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RobecoSAM AG

PRI reporting framework 2018

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

 

RobecoSAM's exclucion policy is published on its website:

http://www.robecosam.com/images/RobecoSAM_Exclusion_Policy.pdf

In our view, companies that add value for society will deliver superior returns to their shareholders over the long -term. Conversely, firms that are lagging behind in this respect are likely to face headwinds from increasing regulation, public scrutiny, and reduced demand from customers. We believe that some business practices and products are detrimental to society, and therefore incompatible with sustainable investment strategies. RobecoSAM accordingly excludes from our investment universes companies whose practices breach the principles of the United Nations Global Compact and are unwilling or unable to change these practices even after active engagement. We also exclude firms with a significant exposure to damaging activities, such as the production of controversial weapons, firearms or tobacco or have exposure to military sales, child labour and thermal coal.

 

 

 

Screened by

Description

For the sustainability core strategies, we use a "best in class" approach, which is based on our annual Corporate Sustainability Assessment (CSA), to identify the most sustainable companies in each of the starting universes. In order to improve the environmental impact of the universe, our additional screening removes companies with a high negative exposure to GHG emissions, waste, energy and water.

As a basis for the fundamental sector and company research, RobecoSAM has developed a Materiality Framework that defines the financially most material factors in a sector. Based on this framework, companies are screened and analysed in order to identify possible investment opportunities. Such  factors include corporate governance practices, supply change management, innovation power and other environmental, social or economic indicators.

For the sustainability theme strategies, we create an investment universe that includes only "solutions-providers", i.e. companies that have a certain level of revenues derived from selling products and solutions that address a long-term sustainability challenge The attractiveness of sectors/industry groups and individual companies is assessed according to factors such as business fundamentals, quality of the management team and valuation. The company-specific basis focuses then on sustainable business practices and specific environmental, social or economic indicators.

 

Screened by

Description

RobecoSAM's exclucion policy is published on its website:

http://www.robecosam.com/images/RobecoSAM_Exclusion_Policy.pdf

 

 

04.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

Since the firm's foundation in 1995, RobecoSAM has been focusing on identifying and interpreting sustainability information, and translating it into investment opportunities. The negative and positive screening of companies on their sustainability performance forms the leading alpha driver of RobecoSAM's sustainability product offering.

First and foremost, RobecoSAM developed the annual Corporate Sustainability Assessment (CSA) in 1999 in order to identify companies that are better equipped to recognize and respond to emerging sustainability opportunities and challenges presented by global and industry trends. This proprietary assessment framework is based on criteria that have been selected and formulated by RobecoSAM analysts. The annual RobecoSAM CSA is based on approximately 600 questions. The questions cover 125 criteria across 60 different industries, and lead to roughly 1000 collected data points per company. The raw data stemming from the CSA are then engineered by dedicated team in order to remove any statistical biases in the data and to tilt the weighting of the different criteria according empirical evidence. Thus, the data are developed into a Smart ESG score. This process includes a statistical correction of unwanted biases in the original dataset as well as tilting of the weighting scheme towards criteria that have shown the strongest link to future equity performances. The testing of these advanced sustainability scores (Smart ESG scores) have shown a positive and relative stable improvement of investment returns in all major regions over the past decade.

For the sustainability core strategies, we use a kind of a "best in class" screening which is based on our annual Corporate Sustainability Assessment (CSA), to identify the most sustainable companies in each of the starting universes. In our Global and European Equities strategy for example we only keep the top 66% of companies per industry in the universe. The bottom third though is removed as our empirical testing shows a significant underperformance of that group relative to rest over the long-tern.

Second, we apply special screens on environmental data (GHG emissions, water and energy consumption, waste production) in order to improve the environmental footprint of the universe. The screening is used in a way that the environmental footprint of the universe (based on the mentioned four factors) is increased by at least 33% relative to the starting universe. We continually monitor companies in our universe for their sustainability practices, and if necessary, we will downgrade their sustainability score, which in turn will have a negative effect on the overall valuation of the stock.

