us, a key department in delivering on this, because having a sound digital and data infrastructure is core to being able to provide sustainable investment solutions to our clients. Yes, we've been at this for a very long time, and our portfolio managers certainly really have stepped up in terms of expertise and dedication. But this is a continuous process whereby we invest into training, we invest into knowledge exchange internally, but also very much with our external partners. May they be from the scientific community, from the NGO community and others to ensure that we are up to date in terms of our knowledge and can also reflect that in the approaches that we take.
Claudia: [00:08:58] our pension fund clients are very clear that they would like to make a choice not only about what should not be in the portfolio. And those are some product linked choices that have been made. But also what is it that should be in the portfolio? What is included? Where do we want to invest in? And for that, we have developed a number of proprietary approaches really clearly defining the ESG criteria. So the environmental, social and governance criteria that the companies that we invest in on behalf of our clients have to meet. So that is an upfront assessment. But it is also dynamic in terms of continuing to look at do companies still meet these criteria? Then our expectations evolve over time. And of course, we engage with companies where we believe that they should really improve and demonstrate that they uphold the standards that we would expect of them.
Jane: [00:09:57] So leading on from that engagement point, Claudia, I want to talk a bit about corporate governance, and I'm curious to know how you see companies integrating sustainability within their corporate governance frameworks.
Claudia: [00:10:10] Yeah, very good question. Because corporate governance and sustainability, they are inextricably linked. And I think that link is becoming a lot more obvious, particularly as we see that companies integrated more at board level, securing expertise either in the form of wider expertise on the board, a dedicated board member or a dedicated board committee. Then we see more integration with remuneration strategies and also the really good ones. They integrate their sustainability strategy with a general company strategy, so that sometimes we've had cases where we had to triangulate the two. But if it is truly integrated, then it is a much more clearer and well articulated story about how sustainability drivers and trends drive company strategy.
Jane: [00:11:02] And then in terms of your engagement efforts, at APG, who's doing that engagement, that stewardship? Is that something that happens with your team or the portfolio managers? How does it work at your shop?
Claudia: [00:11:14] Yeah, so engagement with portfolio companies is the responsibility of portfolio managers supported by responsible investment specialists. And for us it is a continuum. We have research, we conduct engagement with companies and we exercise our voting rights. So it's a truly integrated approach. And of course corporate governance is about the board and who is on the board where we would like to see a well balanced board. We have expectations with regard to the composition of boards and the independence, the expertise that we would like to see, and a number of other more straightforward corporate governance aspects. But for us, it is also a tool to really address our climate and biodiversity expectations, for example, but also on human rights. And to this effect we have defined expectations and in our voting policy. So we do expect that all companies disclose CO2 emissions scope one and two and relevant sector scope three. And where they don't disclose this, we would vote against the chair of the supervisory board or non-executive board, or if not, up for a vote against the approval of the annual accounts And for those companies that are active in a high climate impact sector and do not set targets in line with the 1.5 degree path, we would do the same.
Claudia: [00:12:46 ] So it is very clearly embedded in our voting behaviour. Also, with regard to nature and biodiversity, we target companies in high risk sectors and we would vote against the reappointment of the chair of the supervisory or non-executive board, or against the approval of the account in certain sectors which do not have a policy in place to combat deforestation. So think about meat processing, cacao, etc.. Pharmaceutical companies that do not have a policy to replace animal testing with non-animal testing, or to applying the three R methods, and also to mining companies that do not have a strong environmental management system. Likewise for human rights, we would choose the same voting approach for companies that lack adequate human rights, due diligence mechanisms where we base ourselves on the corporate human rights benchmark. So what I'm trying to say is it is an integrated system from the choices that we make in which companies are in the investment universe, that is research and data based in terms of our engagement with companies, in the stewardship activities and the voting that we conduct at the general meetings.
Jane: [00:14:01] And then with respect to nature, specifically that you touched on there. That's obviously a topic which is getting more and more attention. Yet I think companies are still finding their way through how to kind of measure, manage and disclose around nature. What's your take on that? What are you seeing in terms of your portfolio companies? Are they getting their head around nature more and more or is there still a long way to go?
Claudia: [00:14:26 ] Nature definitely has come up, has risen up the agenda quite substantially, and there's much greater focus on it. But it is an area where all of us are continuing to evolve our understanding of what does it mean, where can we contribute, and how can we possibly help to reverse nature loss and also combat deforestation? So Abp's approach has been to acknowledge in a way that biodiversity and nature are evolving areas at the same time as saying that should not prevent us from acting already and making plans. So Abp you know, has looked at the main causes of nature and biodiversity loss, as has been identified in general as changes in land use, the use and depletion of ecosystems and species, climate change, pollution of land, water and oceans. And in terms of a vision for 2050, it would be that in 2030 the investment portfolio contributes to combating biodiversity loss and that investments no longer contribute to deforestation. As well as investing at least 10 billion in companies and projects that contribute to preserving and restoring biodiversity. And at least 1 billion of this amount will be in impact investments.
