Creating more room for green growth

​The world needs more ‘green growth’ to make sure that future generations also experience prosperity and well-being. Pension money can play a crucial role here, because it is invested long term. But to get there, governments could be more supportive of investors’ needs, while investors should attach greater weight to social needs and returns, says Chief Investment Management Eloy Lindeijer in a speech for the Duisenberg School of Finance.


In his speech Lindeijer comments on Rintaro Tamaki, key note speaker and Deputy Secretary-General and Chief Economist, OECD.

Speech Eloy Lindeijer


Thank you for inviting me to speak at this special occasion. Today’s theme is close to my heart, personally as well as professionally. It is an honour to comment on the impressive work of Mr. Tamaki and his team at the OECD, who have been leading the debate on green growth for several years now.

Before I start, please allow me to briefly introduce PGGM. We are a cooperative serving seven pension funds and 2.5 million people in the Netherlands. Pensions for the Dutch health care sector form the core of our institutional client base as well as the core of our 700,000 strong cooperative membership. We invest € 170 billion worldwide, corresponding to nearly 30% of Dutch GDP. PGGM is also an industry partner of DSF.

Mr. Tamaki has clearly set out the challenges for green growth, and the role institutional investors can play. I can only agree with his conclusions and recommendations.

The challenge ahead is daunting. Clearly, a global political consensus on effective climate measures is still remote. It is impossible to be optimistic that this will happen anytime soon. The Netherlands, where 60% of the population lives below sea level, has a strong interest to play a leading role in climate change initiatives. At PGGM we aim for long-term sustainable returns, integrating financial, environmental, social and governance factors. Our clients expect us to constantly improve in this area. The argument for such a strategy is both simple and compelling: it will lead to better pension outcomes and a better world in which to retire.
So what can we do? Actions on a national level from government and the private sector can make a large difference. It will raise awareness of the public at large and will unleash innovation.
The good news is that pension funds and other long-term investors are starting to act on climate concerns. Our largest client, PFZW with € 150 bn AuM, is aiming to quadruple its positive ESG impact by 2020, and halve its CO2 emissions at the same time. This provides a strong incentive for us to direct funds into green growth areas and to lower investments in carbon-intensive industries. PFZW´s new Investment Policy Framework will, hopefully, inspire others to take similar bold steps.
The urgency is particularly great in the Netherlands, as we are significantly lagging the EU’s 20:20:20 agenda. Last year’s Energy Agreement on Sustainable Growth is, however, a step in the right direction. It will create incentives and better conditions for green investments close to home. In other countries we also see promising approaches that leverage public-private partnerships. The success of the Green Investment Bank in the UK has been a source of inspiration for many. Emerging Market Economies with large infrastructure programs, such as Mexico, are helping local and foreign pension funds get access to green investment opportunities. Getting national development banks to co-finance such projects is important, bringing in local expertise and lowering risk profiles. Ensuring support of local communities is also essential.
Export Credit Schemes and official development assistance funds can help finance the risky construction phase of green energy infrastructures. Once projects are operational, long-term pension capital can come into the game. Denmark is a pioneer in this field.
These are promising developments. However, more fundamental change is also required to make a genuine transition to green growth feasible. PGGM has become member of the Circle Economy Networks like the Ellen MacArthur Foundation, because we are convinced that many traditional business models are becoming unsustainable. Investors of long-term capital have a crucial role to play here also.
This requires courage to deviate from common market practices and a commitment to stick to that plan. The “circular investment gap” is huge and requires us to move away from so-called take, make & waste production and consumption models. The good news is that closing this gap will also contribute to climate change goals. This impact can be multiplied when asset managers join forces. For example, by sharing research on ESG impact, joint engagement of companies, developing alternative benchmarks and jointly committing to ESG impact investment funds.
In the past few years, we have progressed in measuring the ESG impact of our investments. More work is needed to guide future portfolio construction and monitor performance of the portfolio. In building investments in the area of green infrastructure we still face substantial constraints, some internal and some external. Mr. Tamaki has discussed these already. I would like to add two observations, more specific to the Dutch market.
The first observation concerns the regulatory framework. The financial crisis has eroded the surplus of many pension funds. The regulatory response in the Netherlands has been especially strong. Regulation must strike a balance between a long investment horizon and short-term solvency constraints. The latest proposals for the a new FTK tilt towards the latter. As a result, pension funds are pushed into seemingly risk-less assets like government bonds. This is of course very unfortunate. Not only do we cut off an important funding channel for long-term, sustainable growth, we also introduce other risks for members of the pension plan, in particular inflation risk. As Mr. Tamaki rightly points out, green infrastructure investments can create a win-win situation for investors and the public sector alike. I would add that an infrastructure investment, if properly structured, is a matching asset for long-term investors, and should be treated as such by regulators.

The second observation is that we find that investable propositions are in short supply. This is perhaps remarkable given the widely perceived (green and non-green) infrastructure financing gap, which argues that demand for long-term finance into infrastructure greatly exceeds supply. Clients have raised their target asset allocation for infrastructure, but we cannot find sufficient projects, especially here in the Netherlands. Projects are too small, not scalable, structured in the wrong way, or regulatory risks may be too high. We have a lot to gain from bridging the gap between supply and demand, to make sure that they speak the same language and understand each other.
That is why PGGM and other institutional investors have called for setting up an institution that would identify bottlenecks and improve the investability of projects with potentially large social returns in the Netherlands. I am very pleased that, after many months of preparations, the Netherlands Investment Institution (NII) will be launched in a few weeks here in Amsterdam. The NII will be a private-sector initiative, but with strong support from the government. Among other things, it will host a platform where supply and demand with meet with the minister for Economic Affairs on a regular basis, to discuss problems and potential solutions.
This brings me to the end of my remarks. Green growth is an urgent challenge if we wish to keep up the standards of living for current and future generations. Together, we can achieve green growth, but the chain is as strong as its weakest link. Public and private parties need to work together towards that goal. For green growth, we need to raise the bar further and move to, what I would call, public–private responsibility. With public–private responsibility, each party would act not only in its own interest, but also in that of the other. Governments would be more supportive of investors’ needs, while investors would attach greater weight to social needs and returns. The time to act is now. As future leaders in finance, the students of DSF are in an excellent position to make that happen.
I look forward to a lively and fruitful discussion.

Chief Investment Management

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