Aegon N.V. is a multinational life insurance, pensions, and asset management company headquartered in the Netherlands. Aegon Asset Management (AAM), the company’s investment arm, is their in-house asset manager.
For this case study, we interviewed Brunno Maradei and Adrienne Hill-Strathy.
How do you define impact?
Aegon defines impact investing as direct or indirect investments in businesses, organizations and projects that intend to generate a positive change on specific social or environmental parameters, while meeting existing risk and return requirements. This positive change should be measurable and is monitored throughout the life of the investment. Impact investing is distinct from ESG integration or sustainable investing; ESG integration focuses on managing investment risk and sustainable investing aims to align portfolios with sustainability goals without necessarily actively adding to the positive outcome.
We believe that impact investment is possible across most asset classes, nevertheless the exact conditions may differ according to an asset class’s characteristics, such as financial flows, ownership or legal considerations. To help guide our focus towards the most relevant investment classes, next to these specific conditions we consider the activity underpinning (and/or enabled by) the investment as the main driver of positive change. For instance, while private debt presents great opportunities, commodity futures have a less direct and obvious potential for positive impact.
The additionality condition of impact investing is the most complex to assess and implement across a diversified portfolio like that of Aegon. Given the risk and return requirements we face as an institutional investor, as well as the high competition for scarce impact opportunities in certain asset classes, the additionality of our capital is not always clear. As a rule of thumb, we consider that where private financing is needed – regardless of whether another investor could have provided it – the additionality condition is met.
Aegon considers impact investing as one of several tools among the wider spectrum of responsible investment. It is one of the key building blocks for improving investors’ contribution to better outcomes. As such, like with all other elements of responsible investing, we take a holistic and collaborative approach to determining whether an opportunity is fit for an impact investment, preferring to rely on case-specific analysis rather than strict, one-size-fits-all rules.
What have you done to start making impact investments?
Aegon has a long history of investing in areas that they now designate as ‘impact.’ This started with investments in affordable housing and clean energy decades ago, but we only began to actively promote and encourage these types of investments about five years ago. That was when Aegon organized a small group of people that it called the ‘sounding board,’ consisting mostly of employees from the investment side, to discuss impact investing and how Aegon could be active in the space. The group decided to implement a formal strategy - which included joining the GIIN membership and setting up structures to encourage and facilitate discussions about impact - and the firm has since expanded to investing in a much more diverse set of sectors, projects, and investment products as a result.
Aegon’s role as a fiduciary remained front and center as they moved into impact investing, and that commitment is clearly communicated in our Responsible Investment Reports: “Our top responsibility is to ensure that our clients’ assets are managed in such a way that we cover their liabilities. As such, investments should first be evaluated from a risk and return perspective.” Starting with those first investments in affordable housing and clean energy, Aegon has gone on to deploy capital to renewable energy, green bonds, international development banks, and student loans to low- and middle-income Americans as part of its impact investing strategy.
Today, Aegon has expanded its responsible investment team considerably to 17 and plans to expand further. The responsible investing umbrella includes impact investing, best-in-class ESG and sustainable investing solutions as well as the more traditional exclusionary strategies. The Responsible Investment team works with portfolio managers throughout the company to encourage them to look for impact investment opportunities in their respective areas of expertise and asset classes.
Why did your approach work?
We believe a combination of three factors led to the growing success of our impact investing program and solutions.
- Our focus on the financial profile of impact investments, with no compromise on risk or return, has attracted flows from our predominantly institutional client base.
- Our conservatism in claiming impact means that we can back our claims with evidence in the form of impact measurement and/or thorough analyses and processes.
- Allowing investment teams to drive impact investment strategies has limited any resistance to new strategies and ideas within the firm, while attracting client interest.
How was it received?
Within the organization, reception of impact investment has mainly been positive, with skeptics nevertheless appreciative of it. Some portfolio managers were open to the idea of impact investing from the start, and started talking about it with their clients to showcase how Aegon was investing responsibly. These portfolio managers recognized that impact investing had a potential commercial upside for Aegon - a part of its value proposition to clients.
Having said this, it is essential to think about what you want to achieve and make sure incentives are aligned to get the right impact-minded behaviour. Attracting institutional investor flows will help grow impact investments, but it’s essential to spend time with impact funds and opportunities to help them prepare for institutional investments, for instance with appropriate risk management and reporting. This is a key way investors can have impact themselves – by engaging with the industry and working on enhancing the investment quality and environment to attract flows.