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December 2023 - January 2024
AAM Magazine
Dec 2023 - Jan 2024
Back to 2023 Best of the Best Awards Supplement

Double materiality, double victory

By Paul Mackintosh   

Robeco, a consistent leader in sustainable investing and ESG, received dual recognition in Asia Asset Management’s Best of the Best Awards 2023, with regional awards for Best Impact Investing Manager and Best Climate Change Strategy. For Robeco’s Graham Elliot, head of Asia Pacific distribution, a double materiality approach to sustainable investing is vital. This approach considers both financial and impact materiality when integrating sustainability in managing investment portfolios and is based on creating impact-aligned strategies that focus on both impact materiality as well as delivering attractive investment returns.

In line with these objectives, Elliot says Robeco’s strategies only invest in securities deemed sustainable investments – as determined by, for example, alignment with the Sustainable Development Goals (SDG) or membership of a Paris-aligned benchmark. Strategies include sustainable thematic, sustainable indices, SDG and climate strategies, in line with the priorities of Robeco’s overall Sustainable Investing Strategy that includes climate change, biodiversity, and human rights. 

To measure actual impact, Robeco’s proprietary SDG Framework systematically assesses company impacts in in terms of products and services, operations, and controversies, assigning a score for every relevant SDG, indicating both impact direction (positive, neutral or negative), and intensity (high, medium or low). These 17 scores, Ghislaine Nadaud, senior sustainable investing specialist tells AAM, are then consolidated into one overall score. Robeco has also formulated impact indicators to quantify the real-world effects of products and services. As such, the firm’s SDG Framework is a tool for creating investment strategies that are in line with the SDGs focusing on impact.

Robeco also measures its own impact through engagement activities, holding dialogues with investee companies to improve their sustainability performance. The firm also seeks to assess, through investee surveys, its own ‘additionality’ – or whether investees have improved their impact as a result of its influence, or other factors. 

Asset classes and investment types

Impact investing originated in private markets for investors to generate positive impact alongside financial returns. Listed assets investors have increasingly started to embrace impact in their strategies. However, from the outset investors have been concerned that public markets are secondary trading venues, where companies are not counterparties, and transactions have no direct effect on their balance sheets, or the ability to scale their positive impact. Also, public markets mainly invest in large, established companies that usually have sufficient access to capital, and such investments arguably lack additionality.

“Robeco broadly aligns with these concerns, but does maintain that public markets investors have a key role to play in mobilising vast amounts of capital towards more positive outcomes. Also, ethically these investments should be aligned with the values of ultimate asset owners such as pension holders,” explains Elliot.

Robeco looks towards a critical mass in the financial ecosystem, favouring companies with a positive impact over those that hamper sustainable development, sending strong market signals that impact matters. 

“Ultimately, these preferences will be priced into securities, so impactful companies will have better cost of capital. Beyond capital allocation, investors can engage with companies to improve sustainability performance. We consider company engagement the most important tool for public markets investors to create impact, given its direct influence,” adds Nadaud.

Climate change priorities

Robeco follows its own Net Zero roadmap for its climate strategy for the coming years, focusing primarily on reducing emissions in the real economy. Rather than divest from high-carbon assets, which simply reappear in other portfolios, for the net-zero transition to be successful, Robeco seeks to decarbonise high-emission sectors – requiring considerable capital. As investors, the firm seeks to invest in and accelerate the transition by decarbonising invested assets, working alongside governments, industry and consumers. 

For 2023, Robeco is specifically focusing on Scope 3 emissions and how these could eventually be integrated into interim targets, enhancing and expanding forward-looking climate analytics and working with clients to implement Net Zero in their portfolios. 

Robeco holds that all asset classes have a role to play in achieving the Paris Agreement. The firm’s philosophy is to invest in leaders and engage with laggards, whilst setting red lines for activities not compatible with Net Zero. In terms of strategies, this can mean investing in transition companies – the leaders in high-emitting sectors – while engaging with companies whose transition plans could be improved. Also, Robeco may invest in climate solutions, or companies enabling the transition of high-emitting sectors.

“All these are identified through climate analytics, such as the Robeco Traffic Light, which identifies whether a company’s plans are aligned with the Paris Agreement, and the Robeco Climate Score, which identifies the overall contribution of a company to climate change and its mitigation,” says Nadaud.

And while Robeco is not currently involved in carbon credits as an investable asset class, it is monitoring the development of these markets, holding that long-term carbon markets are essential for achieving the Paris Agreement. 

“Ultimately our investments in climate-positive outcomes are currently predominantly through green bonds, thematic strategies such as smart energy, and investing in transition leaders,” concludes Elliot.