Nature organisations and asset managers working together on sustainable production
For many companies, environmental risks often go hand in hand with financial risks. For example, biodiversity loss can lead to lower turnover and illegal deforestation can cause reputational damage. Asset managers therefore want to know whether the companies in which they invest face these risks. But how do they get this information? If they succeed in doing so, what do they do with it? Faryda Lindeman of NN Investment Partners discusses the surprising yet powerful collaboration with nature organisations.
NN Investment Partners (NN IP), the asset manager of the Netherlands' largest life insurance company, has applied sustainability criteria in their investment strategies for more than twenty years. Faryda Lindeman, Senior Responsible Investing Specialist, uses research data to check if companies in which NN IP invests comply with their sustainability policy. If they don’t, she can open up dialogue with the company about how they can improve their actions. Moreover, Faryda also advises her colleagues internally as to the activities of potential companies they’re considering working with.
Specific information, close to the source
Data helps Faryda identify the most important ESG (environmental, social and governance) issues in a given sector. This is particularly important in sectors with potentially high impact, such as the palm oil industry. Whilst such sectors can be an important source of local income (particularly in Indonesia and Malaysia) they’re simultaneously a great threat to the environment and local communities.
"We're looking for information on specific companies," explains Faryda. "What issues did environmental organisations discover there? What have they done with that information? And how do companies or other stakeholders react and act when that information is presented to them? We also buy data from international research organisations. They cover a certain part of the world but are often far away from the source. If we want information about a particular palm oil producer in Kalimantan, they don't have it. Local civil society organisations often do."
Meeting with local experts in nature conservation
With this in mind, Faryda welcomed civil society organisations from Indonesia, working in Kalimantan and Aceh, in April 2018 at her office in Rotterdam. "Colleagues warned us they might show up on our doorstep waving flags and spreading pamphlets," says Faryda. "Civil society organisations suffer from that image in the financial world. But things went very differently."
IUCN NL’s and WWF’s partner organisations showed NN IP how they measured legal and illegal logging for palm oil plantations, using drones and identifying rights violations. “That information was new and relevant to us," says Faryda, "Only with up-to-date information such as this we can engage in dialogue with companies.”
Connecting civil society organisations and asset managers
The meeting was initiated by IUCN NL, WWF NL and the Dutch Association of Investors for Sustainable Development (VBDO), as part of their programme to bring conservationists and financial institutions closer together. More than 140 representatives of civil society organisations from 22 countries took part in this programme, set up in strategic partnership with the Netherlands Ministry of Foreign Affairs.
According to Faryda, these parties are important partners in bringing together nature organisations and asset managers. "IUCN NL and WWF NL know the field in the Netherlands well, but are also in touch with partners and offices across the globe. They know what civil society organisations are working on and what information is relevant to us. If they bring us together, that’s very efficient."
Results of the collaboration
What did the discussion between the civil society organisations and NN IP result in? Faryda: "First of all, we drew up an information sheet together, which we used as a basis to contact the companies. One of them has an issue with land rights. We are still talking to that company to try and improve the situation. Secondly, in January 2019, NN IP became a member of the Roundtable on Sustainable Palm Oil (RSPO). And thirdly, we now have a policy to ensure that all the parties in which we invest also have a RSPO quality mark." This quality mark indicates that the majority of the palm oil in a product has been produced sustainably.
A great result for the civil society organisations from Kalimantan and Aceh, but not the sole outcome. NN IP also began working more closely with other sustainable asset managers. Together, they have a larger market share and therefore more influence. This also makes their work more efficient. Faryda: "With Robeco, we have entered into a cooperation on sustainable palm oil, which means that we are now engaging in discussions with companies about their sustainability policy together with them. You learn from other asset managers. Some of them are located in areas where we invest, which helps us understand the cultural context better. We've also started collaborations in other sectors, for example, we now work in the oil and gas sector in the Climate Action 100+ and we are actively involved in combating deforestation in the meat and soy industry.”
Try to improve operations
"The perception is that the financial sector is still doing too little to promote sustainability. But it is important to understand our role as an asset manager. What we do is talk to a company and try to improve their operations. Only if they don't want to change, in extreme cases, we can choose to opt out.”
How can civil society organisations advise an asset manager? An overview of the lessons learned:
- Provide up-to-date and verifiable (local) information that asset managers can use to engage in dialogue with the companies in which they invest.
- Use your contacts within, for example, the ESG departments of investment companies as sparring partners and enter into discussions with the asset managers involved.
- Use your international network. An intermediary such as IUCN NL or WWF knows what information financial institutions are looking for.
- Show understanding for each other's way of working.
- Keep in mind that you and the Responsible Investing Specialist have a common goal.
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