Today, APG chairman of the board Gerard van Olphen has signed an agreement in The Hague under which the Dutch financial sector will commit to the targets of the Climate Agreement and the Paris Agreement. He is doing so on behalf of APG and as chairman of the Financing Task Force. The overall sentiment regarding the result is one of satisfaction, although getting to this point was more difficult than he initially thought it would be.
He comes back to this idea several times during the interview: this is a unique commitment. It is the only one of its kind. ‘Pension funds, insurance companies, banks and asset managers are voluntarily committed to this approach and will be transparent in their accountability to society. This commitment on the part of the financial sector will have a truly enormous impact. After all, the sector makes up 80-90% of the money in the Netherlands. The signatories to this agreement today represent €3 trillion. This makes the Dutch financial sector a catalyst for and promoter of the transition that the Netherlands has to undertake. We are shaping the future. Contributing to the achievement. And yes, I am very proud of that.’
Of course, as Van Olphen also knows, industrial companies themselves have to make their factories cleaner. ‘We can't do that for them. They will have to reduce their carbon emissions themselves. But the fact that when we assess industry business cases we are not only evaluating financial feasibility but also compliance with the Paris targets, which means that polluting or less ambitious initiatives in the field of CO2 reduction will have more difficulty in obtaining funding than plans that really contribute to sustainability.’
The uniqueness of the joint declaration has not escaped the notice of neighboring countries either. In Brussels, in London, at the G20: the finance minister, sector representatives or Gerard van Olphen himself will discuss this commitment on various foreign venues in the near future. The international financial community welcomes this typically Dutch “polder manifesto”. Van Olphen: ‘The financial sector in many countries is more inclined to support climate agreements than to help shape them.’
What is it that makes this document so special?
‘In the financial sector, you are primarily responsible for other people’s money, so you have to have a solid risk/return profile. You can't tell people that their pensions will be lower because we have to finance the energy transition. But this is a huge commitment, and I would almost say it is catalytic. This is because we intend to determine and report on the CO2 impact of all the relevant investments we make. We will then agree on reductions in line with the Paris targets. In other words, 49% lower C02 emissions by 2030. And we will hold ourselves publicly accountable for this in the framework of a national accountability system. Once a year, as a consequence of the climate agreement, the minister consults Parliament with a view to explaining: are we doing enough in the area of the climate? Will we achieve our targets? This commitment is integral to that.’
You are proud of the commitment involved, but not entirely satisfied. Why is that?
‘When I was invited to be the chairman of the Financing Task Force, the scenario was that we wanted to bring a climate agreement to the Lower House before the parliamentary recess in 2018. The Netherlands intends to make rapid progress on the energy transition. That turned out to be a more difficult process than we thought. Initially, five primary committees were involved. Initially, financing was intended to play a supporting role, in the same way as the labor market. Our vision was that at the level of the primary committees - transport, agriculture, construction, electricity, industry - a great deal was already happening, and they would be coming to the financing committee with very specific investment questions. Such as: ‘we are planning to build a light rail from the Randstad to Schiphol, we need hydrogen power stations or we need large-scale electrification.’
But in practice, the situation proved to be problematic. ‘Because nothing happened.’ Sometimes as a result of conflicting interests, but also because there was no clear direction in the climate plans. There were still many options to be considered. The Netherlands is going to use electrification or hydrogen. Will there be any legislation on CO2 pricing? So a great many conditions for a successful business case had not yet been met.’ In retrospect, this was also very logical. The subject matter is comprehensive and complex and also requires broad public support, and I was probably a little naive at the outset as well.’
No direction, many different interests.
‘Someone told me what their experience was: ‘When I started I thought it was a football match. But halfway through I think to myself: I'm now standing in front of the goal and something is flying towards me. First it was a football, then it became a baseball somehow, and now that I'm expected to head it, I'm not sure it's not a bowling ball. And before I do that, I'd like to know for sure one way or another.’
