APG, AIA Thailand turn climate risk into investment opportunity
For the nearly $600 billion Dutch pension fund investor, sustainable investment isn't just about ticking boxes – it's about wielding their considerable investment capital to address real-world climate and biodiversity challenges while delivering strong returns, according to Eric van der Maarel, chief executive officer of APG Asset Management’s Singapore office.
"Allocating to megatrends with clear sustainability goals is really a red thread through everything that we do," Van der Maarel told the audience at AsianInvestor’s 14th Southeast Asia Investment Forum in Bangkok on November 8.
At APG, climate change is a fundamental driver of investment strategy rather than a mere risk factor.
APG Asset Management
The Dutch pension giant has been increasing investments in the direct alternative assets space, allocating some 40% of its portfolio into assets focused on sustainable infrastructure, real estate, and private natural capital, while maintaining a significant $150 billion bond portfolio, said Van der Maarel.
"Climate change is a gigantic risk, and we're trying to turn that into an opportunity by putting our capital to work to provide solutions," he said.
This approach is shaped by APG's unique perspective as a Dutch institution. "Netherlands is our home- our land is below sea level. This is a super relevant discussion for us."
The fund's commitment to sustainability is also backed by its beneficiaries, according to the firm.
Recent surveys of APG's pension participants revealed that 55-60% would accept some sacrifice in returns to make an impact and satisfy ESG requirements. Van der Maarel noted, however, participants were not willing to accept "major amounts" of reduced returns.
ASIA STRATEGY
APG established one of the largest Asia presences among European pension funds, with 90 people in Hong Kong and a new Singapore office, in part to execute the strategy.
"We are one of the very few large pension funds, even in Europe, to have local presence in Asia," Van der Maarel said.
"About 30% of our asset management teams work from our offices in New York and across Asia, close to where the action is and where we are dealing with making real impact."
Recent investments have demonstrated the effectiveness of a local presence.
Major projects have included Indonesian toll road infrastructure and Australian forestry initiatives, showcasing the scale of sustainable impact. APG is also exploring renewable energy opportunities across the region, the executive said.
"We're talking about wind farms in the North Sea off the coast of Holland, but also wind farms in Asia. On the surface the proposition in this part of the world may actually be yielding more interesting returns, but we must make sure that the right governance and due diligence is in place to mitigate the prevailing risks," Van der Maarel said.
An Australian forestry project particularly demonstrates the scale of APG’s impact.
"The forestry project is so large and relevant that all of the CO2 proceeds of that investment cover about 75% of all of the CO2 emissions in the Netherlands," said Van der Maarel.
The investments reflect the fund’s fundamental belief that pension returns must align with environmental sustainability.
"We believe that we need to provide good returns and good pensions, but in a liveable world, and that liveable world is not an extension or a second-order issue," Van der Maarel said.
"As a very large investor, we can make a real impact putting that capital and influence to work."
SYSTEMIC ESG INTEGRATION
Meanwhile, insurer AIA has also been focused on sustainable investment, developing a comprehensive framework in Thailand that combines rigorous ESG screening with substantial direct investment in green initiatives, said Pardung Songatigamas, head of fixed income and asset allocation at AIA Investment Management Thailand.
“This approach has resulted in significant capital commitments: $6.3 billion in green and social bonds, $6.4 billion in healthcare sectors, and $1.3 billion specifically in green energy projects,” Songatigamas said at the AsianInvestor event.
AIA Thailand
The firm has been focused on transition financing as a way to merge ESG principles with impact investing. Its use of a systematic approach beginning at the investment analysis level allows the firm to identify both risks and opportunities in sustainable investment, the executive said.
"We believe in a bottom-up approach. We integrate ESG into investment considerations and have an ESG rating scorecard for all investments done by our own communities," said Songatigamas.
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The company's commitment extends beyond direct investment to include long-term economic development. As the first pan-Asian insurer to have emissions targets qualified by the Science Based Targets initiative (SBTi), AIA has been working to drive broader industry change as well as company-level change.
"We engage with our investing companies and encourage them to set their own emission target reductions as we add verification with SBTi," he said. “If [portfolio companies] could integrate their approach with SBTi, that would be more impactful and help Thailand contribute meaningfully to global decarbonisation efforts."
This story has been updated with changes to APG's quotes in paras 4,6 and 11.