As ORIX Group rolls out its new Purpose during 2024, Robeco is one part of the Group whose core mission aligns squarely with the ambition of “Finding Paths. Making Impact.”
The Dutch asset manager, with €176 billion under management, is a global pioneer when it comes to making investing both more sustainable and more impactful. It launched its first ESG-aligned fund as early as 1990 and last year was ranked as the top sustainable investor in six markets in Europe and Asia by fund ratings agency Morningstar.
In an industry that has worked hard in recent years to place environmental, social and governance considerations at the heart of its processes, Robeco has gone further than most in embedding sustainability into everything it does. The key to this is the fund manager’s Sustainable Investing Center of Expertise, a 52-strong team spread across five countries, that is responsible for active ownership and sustainability research, thought leadership and client portfolio management.
Carola van Lamoen, Head of Sustainable Investing, who runs the center from Robeco’s headquarters in Rotterdam, mentions that ‘sustainable investing is in our DNA.” Constant interactions with the firm’s portfolio managers and research analysts, as well as annual quality control audits “not only make us better investors; it also means we can no longer turn it off – sustainable thinking is ingrained at Robeco”, she says.
Moving from ESG to SDGs
For a start, the group has refined its investment processes over many years to make sure that ESG criteria are integrated into all aspects of how it screens and selects the stocks and bonds it selects for its portfolios. While the topics and emphasis vary from sector to sector, there is a common approach: financial analysts, fund managers and ESG specialists will triangulate to assess an invested company, including, for example, its sustainability targets and energy transition plans.
The key yardstick is financial materiality, assessing how critical relevant ESG risks are to a company’s current performance and future potential. Robeco takes a practical approach, understanding that many companies are still in the early stages of their transition journey. That means it will consider investing even where ESG-related plans and goals are still being defined, as long as the valuation takes that into account. “We take into account ESG criteria in our assessment”, says Ms van Lamoen, “because we are convinced this leads to better informed investment decisions.”
Complementing – and indeed, reinforcing -- this ESG integration has been the group’s development of a proprietary framework to score potential investee companies according to the United Nations’ Sustainable Development Goals (SDGs). Begun in 2017, the framework allows Robeco to measure how different industries and individual companies measure up against the 17 SDGs, that target everything from eradicating poverty and war to providing clean water and air and improving education, health and equality.
While fund managers can buy third-party analysis packages to make SDG assessments, no globally accepted standard exists for doing so. Ms van Lamoen says that developing its own framework has allowed Robeco to build something that is more sophisticated and closely aligned with its investment process.
The framework has been such a success with clients that it is now the basis for €19 billion of the group’s AUM and, after a trial period, Robeco last October made it an open access platform, giving clients, academics and now the public full access to the model and the data behind it.
“We have received a lot of feedback, most of it very positive,” says Ms van Lamoen “and we intend to keep expanding it and to help solve the data challenges around assessing SDG performance.” Currently, the framework rates some 12,000 companies on a simple score between +3 and -3; in addition it rates 150 countries on their country sustainability ranking.
In fact, ORIX Corporation itself has a total SDG score of +2 using this tool, making the case that its own focus on sustainability stands up under scrutiny. Indeed, the ORIX Sustainable Investing and Lending Policy outlines that the Group recognizes both that sustainability issues have a significant impact on long-term risks and opportunities, and also the importance of making decisions with a close eye on sustainability when conducting business.
ORIX Group CEO, Makoto Inoue himself recognizes the important role Robeco plays in the Group around sustainable investment: “Robeco’s global leadership in sustainable investment and the sharing of this knowledge with ORIX has been tremendously beneficial to ORIX’s own sustainability goals and achievements,” Mr. Inoue stated in July, 2023 on the occasion of the 10th anniversary of Robeco as a member of ORIX Group. “Going forward, we will continue to focus on our shared priority of maximizing asset management growth opportunities in markets around the world, utilizing the strengths of our respective brands, talented employees, specialized knowledge and broad global networks,” he remarked.
Active management requires engagement
Another activity overseen by the Sustainable Investing Center is corporate engagement. As a proudly active investment manager that believes its approach adds ‘alpha’, or excess returns, Robeco explicitly tries to improve performance at its investee companies – rather than just voting with its feet and selling out.
That includes not only voting at shareholder meetings – on more than 7,200 such occasions last year – but also seeking specific engagements with companies, usually privately. There were more than 260 such engagements in 2023. While the priorities for such meetings are adjusted from year to year, they emerge from a structured process with clear criteria, notes Ms van Lamoen. The objective is to focus on a handful of topics annually and to really push for progress.
In 2024, for example, Robeco will be asking its investee companies about how they deal with hazardous chemicals – what kind of mitigation and phase-out plans they have; what the reputational repercussions of their use might be; and whether they risk ending up with stranded assets. Before asking about each subject, the firm conducts its own detailed research so that it can have constructive conversations with target companies and does not waste their time.
Key topics like mitigating climate change, preserving biodiversity and safeguarding human rights are, of course, on the agenda every year. In order to amplify its voice in these areas, Robeco is willing to collaborate with other investment firms. One such example is its membership of Climate Action 100+, a coalition of over 700 investors with some $68 trillion under management, that aims to hold the world’s largest corporate greenhouse gas emitters to account by rating and engaging with them on their energy transition plans.
“Climate change and biodiversity are core topics for our sustainable investing approach”, says Ms van Lamoen. To hold itself to account, Robeco has set a clear target to have net zero carbon emissions across its entire portfolio by 2050 and published a concrete roadmap on how to achieve this in 2021. It has also made a pledge to contribute to protecting biodiversity, believing that institutional investors have a role to play here. But since corporate impact in this area is even harder to measure, it has entered a partnership with the World Wide Fund for Nature (WWF) to develop a biodiversity assessment framework similar to its SDGs framework.
In all of these ways, Robeco is showing how it is possible to create both wealth and well-being – to generate great returns for its clients while also having a positive impact on society and the planet. That is indeed the perfect marriage of purpose and performance.