Jane: [00:15:56 ] So APG presumably is then helping ABP to implement that policy in terms of whether that's about kind of mitigating biodiversity impacts, but also in terms of thematically getting the portfolio more exposed to some of the nature based solutions, for example.
Claudia: [00:16:15] Indeed. So one of the exercises that we have been doing using also the core data, which is a publicly available data source led by scientists to really identify where are the major biodiversity risks in our portfolio. Then we are exploring all kinds of geospatial data and other data sources, because different asset classes require different types of data to really get an understanding of where are the risks and also where are the opportunities. We are actively seeking to make investments that have a positive impact and you can think of, we recently invested into a blue bond by Orsted.
So it is about seeking out investment opportunities. And it is also engaging with policy makers. So we've been working with a group of asset owners on addressing systemic risk, of which biodiversity is one. And also we're present in Montreal at the Cop on biodiversity. Now again going to attend in Cali in order to engage with policy makers on the need for clear disclosures for creating the supporting environment for more investment opportunities that we would like.
Jane: [00:17:25] It sounds sounds like a great approach in a dynamic part of the market. Can we move on to something I'm particularly interested in that you kind of touched on very lightly earlier, which is around kind of the approach being across all different asset classes. And I'm really curious to know about how this approach plays out in the private market space, where arguably perhaps there's sort of a lower level of information available around those companies with respect to sustainability issues. So tell me about responsible investment in private markets.
Claudia: [00:18:13] Yeah, so we are a substantial investor in private markets and have long been investing also in renewable energy projects. For example, we were one of the first movers here. And I think private markets are a very good example for the power of investor led disclosure and data initiatives. Grasp the global real estate Sustainability benchmark, which we helped found in 2009, initially for real estate and in 2012 for infrastructure. It's probably one of the earliest example of this, but since then we've also been doing that in private equity with the ESG data Convergence project, where we are currently on the steering committee, again, wanting to drive disclosures that are standardised, consistent and relevant for investors. We very strongly believe in the power of collaboration, of collaborating with like minded peers, because we are really driven by providing the best possible returns and investments to our pension fund clients, and therefore we have expectations in terms of the data that we need, the detailedness, the rigour, but also the breadth and depth of coverage that can best be met if we together drive such disclosure expectations.
Jane: [00:19:44] And I suppose you know, with the introduction of CSRD, which applies to both private and public companies, we should start to see a lot more information in the public domain which pertains to private companies. So, you know, over time, hopefully we will just get a kind of a much deeper and rich, rich kind of data set for investors to be able to use to, to inform their decision making.
Claudia [00:20:08] Absolutely. And I think for private markets, the availability of geospatial data is even more crucial.
Jane: [00:20:13] And why is that?
Claudia: [00:20:15] Because it's really asset specific what we're looking at.
Jane: [00:20:17] Yeah. I think that helps. On the nature side as well doesn't it?
Claudia: [00:20:22] Yeah, indeed.
Jane: [00:20:23] So I think we're going to have to sadly come to our last question because we're running out of time. But I'm curious to know that as you're looking out to the future over the next five years or so, what do you think that Apg's focus areas are going to be going forward?
Claudia: [00:20:40] Our focus areas are very closely linked to the policies of our clients, who want to realise their ambitions to have a climate neutral portfolio by 2050, which is paris-aligned by 2030. Then it is also about the ambitions with regard to nature and biodiversity that we will continue to work on. And of course, good governance and human and respect for human rights. They underpin these transitions for them to be socially responsible. So those will be areas that we continue to focus on. And perhaps somewhat newer dimension that has been introduced is AI, where we have been engaging for some time with companies on the use of AI. We use it as a company. We've set up a committee to define what are appropriate standards in using it, and we also expect tech and other companies to really consider carefully the implications of AI. Why not 2anting to stifle innovation? And tax is another topic where our clients, also ABP has also defined the policy that we are implementing. So it's quite exciting. There are some very long standing topics, but they continue to evolve, and there are some newer topics that are very topical and that we will have to that we will be working with.
Jane: [00:22:05] Well, it sounds like a very, very comprehensive list. I think that you're going to be very, very busy in the coming years. But really interesting stuff and really important stuff as well. So you know, it's really great to see an asset manager at the very vanguard of sustainable and responsible investing and innovating at all times. So I think if folks don't kind of know what you guys are doing, absolutely. Check it out on the website because there's lots of impressive stuff on there. Claudia, we have run out of time, I'm afraid. But it's been a delight talking to you. And I leave with many, many new insights about how APG is kind of really embedding sustainability into its DNA. So thank you so much again for coming on the show.
Claudia: [00:22:50] Thank you very much. It's my pleasure. Thank you.
Jane: [00:38:27] So that's it for this episode of the LSEG Sustainable Growth Podcast. I hope you enjoyed that conversation with Claudia. If you've got questions, comments, or someone you'd like us to talk to, then do get in touch by email at fmt@lseg .com. That's all from me, but watch out for another episode very soon.
