Principal Financial Group® 2023 Sustainability Report: Our Global Approach to ESG Integration
Advancing inclusive products & services
Originally published in Principal Financial Group 2023 Sustainability Report
Our global approach to ESG integration
Our approach
The consideration of ESG factors is integrated into our sustainable investing approach across all actively managed asset classes. The integration approach is determined by the specific investment process of the investment team within the underlying asset class.
Our Sustainable Investing Oversight Committee has worked with each investment team to categorize alignment with our internal sustainable investing continuum. The sustainable investing continuum outlines our various approaches to sustainable investing, which are classified as ESG IntegrationFoundational, ESG Integration Enhanced Features, Thematic, or Impact. We also have the ability to screen investments for sustainability-related characteristics by client request. ESG integration is our most widely used approach to implementing our sustainable investing strategy.
Read more about our approach:
- Principal Asset Management Sustainable Investing Policy; PAA Sustainable Investing Policy (PDF)
- Principal Equities Sustainability Overview (PDF)
- Principal Listed Infrastructure Sustainable Investing Policies (PDF)
Our actions and performance in 2023
While our Principles of Responsible Investing (PRI) signatory status since 2010 reflects the fact that Principal Asset Management has considered ESG factors for many years, the thematic and impact portion of the sustainable investing continuum is relatively new as this space continues to grow.
As of December 31, 2023
- $240.2 billion ESG Integration
—Foundational AUM - $64.3 billion ESG Integration
—Enhanced Features AUM - $151.1 million Thematic AUM
- $2.7 million Impact AUM
In total, approximately $304.6 billion of AUM are internally classified as sustainable investment products, representing approximately 61% of assets managed by Principal® Global Investors.1
Additionally, in 2023, we screened $10.3 billion in client mandated products.
Growth of AUM classified as sustainable investment products1
- 2022: 55%
- 2023: 61%
Investment team highlight: Principal Real Estate
While we consider many ESG factors in our integration analysis, climate risk is one of the material factors used in the evaluation of real estate assets. Principal Real Estate conducts climate risks scenario analyses for its discretionary open-end funds on a regular basis.
Thirteen Principal Real Estate investment strategies have completed physical and transitional climate risk analysis.2 The investment teams use this information in their annual investment strategy to identify high-risk assets for capital improvements or operational changes and to better understand their overall environmental risk and impact.
Principal Real Estate: Climate targets
We seek to invest in and lend on real estate that delivers positive financial, environmental, and social outcomes for all stakeholders while promoting health and well-being for tenants and residents, minimizing environmental impacts, and enhancing the communities where we invest.
In support of global efforts to limit warming to 1.5°C, we have set an emissions target for select private equity investment vehicles.
Thirteen Principal Real Estate investment strategies have completed physical and transitional climate risk analysis.2 The investment teams use this information in their annual investment strategy to identify high-risk assets for capital improvements or operational changes and to better understand their overall environmental risk and impact.
We aim to reduce our GHG emissions by 40% by 2035 and achieve net zero by 2050 for select discretionary private equity investment vehicles from a 2019 baseline.
To date, we have achieved a 5.5% reduction in GHG emissions.3
Principal Real Estate defines net zero as the annual carbon emissions generated from a building’s use of fossil fuel, GHG-emitting energy being reduced to zero based on the adoption of energy efficiency, on- and off-site renewable energy sources, and carbon removal offsets, if needed.
Our strategy for achieving net zero starts by reducing building energy use through energy efficiency projects, low or no cost operational improvements, investment in capital expenditures, tenant engagement, and building electrification.
Once we have reduced energy use, we will focus on renewable energy generated on site or off site and potential renewable energy credits. For any GHG emissions remaining after reduce and renew projects, we will look at carbon removal offset options with a focus on authentic long-term carbon removal.
Read more:
To learn more, read the Principal Financial Group 2023 Sustainability Report.
1AUM representative of Principal Global Investors investment teams as of December 31, 2023. AUM that are sustainable investment products are internally classified by Principal Asset ManagementSM and not by any third party or regulatory body. Principal Asset ManagementSM is the trade name of Principal Global Investors, LLC. See Important Information page for AUM description.
2As of August 2023.
3As of December 2023. Performance reflects available data from properties in select Principal Real Estate open-end discretionary private equity funds. Baselines are individually set for each property depending on data availability and property availability/property development date. The first 12 months of available data on or after calendar year 2019 is utilized as the baseline for each asset.
Integration of environmental, social and governance (ESG) factors is qualitative and subjective by nature. There is no guarantee that the criteria used, or judgment exercised, will reflect the beliefs or values of any particular investor. Investment teams have a high degree of investment process autonomy and lay consider or weight ESG criteria or factors differently (or strategies that are not explicitly ESG-oriented, those ESG factors are generally no more significant than other factors in the investment selection process, such that ESG factors may not be determinative in deciding to include or exclude any particular investment in the portfolio. Information regarding responsible practices or other ESG data differs by source and may not be accurate or complete. Integration of ESG factors may present additional advantages or risks, may not protect against market risk or volatility, and under certain circumstances may detract from investment performance. You should not make any investment assumptions based solely on the information contained herein. Information is provided as additional insight into the relevant investment processes and should not be viewed as a change in an investment team's underlying investment objectives, strategies, risk parameters, or portfolio construction guidelines. There is no assurance that any strategy or integration of ESG factors will be successful or profitable.
Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Company®. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., member SIPC and/or independent broker/dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, IA 50392.
Principal Asset ManagementSM is a trade name of Principal Global Investors, LLC.
Principal Global Investors is the global investment management business for Principal Financial Group® and includes the asset management operations of Principal Real Estate Investors, LLC; Principal Real Estate Europe Limited and its affiliates.
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