“We manage about half a trillion in assets, everything is ESG risk-assessed [and] we are obviously signatories to the net zero asset managers initiative,” Alex Bibani, senior portfolio manager, SDG, at Allianz Global Investors, told attendees of the Sustainable Investing Forum.
Bibani explained that they have large teams taking care of the data and sustainability research. In addition, a stewardship team is responsible for “engagements [that carry out] an enormous amount of voting when it comes to the proxy season.” He also noted that there is mutual support between the private and public market teams focusing on governance best practices.
SusIE is the “sustainability insights engine” that AGI uses to integrate data from external vendors and the input of the sustainability and stewardship team to create analytics in tables (greenhouse gas emissions, scope one/two/three) and graphics (scores on controversy) to ease reporting for compliance, investment decisions and other uses in their organisation.
Contrary to some of their competitors, AGI does not use the score of vendors to compute their own score. Rather, “we only take in data points […] choose how to weight each of the data points […] we decide what is material, and we create our own scoring system,” said Bibani.
What does AGI call an SDG-aligned company?
Like other market players, “it starts with an assessment about how what percentage of a company’s revenues are contributing to either a social or environmental objective,” said Bibani. This “positive contribution assessment” is followed by a governance test to assess whether a company follows international norms (any controversy flags?) and a binary test to ensure that the company “does no significant harm,” or DNSH, in SDG parlance.
In other words, doing something great is not good enough if you are harming the environment. Irrespective of the score on the governance test, a company doing significant harm would get a zero and would then be systematically excluded from their SDG funds. Bibani explained that their engagement with companies may change in their behaviour resulting positive DNSH in subsequent years.
He commented that the goal for all the SDG funds is to achieve a weighted net asset value above 50% (share of company revenues aligned with one or another SDG goal) for the companies held in these funds. There are .
Bibani noted that their Allianz Positive Change strategy aims a weighted net asset value above 80% and is packaged in various themes (food security, clean water) that encompasses, individually, several SDG goals.
Assessing impact
AGI measures negative impact through the “footprint” of companies coming out of the production of goods, GHG emissions, the use of water and energy, etc. Bibani aims at reducing the negative impact through engagement with companies.
Bibani explained that they are looking for companies having a “handprint,” which is a positive impact from the goods or the services provided by those companies.
He provided two examples describing the firm’s approach to impact investing: John Deere and Vertex Phamaceuticals (AGI’s Allianz Positive Change fund held positions in both companies as of 31 March 2023).
Problem: farming
Bibani assessed that farming is “terribly impactful on the planet,” as 33% of all agricultural lands are responsible for some form of erosion, high use of water (70%) for agriculture and a 400% increase in the use of pesticides and herbicides since the 1960s.
As only 30% of herbicides are absorbed while the rest flows underground and pollutes waterways, AGI assessed that the precision agriculture tools developed by John Deere may help solve traditional agriculture problems.
Bibani explained that John Deere’s “GPS guidance system, yield monitors, the soil moisture sensors and the drone imagery systems” enables the farmers to avoid blanket spraying a field with pesticides.
He thinks that precision agriculture has multiple benefits: lower usage of herbicide, less water pollution, less fuel for the tractors, less land usage for the same amount of crop and higher yield resulting in more revenues for the farmers.
Problem: cystic fibrosis
Bibani noted that there is currently no cure for the cystic fibrosis and the life expectancy of affected people is around 30 to 35 years.
Approved by the FDA in 2019 after seven years of clinical trials, the triple combination therapy, Trikafta, helps patients to achieve a “near normal life expectancy” by adding about 45 years. Bibani thinks that there are few drugs in the world that double your life expectancy.
Bibani provided some anecdotal cases whereby a user, Rachel, could now climb mountains, whereas she could barely walk up the stairs before taking the therapy. “Trikafta is a game-changing drug and highly impactful from a qualitative perspective,” said Bibani, an outcome that achieves SDG 3 for good health & wellbeing.
Amplification of impact through engagement
Bibani attributed the firm’s extensive engagement to an “enormous team.” He listed 438 engagements covering 996 topics with over 350 companies in 2022. They voted in over 10,000 shareholder meetings and cast over 105,000 individual votes. He said that they voted, for at least “70% of the cases either against, abstain or withheld.”
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .