Biodiversity: what good does it do?
Increasingly, you hear about biodiversity in pension funds. But what can a pension fund do with biodiversity? Well, quite a lot, as appears from our conversation with Carolien van der Vliet-Hameeteman.
Since past summer, TNO Pension Fund has also been working on biodiversity. Although the first steps being taken are still small, biodiversity is certainly on the fund’s agenda. "It starts with gathering knowledge, thinking about what the fund wants to work on and what the consequences and risks are," Carolien van der Vliet explains.
Biodiversity
Biodiversity is actually a very broad concept. Just like sustainability. "Biodiversity is basically about the diversity of life on earth," says Carolien. "What's behind that is our entire ecosystem, in which everything is interconnected. If you remove a small piece, the whole is affected. The rise in temperature or the amount of water also has an impact."
ESG Policy Committee
Carolien works as a project manager at TNO on projects dealing with cybersecurity technology and security techniques. In addition to her work at TNO, Carolien has been a board member at TNO Pension Fund for two years and is a member of the fund's ESG Policy Committee. In cooperation with an external advisor, this committee is examining the realisation of the sustainability ambitions of TNO Pension Fund. The goal is to make a positive impact with investments while bearing in mind returns, risk and costs. Carolien is happy to contribute to this from the Pension Fund Committee. "It's a wonderful opportunity to see where you can make a difference. What a fund can invest in and what risks are involved."
Companies do not yet report biodiversity
"Last year, we focused on human rights as a committee and that resulted in the tightening of the country exclusion policy. So we’re now looking at biodiversity and how that fits into our investment policy, but it’s difficult to obtain good information. Companies are not yet required to report on biodiversity," Carolien explains. Henco van Ommeren, chair of the ESG committee, stated the following in the previous Life & Pension on biodiversity: "What you often see is that as EU directives become stricter, more data becomes available. It is important not to wait for that, but rather to act now.” TNO Pension Fund is working under the assumption that it is precisely by working on this topic that more data will become available.
"Biodiversity is still in its infancy."
Knowledge session with other fund and expert
Carolien explains how they started last summer. "We began with a knowledge session. During that meeting, another pension fund explained what they do with biodiversity and how it is visible in their investment portfolio. Our ESG advisor at Cardano also laid out what is possible. Cardano uses the WWF Biodiversity Risk Filter for this purpose. This World Wildlife Fund tool shows how well or how poorly companies score on biodiversity. The difficult part is that the tool contains sector data. This comprises general figures, for example, from the furniture industry. These figures do not show the individual differences between companies, even though these differences exist. Moreover, the entire chain is not included. For example, a supermarket sells fruit and vegetables and figures are available for that, but what about transport and cultivation? Biodiversity is really still in its infancy. Nevertheless, it is definitely a good start."
Initial impact studies
"If you look at biodiversity in TNO Pension Fund's investment portfolio using the WWF model, there is an impact on biodiversity from real estate, and then you have transport and logistics and after that the oil and gas industry." Carolien also notes that the most recent TNO Pension Fund has hardly any oil and gas industry stock left in its portfolio. "In real estate, that impact on biodiversity depends, for example, on where it is built and the use of raw materials," Carolien continues. "If you then focus on real estate, TNO Pension Fund invests through the Green Initiative, which in itself is sustainable. The WWF tool is therefore difficult to apply one-to-one to identify risks."
"It starts with gathering knowledge, thinking about what the fund wants to work on and what the consequences and risks are."
Biodiversity: returns and risks
“It’s not only interesting to think about biodiversity, but also important," Carolien stresses. "If you don't think about biodiversity, then you run risks. Companies that do not go along with the transition to eco-friendly adaptations are at high risk, so you do not want to invest in those companies. By paying attention to biodiversity, your returns do not necessarily decline. Rather, it is the other way around: by doing nothing with biodiversity, you run a risk. As a fund, you need to be aware of that as well. There is also the reputational risk. You can invest in companies that might make a lot of money in the short term, but if your supporters do not support it, it will backfire. Moreover, we want to connect to the issues that members and pension beneficiaries consider important. Biodiversity is part of that.”
Opportunities for TNO Pension Fund
The way TNO Pension Fund looks at investments is characterised by its focus on long-term impact and returns. The same applies to biodiversity, Carolien explains. "First, we look at where the impact of biodiversity in the portfolio is greatest. Information plays an important role in that. The next step is to set targets and see what we can do. If you invest yourself, you can achieve more to get companies moving. TNO Pension Fund is not that big. With our fund, it is more in the choice of the investment fund and selecting investment managers that align with our beliefs. It is also important to find out from our participants what their preferences are with regard to how we should handle investments and how much risk they are willing to accept. Then you often see that young people want to take more risk, and that the situation is different the closer participants are to retirement. This need not be a contradiction, though."
Jointly with other pension funds?
Finally, Carolien talks about the CEO of TNO, Tjark Tjin-A-Tsoi, who would like to make assets available from pension funds to bring more innovative scale-ups to the market. "These types of impact investments cost a lot of money, are risky and only pay off in the long term," Carolien explains. "Suppose several pension funds could jointly invest in such scale-ups. That could be interesting. However, it is then important that we sufficiently mitigate the risks we face in this area, which is something that the government, for example through a guarantee, could play a role in." That has not yet happened. The ESG Policy Committee is now focusing on the biodiversity plan. Once that plan is available, you will read more about it on the TNO Pension Fund website under news.