Robeco Institutional Asset Management

Robeco systematically incorporates ESG factors into its mainstream investment and portfolio construction processes.

For us, ESG integration is more than just ‘ticking the box’: we are convinced that taking ESG criteria into account results in better-informed investment decisions and is necessary to fully grasp the risks and opportunities associated with the businesses in which we invest. The ESG research we use is primarily generated internally and is integrated at both company and country levels in our equity and fixed income products.

Sustainability can have a major effect on corporate profitability, and therefore on valuations and the risk-adjusted return of investments. Also, firms that score low on sustainability factors will more likely suffer from a deterioration of their credit quality. Incorporating ESG criteria in investment decisions is therefore in the interest of our clients. ESG-inclusive approaches not only provide portfolio managers with an additional ‘lens’ to spot investment opportunities, but they can also help to align the objectives of institutional investors with those of society at large.

The way in which we incorporate extra-financial factors into our investment processes is tailored to the characteristics of each individual investment strategy:

Quantitative equities

In our quantitative equities strategies we incorporate sustainability in in multiple ways: adherence to the Robeco exclusion policy and our Good Governance policy, lowering the environmental (carbon, water and waste) footprint of the portfolio, improving the SDG score and ESG risk profile of the portfolio, and taking part in voting and engagement programs.

Quant fixed income

Most quant fixed income strategies integrate sustainability in various ways into their investment processes. For quant credit strategies, the portfolios’ average ESG risk ratings by Sustainalytics as well as various environmental footprints (carbon, water use, waste generation) are kept below their benchmark levels. For quant government bonds this is done for ESG ratings and carbon emissions of countries. Exclusion lists apply to all funds and most other portfolios and PMs and analysis screen for material ESG risks that are not captured by our quantitative models. Most strategies comply with Robeco’s Good Governance policy.

Fundamental equities

All Robeco fundamental equity strategies use a three-step approach for ESG integration. Firstly, analysis is conducted on which ESG issues are most financially material, as these are the most relevant for investment decisions. Then the company is assessed as to how it manages these issues, and how that compares to peers. The last step is to quantify the impact of the ESG analysis into the company’s valuation assessment. In addition to this, for emerging market strategies, the Country Sustainability Ranking is used to determine the country risk.

Government bonds

Robeco has developed a comprehensive and systematic ESG ranking framework for countries. This is designed to complement sovereign-bond ratings developed by traditional rating agencies. 125 countries are assessed on the basis of various sustainability criteria. The resulting country sustainability ranking is updated twice a year.

By focusing on selected ESG factors such as aging, competitiveness and environmental risks – which are long-term in nature – and considering a country’s position in the economic cycle, the country rankings offer a view of a country’s strengths and weaknesses that are not typically covered by rating agencies.

Credits

ESG information is an integral part of the credit investment process. Many credit issues in the past can be attributed to factors such as weak governance frameworks, inadequate health and safety procedures, supply chain issues and environmental factors. By incorporating ESG information into the process, our credit analysts get a better, more complete picture of the company, especially when assessing the downside risks.