Tar sand transport sector also deserves a sound shareholder dialogue

​Contributing to achieving the Paris climate goals involves developing shareholder engagement, writes Eloy Lindeijer.

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Environmental organisation Greenpeace has confronted PGGM and its largest client Pensioenfonds Zorg en Welzijn about investments in companies that lay pipelines for the transport of tar sands oil. This regards Enbridge, Energy Transfer Partners and TransCanada, in which 66 million euros is invested, 0.03 percent of the PFZW capital.

Greenpeace demands that these investments be sold. The extraction of oil from tar sands produces a lot of CO2, and Greenpeace believes that maintaining a tar sands infrastructure is not in line with achieving the Paris climate agreement, which PGGM and PFZW also support.

As a global investor with capital allocated to a wide variety of sectors, PGGM is often confronted by non-governmental organisations about specific investments. We always enter into dialogue, in this case too. However, we are often unable to accommodate their wishes – the sum of all wishes does not relate to our central task: generating a financial return for a sufficient pension, with due regard for sustainability.

To Greenpeace, and to anyone else who wants to listen, we explain that as a pension investor we want to comply with 'Paris', but by a route different from that which the environmental organisation is demanding. The total carbon footprint of the PFZW listed equities portfolio was 28 percent smaller at the end of last year than two years earlier. In one and a half years this footprint must be halved. It is a first, important step in the direction that our societies must take towards a CO2-neutral world.

At the same time PGGM, on the instructions of PFZW, has solid ambitions when it comes to investing in climate solutions (as part of our larger impact investment programme). At the end of 2017, we had invested 6.4 billion euros in companies and projects that offer climate solutions, including sustainable real estate. We encourage a well-developed global market for pure impact investments.

Nevertheless, we will be retaining our interests in the three companies mentioned. Why stick with something that only covers 0.03 percent of the customer portfolio? Why not sell, is the question we always get.

The essence lies in PFZW’s principle choice, when it comes to listed equity, to be a passive investor with a globally diversified portfolio in all sectors of the economy. This keeps risks to a minimum, the winners of today and tomorrow are always represented, and management costs are low. A small part is actively invested: the part focused on specific impact.

PFZW is aware of the preferences of its participants and of its social responsibility as a major investor. It therefore wants to minimise the negative side-effects of its passively invested capital. Investments in companies with the largest carbon footprint (including one tar sands pipeline company) will be sold.

Equally important is that PGGM conducts a permanent dialogue with companies on behalf of PFZW in order to encourage them to adopt more sustainable behaviour, to prepare themselves and where possible to contribute to the inevitable energy transition and to report on this. Shareholder engagement is central to our approach. Enbridge, Energy Transfer Partners and TransCanada are each in their own way engaged in the energy transition, determining what role they see for themselves. Pipeline companies are still predominantly active in fossil energy, but among the leaders the importance of renewable energy is already growing.

Shareholder engagement requires endurance and the deployment of high-quality knowledge to be able to conduct a fruitful dialogue with a company’s management and to exert maximum influence. PGGM has invested in engagement for years, and with results. We think, and we are not alone in this, that energy companies benefit from critical, active shareholders who keep companies on course and encourage sustainable targets.

Simply selling shares alone will not eliminate the problems. Perhaps in PFZW’s figures it will, but not for the world. After all, there are more than enough buyers for these shares who have neither the experience of conducting a good sustainability dialogue with a company, nor the intention of doing so. PGGM and PFZW have no intention of ducking this responsibility.

Chief Investment Management

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