The Dutch pension asset manager PGGM has developed a global credit strategy that places equal emphasis on return, risk, and sustainability for its client, the Pension Fund for Healthcare and Welfare (PFZW).

This marks the first time that this investment philosophy has been fully embedded within a major asset class.

PGGM was commissioned in 2023 to develop a credit portfolio that integrates sustainability alongside financial performance. The result is a strategy that now serves as the global blueprint for credit investments within PFZW’s new mandate.

The asset manager said two major strategic decisions were central to this transformation: The adoption of a single, global investment universe and the extension of the investment horizon from three to five years to a more forward-looking five to seven years. These changes enable sharper decision-making and provide the flexibility to pursue long-term financial and societal goals.

Furthermore, sustainability has been woven throughout the portfolio using a structured and multifaceted approach.

Investments are selected not only based on financial metrics but also for their contribution to the UN Sustainable Development Goals (SDGs), helping PFZW work toward its aim of allocating 30 per cent of the credit portfolio to Sustainable Development Investments (SDIs) by 2030.

These SDIs are identified using methodologies developed by the SDI Asset Owner Platform ENTIS, co-founded by PGGM.

Beyond SDI-aligned investments, the strategy incorporates labelled bonds that finance specific green or social projects. These instruments are evaluated against PGGM’s internal sustainability criteria to ensure credibility and impact.

The strategy also allows for thematic private loans focused on climate, biodiversity, and health – PFZW’s three key impact areas – enabling direct engagement with companies leading in innovation, such as a recent investment in a Swedish steel manufacturer using green hydrogen.

At the same time, PGGM continues to invest in companies that meet baseline sustainability standards but are not yet classified as sustainable. These investments help maintain portfolio diversification and can serve as engagement opportunities to improve ESG performance over time.

To ensure transparency and consistency, PGGM has also developed a proprietary sustainability assessment framework that evaluates companies based on both their product offerings and corporate behaviour.

Factors such as climate targets, labour practices, and sector-specific issues like water usage or data security are considered. Each company is assessed relative to its industry peers, using a combination of internal analysis and external data sources.

“With this approach, we are building a global credit portfolio in which return, risk and sustainability are balanced and mutually reinforcing. The result is a balanced portfolio based on thorough analysis. Thus, we show that sustainability is not a precondition, but an integral part of the investment process,” PGGM stated.

---