Claudia Kruse, Head of Corporate Governance at APG, finds a sustainable investment approach attractive because it helps optimize risk-adjusted returns, demonstrates social responsibility and contributes to the integrity of financial markets. She believes such an approach leads to better informed and better investment decisions which serve her clients, because “in the end, of course we are here to provide pension for our beneficiaries.”
For her, the attraction of this investment area lies in “that there is still lot of scope for innovation and for developing new and different kinds of approaches that hopefully contribute to a more sustainable society. It allows you to make investments into — as we call them — solutions to sustainability issues, for instance by investing in infrastructure for renewable energy.”
Claudia Kruse distinguishes several key barriers to sustainable investments. “There is a lot of policy uncertainty at the moment, in particular with regard to climate change. We need clarity from government so as to not compound the technology risks that we already face.” Secondly, she observes that existing valuation models have limited capacity to really take into account ESG factors. “Also, the available data is often not of such good quality nor is it consistent.” She therefore advocates that initiatives such as the global real estate sustainability benchmark should be replicated in other sectors.
“Responsible investing is not something you adopt and drop and do on the side”, she adds. “It requires a genuine commitment from the (company) top and a genuine strategic commitment. For APG it is one of our investment beliefs that feeds into strategic investment planning and then into the work of the different asset classes.” Kruse believes a broader promotion of such an integrated sustainable investment approach is one of the solutions to conquer the earlier named barriers.
To further overcome the “capacity issue” Kruse perceives, “both practitioners and academics should develop classes such as the ICGN (International Corporate Governance Network) master class that was recently held, which allows other practitioners to better understand what the concept of responsible investing entails.”
A key point to help accelerate a transition towards sustainable investing is the encouragement of a dialogue between companies and shareholders, according to Kruse. “In some countries there is already a strong culture of such a dialogue and if we can have those kinds of discussions in more countries I think that will help.” She believes it is also important to shift the focus of the discussion towards ESG value drivers. “Also, in some jurisdictions, particularly in the U.S., there is still doubt whether an approach to responsible investment is compatible with fiduciary duty.” It is, Kruse emphasizes. “And it would be very important to promote the notion that it is fully compatible because that would really accelerate it.”
Finally yet importantly, Kruse recommends more behavioral research should be done into how financial analysts and portfolio managers make use of ESG or sustainability information. “There is quite a trend at the moment towards integrated reporting … and it would be good to know exactly how that can best be processed within investment decision making processes.”