LP view: APG Asset Management's personal approach

APG Asset Management administers the pension schemes of 4.5 million people in the Netherlands on behalf of large pension funds, and currently manages €436 billion in assets, €20 billion of which is invested in private equity.

Marta Jankovic is senior sustainability specialist and head of ESG integration for alternatives at the administrator, responsible for sign-off on the ESG aspects of private equity, hedge funds and commodities investment proposals, including evaluation of investments that focus on addressing sustainability challenges. She also oversees the monitoring of existing investments on their ESG performance.

How does APG assess new funds from an ESG perspective?
As an addition to our existing due diligence process, we have created an ESG assessment tool, which we use internally to assess a GP’s approach to ESG integration. We use the tool at the due diligence stage, and again if we re-up. If you’re a GP [coming] back again for a re-up, there’s going to be an assessment on your relative performance: how did you progress, and what did you do in the intervening period?

How do you monitor existing investments?
[We request] annual ESG reporting from every GP that we commit to for every fund, and that consists of two parts: a requirement to report on what has been happening at the manager level in terms of ESG activity. The second part is about what has been happening in the portfolio itself, where the GP has to report on a company-by-company basis for the entire portfolio on ESG topics. That reporting is the way for us, in addition to regular interaction with the GP, to keep track of ESG progress within the portfolio. 

If you are a GP that we already have a relationship with and we have received ESG reports from you, then we will be using those reports and everything we have received from you in the intervening years in our overall assessment for the next fundraise.

How does this work in practice?
We have a due diligence questionnaire, which is based on the United Nations-backed Principles for Responsible Investment LP Due Diligence Questionnaire. However, it extends that by including questions on climate change and a few other topics. Those questions come from a guide for private equity, jointly designed by the PRI and the Institutional Investors Group on Climate Change. From that guide we have extracted questions relevant for GPs to assess the GPs’ ability to proactively think about and manage climate change issues. [We’ve also added] a number of questions on sustainable development investments, and on gender diversity and diversity more broadly.

APG has relationships with more than 30 managers and that’s growing every year, not to mention its legacy manager relationships through AlpInvest Partners. How do you handle the volume of ESG information that comes back to you from managers?
For us, ESG integration isn’t just something that the responsible investment team focuses on, it’s also something that the entire private equity team is involved with. The private equity team has the front line interaction with the GP during the life of an investment, and they are the ones that first review the information that comes through, including the ESG reports.

Each person in the private equity team who’s responsible for a particular GP relationship will have familiarity with the portfolio. Just as you review portfolio information in terms of quarterly reports that you receive, you will also be looking at the ESG information that comes through. It’s additional information, yes, but I don’t think it’s the kind of additional information that is beyond the scope of a private equity professional to be able to digest and, if needed, ask follow-up questions on. In addition to that you’ve got me as an overlay, I also receive these reports and work together with our private equity team to interpret and, if required, act on the information received.