Robeco’s approach to ESG:
- Start with environmentally sound companies through solid research.
- PMs then integrate this research into the investment process.
- Once the portfolio is built, the role of the fund manager is stewardship and to increase the sustainability performance of the funds.
Question: what is the role of the investment manager today (with ESG in mind)?
- Clients expect us to do it. It’s not a product it’s an expectation. Individuals do ESG (recycling etc), so why would I give you my money to do the opposite.
- We have to listen and react to what the client wants. To be aware, acknowledge and try to implement. We HAVE to listen to clients and get on with it – we won’t be perfect right away, but we have to start the process.
- As a firm, we have disinvested from certain sectors, but not all our clients will take the same view.
- In our experience, the biggest resistance to portfolio change comes from investment managers themselves. Investment is a bit like religion – people hate outsiders messing with their convictions – to turn down a great idea on environmental grounds is alien!
- There is however often a misconception that you give up return through taking an ESG stance.
- It’s interesting that organisations are now not only appraised on financial performance – for example, Shell now has a carbon offset target as part of their compensation.
Question: how much responsibility should we be taking for the impact of the investments we make?
- It’s a constant education battle.
- We are certainly responsible as we are the allocators of capital.
- Is there more benefit to allocate to firms that are transitioning, or to firms that are pure ‘clean’ plays? For example BMW vs Tesla: Teslas are 100% carbon neutral whereas 20% of the sales of BMW could have a 20% improvement target with an outcome 200 x the sales of Tesla.
Question: what are your clients asking you with regards to ESG?
- Climate change is huge and we have removed tobacco and oil stocks.
- All of a sudden, ESG is considered differently by each client which totally screws model portfolios and ROBO advice.
- Performance is always key, but ESG is a critical factor to try to combine.
- Directive from regulators – how can 50% of revenues be from a finite basket of firms.
- ESG makes things dangerous as everyone wants a bespoke portfolio – clients won’t pay the price for bespoke management but we are under significant fee pressure from the regulators.
- Better to be partially right than absolutely wrong.
- Environment carries a different ‘weight’ to other ESG topics, such as tobacco.
- Do you have to live it, as well as offering it?
- ESG is also a key factor for modern day recruitment and staff retention. You can have a green-a- building as you can, but the real impact comes from your investments.
Question: how do you explain ESG to your clients?
- It’s a real key element of relationship management now.
- Impactful strategies have been offered for many years, but assets drawn to this have been modest at best – anything new/untested/expensive is going to have a slow start.
- Explaining exclusions is too simplistic these days. In 20 years ESG won’t exist as it will just be so integrated. It will just be investing.
- The big challenge is articulating to clients exactly what they are buying
Expert: Kenneth Robertson, Corporate Governance Analyst. Robeco
Facilitator: Giles Patterson, Director, Scorpio Partnership