Several years ago, investment fund manager UBS Asset Management received a specific request from one of its clients. Dutch pension fund PGGM was looking to measure the social impact of the stock exchange companies in which it owned shares. Existing sustainability rating systems were mainly based on inputs and processes and PGGM could find no impact assessment methodology related to food security.
To address this issue, UBS-AM embarked on a project with Wageningen University & Research that focused on impact modelling in the area of agricultural productivity and food waste. The goal was the development of a methodology using publicly available corporate revenue data to assess the positive impact of agricultural technologies such as fertiliser, improved seeds, cooling techniques and packaging techniques on agricultural productivity and food waste. Dr. Dinah A. Koehler, who leads the UBS-AM Sustainable Investors team's impact measurement research project on climate, water, health and food security, takes up the story.
For UBS-AM and Wageningen it was a challenge that had not been addressed before. PGGM was looking to evaluate the contribution of publicly traded companies to improved food security. Its main client – the pension fund for the health care sector, PFZW – wanted to know the effects of their investments on environmental quality and human health. It quickly became clear that all the then-available ways of doing this were inadequate at best.
Leveraging on expertise
WUR was an obvious partner to help create a new methodology thanks to its expertise in agricultural social & economic experience and research & environmental issues, along with its overall scientific prowess. They were also well known to UBS-AM's research partners at Harvard University and City University of New York (CUNY), with whom UBS-AM had developed impact assessment methodologies for climate/air pollution, health and water. The people at WUR instantly showed that their reputation is well-deserved by understanding how the task would require an ability to marry an academic approach with a private-sector business model.
Crucially, the resulting model needed to be globally applicable, scalable, and at the same time precise enough that one could drop a pin on a map and measure the positive impact of a given company there. In terms of fertiliser application, WUR already knew how to measure yield improvement per tonne of fertilised soil. WUR developed a model to translate that increased tonnage into the benefits for humans, measured by improved access to food.
WUR found an innovative means to achieve that goal. By modelling various commodity cereals that provide the greatest amount of nutrients from vegetable matter, WUR was able to credibly assess how much yields had improved relative to the background yields in a given country. In an impressively fast time of less than a year, they delivered a new measurement model. And they did so in a thoughtful and very thorough way with a reasoned approach.
A meeting of minds
WUR was keen to learn about the background to the project, the previous work developed by CUNY and Harvard and the reasons for PGGM to take up this challenge in the first place. It was a genuine pleasure to be a part of this collaborative partnership as all parties involved regularly met for workshops to thrash out the fine details. This was a real hands-on project and the outcome will also have very practical implications to influence company investment decisions.
It’s not just the model itself, it’s the framework. How do you estimate the benefit a company provides to the environment and human well-being because of the products it sells? This is the flipside of sustainable investing, which often revolves around the avoidance of doing harm.
About Dinah Koehler
Dr. Dinah A. Koehler leads at UBS the Sustainable Investors team's impact measurement research project and whitepaper development. She also has primary responsibility for the overall product positioning and development of Sustainable Equity Strategies, ESG database development, as well as marketing and communication to existing and prospective clients globally. She is based in New York.