Is that how you experienced it as well?
‘To put it diplomatically, our first phase was one of finding our way. What also became clear to us, besides the fact that there was a lack of direction, was that the committees were not familiar with the structure of the financial sector. When the issue came up at one of the committees: we need money, our counter-question was: what kind of money? Well, money. But what kind of money? Well, euros. The question from the financial sector is then: Risk-bearing, non-risk-bearing, short, long, hybrid? And so we developed a financing guide so that they could better understand supply and demand in the field of financing. We also worked closely with the majority of the primary committees, sometimes in joint workshops, sometimes through participation in the relevant committee or in some other way.’
In February of this year, after a great deal of media fuss about the affordability of the transition, the government issued a broad outline of their assessment of the agreement. This prompted the task group to consider its role in the follow-up. What's next? ‘We then agreed to focus on two things. The first was the commitment that we are signing today. The second was to help support Invest NL. In the meantime it had been decided to found Invest NL, an investment company belonging to the Dutch State and managed by Wouter Bos. Invest NL acts as a point of contact and facilitator for parties looking for financing in the context of the energy transition. It is the investment company that has received 2.5 billion from the state to advance the transition. The idea is this: we are not going to finance the energy transition with this EUR 2.5 billion, but if we invest it in the right place, the private market may be able to invest many times more than that on market terms, and this will make investment capacity available.’
And now we the commitment is there. Aren't you afraid that this will be a paper tiger? It seems like a horrible job to me to standardize the measurements.
‘The next chapter is: how do we make sure this happens? This must not become a paper tiger. This really must be something where the financial sector will genuinely be accountable to politics and society for their efforts. So there must also be an independent guarantee, and it will be difficult to say at first: party A reports using one standard, party B reports using another standard, but what matters is: is the underlying trend the right one? And if it's not the case, that party should be able to say: dear financial sector, you need to redouble your efforts.
And that independent actor will be there?
‘Yes, it is going to happen.’
The problem is that you can't impose sanctions. At best because parties that are lagging behind will have to account for their actions publicly. Or because the sector is exerting pressure.
‘My first instinct is not to resort to naming and shaming. But let's say hypothetically that if a party is known to be clogging up the works, the sector itself will eventually make corrections. The sector has now gained sufficient experience with painful situations where they have been called to account and have themselves been too slow to take action. Whether you look at profiteering policies at insurance companies, interest rate derivatives at banks or how pension funds communicate pension cuts, these social discussions have taught us that this is not how it works.’
So how does this affect APG itself?
‘This means that APG, as a company, is also committed to reducing CO2 emissions in line with the Paris targets. This implies decreased travel and reduced gas consumption. Everything that comes into play in society will also affect us as a company. Sustainability is not something that our clients necessarily expect from their investments, but it is what we expect at APG. This means that our annual report will state how much C02 we emit and how we are going to ensure that this will be 49% lower in 2030. What does that mean in terms of accommodations? In terms of how we travel? How are we going to heat our buildings? From 2020 onwards, the theme of sustainability will be high on the agenda of APG itself.’
And beyond the company itself - what does this mean for the stakeholders, consumers who read in the newspaper that the energy transition is unaffordable?
‘Of course, the transition will be costly. The idea that some of the news media presented was that in five years, everyone will have to cook electrically, or have solar panels on their roofs. So that's our starting point now, and the question is who is going to pay for it? But what matters is that you adapt to match the natural flow of the consumer. The financial sector will of course be there to support consumers in their decisions. So if you, as a consumer, want a new kitchen, then the lender will say: if you are going to make a choice anyway, then it's better to go for induction. That's different from saying: I've just had a new kitchen installed and now it turns out that I might as well replace my stove in two years’ time. When you are making choices about financing your kitchen, your house, your car, your company, you will find a bank, an asset manager or a pension fund that will say: we will help you finance your needs, but at the same time we will work with you to think about how you can make sustainable choices.’