The long road toward ESG integration

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Masja Zandbergen, Robeco

Robeco’s history in ESG started in 1999, with the launch of its first sustainable equity fund. However, the firm has not yet integrated ESG factors into all of its strategies, according to Masja Zandbergen, the firm’s head of ESG integration.

“The acquisition of Sustainable Asset Management, now Robeco SAM, in 2005 finally gave the group a centre of expertise on sustainability investing and gave capabilities in sustainable research and investing,” she said.

Using Robeco SAM, the firm decided to integrate ESG into its investment processes in 2010 for all assets it manages.

“Each investment process requires its own approach,” Zandbergen said.

For example, for government bonds, an ESG report is made at the country level. Country scores are based on 17 indicators, such as environmental risk, human development, political risk and aging.

“Incorporating this type of information in the investment analysis gives us additional information that is not easily obtained via other data sources. It helps us to spot problems as well as opportunities in countries well before they are reflected in spreads or are picked up by rating agencies,” Zandbergen said.

For Robeco’s equity teams, it links ESG factors to value drivers, such as sales, margins and cost of capital. The starting point of the linking process is having an understanding of the nature of the business and its most important stakeholders, which in turn should allow an analyst to identify the most material issues. For example, for a bank, it would be corporate governance, while for energy companies, it is eco efficiency.

After identifying material issues, the analyst then assesses how the company performs on these issues relative to its peers, whether or not the company will derive a competitive advantage from its most material issues and how that affects its value drivers.

In March, the firm also decided to exclude investments in tobacco from all of its mutual funds.

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