PGGM: a pension investor’s perspective on accelerating sustainable finance

PGGM started its journey as a responsible investor in the mid-eighties, committed to contributing towards both retirement security and a sustainable world. As its responsibility is first and foremost a financial one, PGGM is often confronted with the tensions between required returns and calls to accelerate positive societal impact. In order to get out of this dilemma, it has set specific sustainability targets related to reducing the carbon dioxide footprint and achieving a positive societal impact. Additionally, PGGM has worked actively on industry initiatives that enhance data availability and comparability within the sector. The challenge lies in enlarging the space for investments that create financial returns alongside positive impacts. To this end, the authors introduce a framework based on three zones: the grey zone, in which investors look at financial returns without considering externalities; the green zone, in which sustainability is integrated alongside market rate returns; and the red zone, in which sustainability considerations prevail above financial returns. The movement from grey to green is growing based on scientific evidence and societal pressure. The red zone however is often misunderstood, as pension money is often perceived as a societal good that can be allocated freely between financial and societal objectives. The answer lies in enlarging both the green zone and the number of investors operating in the green zone, which implies setting the right preconditions. Some of them can be created by the investment community. However, preconditions set by governments are needed to enable a large movement of capital, as they can increase the ability of investors to assess the likelihood and timing of sustainable transition scenarios. As probabilities and their impact become clearer, committing capital to the sustainable economy becomes easier. The authors believe that the transition towards a sustainable economy is within reach, if we all play our part in accelerating this movement.