For thematic strategies, RobecoSAM creates investible universe based on companies that are defined as "solutions providers" who address long-term sustainability challenges. Our equity and SI Research analysts provide investment recommendations and base those decisions on screening criteria that have been established as best practice, and which are updated on a regular basis throughout the year.

Third, the fundamental research that leads into the generation of potential investment ideas and the formujlation of recommended investment cases, the screening includes a Sustainability Materiality Analysis. This Framework defines the financially most material factors in per sector and therefore gives guidance to analyse individual companies in detail. Based on this framework, companies are screened and analysed in order to identify strength and weaknesses of companies and to isolate ESG criteria that are expected to have significant impact of its valuation. Such factors can include corporate governance practices, supply change management, innovation power and other environmental, social or economic indicators. They are an integral part in our valuation models. Companies get selected if they score favourably relative to their peers in that analysis.

On negative screening, RobecoSAM defined its policy regarding exclusion screening which includes guidelines on manufacture of damaging businesses, exclusion of government bonds from controversial countries, and exclusion of companies who violate the United Nations Global Compact principles. This policy is updated once a year or more (if necessary) and made available to the public via the RobecoSAM website.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

          An external audit of the assessment process is conducted every year.
        

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

The investment philosophy of RobecoSAM is fully based on the principle of ESG integration. Consequently, all investment professionals are dedicated to the application of ESG information in their decision making process.

For the Corporate Sustainability Assessment, both publicly available and company-provided information are used as inputs into the assessment. RobecoSAM's proprietary methodology was developed over the past 17 years. Sustainability data, scores and insights resulting from the RobecoSAM Corporate Sustainability Assessment of over 4’000 companies are stored in RobecoSAM's proprietary database. The scores from the sustainability assessment are accessible to all members of the investment team and enables the construction of investment universes for all standardized and customized products. An external audit of the assessment process is conducted every year. Our dedicated team of quantitative analysts constantly analyses the quality and consistency of our proprietary sustainability data. Based on statistical research helps the research team to improve and enhance the methodology of the CSA process. In addition, team corrects the raw data by biases and tilts the scoring towards criteria that have shown the strongest statistical link to future performance. RobecoSAM raw sustainability scores are published on Bloomberg

For the Media and Stakeholder Analysis, the information provided by the external research provider (RepRisk) is reviewed and analysed by RobecoSAM analysts, with additional input from the companies. The methodology and the ratings are reviewed and updated on an annual basis. Individual ratings can also be reviewed on a periodic basis, based on our ongoing Media and Stakeholder Analysis.

In summary, the overall RobecoSAM ESG research is a combination of well-structured processes that are conducted on an annual basis and ongoing analysis that leads to regular updates and reviews of selected ESG data and information.   


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

          Continuous monitoring of products and mandates takes place by the Financial Risk Manager who is also responsible for verifying adherence to our investment policies.
        

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

RobecoSAM uses the Charles River Development (CRD) system for portfolio management purposes. Pre-trade compliance is automatically handled through the compliance modules of CRD, which report on breaches of guidelines. Hard and soft breach coding is programmed directly into CRD, in line with the relevant investment guidelines.

For most RobecoSAM portfolios, the respective universe is coded in the system, preventing Portfolio Managers from investing in securities that do not pass the positive screening criteria. Exclusions are also programmed in the frond-end tool, ensuring compliance with Robeco's Exclusion Policy. Any potential breaches generate an automated alert to portfolio managers and the Legal and Compliance Department before the trade is executed, preventing the execution of any trades that would result in a compliance breach. Overriding of hard constraints is impossible The compliance of RobecoSAM portfolios with its investment philosophy and investment guidelines ultimately is monitored by the Product Committee.

However, should a compliance breach be identified, it will immediately be communicated to the client. This is carried out by the responsible Client Relationship manager, in cooperation with the responsible portfolio manager and RobecoSAM's Legal and Compliance department. Corrections will be made in agreement with the client.

The internal audit department periodically assesses the effectiveness of the process outlined above on an ongoing basis.

06.3. Additional information.[Optional]


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