Ways Funds Can Utilize ESG in Their Investment Process

As environmental, social and governance (ESG) strategies continue to make more headway globally, companies like Dutch asset management firm Robeco are integrating ESG strategies as part of their core business. Robeco’s model presents just one of the many ways companies can utilize ESG as part of the investment process.

“We tend to take a bottom-up view, we look at companies and each company has its own specific ESG risks and opportunities. In the healthcare sector, for example, it’s pricing the product and innovating new products,” said Masja Zandbergen, Head of Sustainability Integration at Robeco. “And that’s completely different from the banking sector where we look at business ethics, risk management culture, what products they are providing and is that something that is helping their clients. So, it’s different for each industry. When you look at it overall however, I would say climate change is a big systemic issue as well as inequality. We’re seeing inequality within countries rising and that is leading to all kinds of political risks, and other kinds of risks that are affecting the companies and the markets that we invest in.”

As ESG products begin to proliferate, product differentiation is key and Robeco has their own way of using ESG.

“We use ESG to make better informed investment decisions and we do that for all the funds that we manage, and we call that sustainability insight,” said Zandbergen. “It’s not changing the investment universe or the portfolio outcome but it means we are an active investor; we talk to companies about sustainability issues, and we integrate it into our investment process. We also have targets on ESG. So, we’re saying we want the portfolio to score better on ESG 20%, we want to have a lower environmental footprint. It is for investors that want to reflect their personal values into these investment portfolios.”

On the flip side, funds that focus on product differentiation will eventually have to compete for assets and for Robeco, there are certain trends that stand out moving forward in the ESG space.

“I think mainstream funds will become stricter on sustainability and, in turn, sustainable funds will become stricter too,” Zandbergen said. “I also think there will be more product proliferation and product development. So, there will always be choice for investors, because everyone has their own preferences, and as an industry we need to understand the need to open our minds with a choice that reflects investors preferences.”

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