Todd Hedtke — chief investment officer at Allianz Investment Management (AIM), a division of Allianz Life Insurance Co. of North America — will be taking part in a panel discussion on investor global initiatives at the Climate and ESG Asset Owner Summit in New York sponsored by the CFA Society of New York on Sept. 24. Hedtke, who earned his bachelor’s degree from Hamline University and his MBA from the University of Minnesota Carlson School of Management, oversees about 80 investment professionals in Minneapolis as well as more than 20 portfolio managers and $150 billion in assets under management. In a recent interview, Hedtke talked about some of the ways that socially conscious and sustainable investing play a role at Allianz.
Q: What is driving the interest in investing using environmental, social and governance principles (ESG)?
A: To me it is probably the No. 1 trend that I am seeing around many different corners of investing. There are a few things. One, some people believe that ESG investing is going to drive outperformance. I tend to subscribe to that — not holistically — but in different ways. But you also have some demographic changes. Here is one of the bigger things. Just look at the millennial generation, which is the largest generation we’ve ever had in terms of size, outpacing the baby boomers. I saw a stat recently that 86 percent of millennial investors are actually interested in sustainable investing. That gives you some idea of the push. It’s not millennials alone, but I would say millennials are probably 10 points ahead of the average investor. And there is a lot of push around climate change, particularly coming out of Europe. Being a European company, we’ve signed on to a number of these initiatives already. Maybe we are a little more assertive on it, but I tell you I can’t go to an event and not see ESG as a core tenant of the investment conference. It’s pretty much everywhere now.
Q: Does incorporating ESG principles change how you communicate with companies you invest in?
A: The one area that I think is still emerging is around engagement. It’s actually engaging with either companies that we’ve already invested in or ones that we are looking at investing in sometime in the future. If they don’t meet our criteria, we need to decide how we engage with them. We’ve had a fair amount of receptivity around this. If they have challenges in one of these areas, we can encourage them to make adjustments. So we may say, “If you can do X, Y and Z better you will be a potential investment target for us.” That’s a pretty strong message. That engagement piece is something that I find to be particularly impactful. We as Allianz are a massive global entity in insurance, investing and social engagement overall. If we can be part of this community and get together with other companies like ourselves — we can actually make a difference in this space.
Q: How does your investment team incorporate ESG principles in their decisionmaking?
A: Our ESG investing approach is made up of six pillars, which help guide the AIM investment team in their decisionmaking. These pillars include asset manager selection, which is a requirement that our asset managers integrate ESG into their investment process; ESG factor evaluation for private assets, which helps us assess ESG risks; ESG scoring for public assets, which measures ESG performance; exclusions, which restrict investment in certain sectors such as banned weapons and coal-based businesses; impact investing, which involves looking for investment opportunities that offer solutions to challenges such as climate change or poverty; and engagement with investment companies, which sees us actively engaging with companies to increase ESG integration and transparency.
Q: What are some of your ESG investments?
A: On a global basis we’ve invested more than $5 billion in renewable energy, primarily in the solar and wind space, we’ve invested $2.5 billion in green bonds and another $8.8 billion in green financing for green buildings. On a local basis, we’ve done more than $1.5 billion in infrastructure projects to support renewable energy, and we’ve done a lot in the tax credit and social housing investment space. We’ve invested $350 million in low-income housing tax credit investments across 250 properties in almost every state. We do all that out of our Minneapolis team.
Q: Where does ESG fit in the Allianz corporate strategy?
A: I think it’s a couple things. Whether it’s the E, the S or the G. There are absolutely investment opportunities across each of those domains. We believe from a performance standpoint that this will be a core driver of quote, unquote, outperformance. We fundamentally believe that. From an Allianz standpoint we believe it will be performance enhancing and we do want to make a difference. I do really think this is a trend that will not be going away — it’s growing. Allianz on a global basis has a dedicated mission to make this not just part of our investment, but our insurance philosophy, and our corporate citizenship.