Aegon's shareholders are beginning to take an active interest in the company's sustainability profile, including the companies it invests in. At the annual shareholder meeting questions were raised about how Aegon measures its environmental impact, as shareholders grow increasingly aware of the risks involved with fossil fuel related investments.
Indirect carbon footprint through investments
As an insurance company, Aegon itself doesn't have a big environmental impact, but through its large portfolio of investments it has an indirect 'carbon footprint'. The carbon footprint of a company is considered to be one of the most direct indicators of the sustainability performance of an enterprise.
"In 2010, we set ourselves a target to reduce our own carbon dioxide emissions by 10% by 2012 using 2009 as our base year," explains Mike Mansfield, Sustainability Officer at Aegon for the last 6 years.
Aegon outperformed its target and reduced its CO2 emissions by almost 25%
"As a result of business retrofits at some of our offices, and other activities, we outperformed our target and reduced our emissions by almost 25%. Given that our scope for further emissions reductions is limited, we continue to show good stewardship for our own resources but no longer consider it a key objective in our sustainability program. Following the annual shareholder meeting, we started to establish the processes, tools and culture needed to respond to requests for information about the carbon footprint of our investments."
In 2014, Aegon selected Trucost, a leading consultancy firm that helps companies understand the economic consequence of their natural capital dependency, to support them with this analysis. "We initially considered carrying out the carbon footprint analysis ourselves, but rejected this in favor of engaging Trucost," explains Mike.
"In part this was because we wanted their independence to lend credibility to this process, and, in part, because in this newly emerging area of business analysis, they have already established a respected reputation."
Porfolio CO2 benchmark
Aegon chose three actively managed investment portfolios from their own General Account – one from each of their largest country units (UK, Netherlands and the USA) – that are managed against a recognized benchmark. The three portfolios combined hold approximately EUR 20 billion in assets. Trucost provided a customized report for each portfolio showing the CO2 intensity of the portfolio against the benchmark that is being tracked.
"We have had discussions with the relevant portfolio managers and analysts within Aegon Asset Management to learn how this factor is weighed in investment decisions. We are also trying to assess if this issue may pose a burgeoning risk for our investments. For this, we are closely following discussions on climate change and note that the possibility of international government action against carbon emissions increases as global concerns about climate change heighten."
Environmental considerations affect long-term profitability
It's important to understand that this interest is not driven by soft environmental sentiment. The world is just beginning to realize that environmental issues, along with other social and governance factors, play an important role in a company's long-term sustainability and profitability.
For this very reason Aegon adopted its Responsible Investment Policy in 2011 and publishes its annual Responsible Investment Report as a way of showing its commitment to sustainable business practices.
Each of the three portfolios was less carbon intensive than the benchmark, sometimes significantly so.
"The results of this initial investigation were interesting," says Mike. "Each of the three portfolios was less carbon intensive than the benchmark, sometimes significantly so. After presenting the results, portfolio managers and analysts were keen to learn how the carbon footprint of their portfolios compared against the footprints of the companies in the relevant benchmarks."
"To be perfectly transparent, we also found that the carbon intensity is not a key factor in making these investment decisions or sector allocations, but we hope that our discussions around this analysis have planted a seed in the sense that portfolio managers will become more aware of these environmental considerations and their financial impact."
Environmental impact analysis
As an investor, Aegon is able to influence the enterprises in which it invests. And in this respect, their behavior can have a direct impact on the environment - and the more that environmental impact analysis becomes integral to their portfolio choices, the greater the impact.
