Robeco rolls forward in ESG

Robeco’s achievement in ESG investment was recognised this year in the Asia Asset Management Best of the Best 2022 Awards, as co-winner of the Best ESG Manager Award. This reflects the firm’s strategic commitment to maximise its contribution towards reducing emissions in the real economy, as well as the purely financial sphere. Robeco takes the position that simply divesting from high-carbon assets means that these will appear in another portfolio without any lasting impact in the real world. For the Net Zero transition to be successful, in the company’s view, it is exactly these high-emitting sectors that require the most capital to transform. Robeco’s role as investors is therefore not only to invest in that transition, but also to accelerate it. 

Targeting Net Zero

In 2020, Robeco announced its Net Zero ambition, to decarbonise its investments 30% by 2025 and 50% by 2030. Since then, the company has further developed a detailed Net Zero roadmap covering its Net Zero strategy, based on three pillars and six key actions.

The first pillar is for Robeco to decarbonise its activities. It seeks to reduce the carbon footprint of its investments and operations by an average 7% year-on-year. This is in line with what science indicates is required for keeping the global temperature rise to well below 2°C above pre-industrial levels, according to Robeco’s analysis. This translates into the first two key actions: decarbonise portfolios; and reduce operational emissions.

Robeco’s second pillar is to accelerate the transition. For this, it seeks to leverage its influence as a major investor to accelerate climate action by companies and countries. Robeco assesses companies in order to identify those that can outperform in the transition, hence contributing to climate mitigation and enhancing risk-adjusted returns. For companies that do not act fast enough, Robeco seeks to ramp up engagement activities and, where required, escalate voting decisions. Robeco also seeks to collaborate with other investors to step up dialogue with sovereign bond issuers. The two consequent actions are to accelerate the transition of companies, and call for climate action by companies.

The third pillar of Robeco’s Net Zero strategy is to promote climate-aligned investing. In this context, the company collaborates with clients, peers, standard setters and relevant stakeholders in the industry to accelerate Net Zero investing. Robeco plans to grow and expand its offering of climate-aligned investment solutions, and actively contribute to conducive market standards and policies. The corresponding actions are to work with clients on decarbonisation, and to collaborate to promote Net Zero investing.

Asset owners and Net Zero

Robeco is happy to share guidance on how asset owners can implement Net Zero. The best way to start, in the company’s view, is with formal commitment from the top. Such high-level pledges will provide guidance in making concrete portfolio decisions later. If asset owners join an initiative to align their portfolio with a Net Zero economy, then the next step is to make a formal plan to structure specific paths to implement this process. 

Of the different ways to decarbonise investment portfolios, the simplest way is through exclusion. Robeco, for example, excludes companies from its Sustainability Inside portfolios that derive 25% or more of their revenues from thermal coal or oil sands, or 10% from arctic drilling. A more advanced, pro-active approach is to reduce carbon across the entire portfolio, but this is a complex step and not a quick fix. It requires data and standards, and calculation of current emissions and benchmarks to compare the portfolio against. 

To reach Net Zero, Robeco believes that asset owners and managers need to grasp the transition readiness of companies and countries, and the financial consequences, including gauging the required carbon reduction, and associated technologies and investments. Such “carbon risk impact” information can then be integrated within investment cases, company engagement and voting.

Asset owners‭, ‬corporates‭, ‬and engagement

With engagement such a key factor in the drive towards Net Zero, Robeco capitalises on its over 15 years of experience in engaging with companies on climate-related themes. The company has found effective engagement to be a powerful tool in driving changes, especially if leveraging off the current spread of major collaborative investor initiatives around climate change, such as the Institutional Investors Group on Climate Change (IIGCC) and Climate Action 100+. 

Robeco currently runs six engagement programs, namely, financing the transition; targeting high emitters; combating biodiversity loss; Net Zero carbon; deforestation at palm oil plantations; and collaborating on climate change. For the top 200 emitters in the company’s investment universe, Robeco tracks their climate performance, and gives them a traffic light rating ranging from red to green, to indicate how far a company is aligning its business to Net Zero. Robeco concedes that its baseline measurement is incomplete due to data limitations, but expects this to significantly improve in the coming years.