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RobecoSAM AG

PRI reporting framework 2018

You are in Direct - Listed Equity Incorporation » Outputs and outcomes

Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

RobecoSAM sustainability expertise is integrated at different stages of the investment process.

First, the Robeco Exclusion List is applied to the investible universe. There are currently 8 companies which have been excluded from the Group's investment strategies. From a market cap perspective, these companies make up less than 1% of the entire initial universe of RobecoSAM's sustainability core strategies. Moreover, we reduce the universe by applying the RobecoSAM universe restrictions (weapons related military sales, firearms, controversial weapons, thermal coal and tobacco companies).

In a next step, the universe is further reduced by eliminating the bottom 1/3 of each industry, through the use of the ranking of the internally developed Smart ESG score. Additionally we apply an internally developed impact score that measures a company's footprint relative to CO2 emissions, energy consumption, water consumption and waste productions. Based on this ranking of the environmental impact (Impact/Enterprise Value) additional companies are removed from the starting universe until a 33% reduction of the carbon footprint is achieved relative to the starting universe (comparable to MSCI World All Countries).

Specify the percentage reduction (+/- 5%)

40 %

Describe any alteration to your investment universe or other effects.

The construction of the thematic universe is based on the long-term sustainability challenge that is addressed by the theme and the companies' exposure to the theme, measured by the percentage of revenues the companies derive from selling products or services that address the specific sustainability challenge. Additionally, we reduce the universe by applying the Robeco's Exclusion List and additional RobecoSAM universe restrictions.

Within all investment themes, sectors are identified that are considered as controversial from a sustainability perspective (e.g. GMO in Agribusiness or bottled water). For these topics, we define clear requirements in terms of exposure, limits or the availability of policies or business standards that need to be fulfilled in order to keep a respective company in the universe. Companies that do not meet the threshold are removed from the universe.

Select which of these effects followed your ESG integration:

12.2. Additional information.[Optional]

For the sustainability core strategies, we reduce the investment universe by applying the RobecoSAM universe restrictions, environmental impact filter and minimum Smart ESG scores.

Exlusions (Negative Screening)

An increasing number of investors recognize the value that they can derive from integrating environmental, social and governance factors into their investment decisions. One of our strongest-held beliefs is that companies that are able to add value for society will deliver superior returns to their shareholders over the long term. The flip-side of this is that firms that are lagging behind in this regard are likely to face headwinds from increasing regulation, public scrutiny, and reduced demand from their customers over the long term. Besides this systematic integration of ESG factors in our investment process, we believe that some products and business practices are detrimental to society in a way that makes them incompatible with a sustainable investment strategy. With this in mind, at RobecoSAM we exclude from our investment universe companies whose practices breach the principles of the United Nations Global Compact and turn out to be unwilling or incapable of changing these practices even after active engagement by our specialized team. In addition, our investment universe restricts firms with a significant exposure to damaging activities, such as the production of tobacco or firearms. We believe that the resultant benefits to our clients are two-fold: it increases the likelihood of them achieving the investment returns that they need, and enables them to make a positive contribution to society through the deployment of their assets.

Environmental impact

The sustainability core strategies' investment team uses a proprietary tool, the Impact Optimizer, to maximize the reduction of the portfolio environmental footprint, while minimizing the number of companies excluded from the investable universe. The Impact Optimizer was developed, in order to apply the environmental impact data in an efficient way in the universe screen and portfolio construction. The analytical reporting tool helps monitor the impact of the portfolio on the following four quantitative environmental impact indicators

Greenhouse gas (GHG) emissions: measures direct GHG emissions generated by sources owned or con-trolled by the company (Scope 1 emissions) and indirect emissions associated with the generation of purchased electricity or heat (Scope 2 emissions).

Energy consumption: measures total energy directly consumed by the company as well as indirect energy consumed outside the organization.

Water use: measures company's total water withdrawal, excluding water discharged with an equivalent quality level than the water extracted.

Waste generation: measures metric tons of dry waste generated by the company, consisting of by-products of the extraction or production process that can no longer be used for production or consumption and which the company intends to discard.

The environmental impact objective within the portfolio is a 33% reduction of the portfolio- versus the index footprint across all four impact measures.

To achieve this objective, companies in the investment universe are ranked according to their total footprint per million enterprise value on all four indicators (e.g., companies with large footprints on all indicators are likely to be removed first). We then balance the four impact areas by removing one company at a time, and using dynamic weights to prioritize removal of companies whose exclusion will ensure each impact measure is reduced equally in the final product (e.g., if the first company removed has very high GHG emissions, the next company removed is more likely to have very high exposure to one of the other three metrics). In order to ensure industry diversification, we limit the maximum removal of 2/3 of companies per GICS III sector. Our optimized approach balances the impact that a company has on the four different criteria. Through this approach, we create a starting universe with a superior impact profile. The portfolio manager accordingly still has a broad set of investment opportunities, but one that ultimately leads to the creation of a low environmental impact portfolio.

Smart ESG

After the impact optimizer has vetted out the worst environmental polluters from the starting universe, we apply our proprietary Smart ESG scores to the remaining investment universe.

Based on extensive empirical studies, RobecoSAM has found that the leading sustainability companies (those with the highest Smart ESG scores) have outperformed the lagging sustainability companies over the time period for which proprietary sustainability data of RobecoSAM are available. Smart ESG is our new generation of ESG scores that build upon our existing sustainability data by eliminating known biases such as market cap, industry and regional biases. We are able to pinpoint which ESG indicators are the most financially relevant for different industries, sharpening our focus on financial materiality. This results in an unbiased, evidence-based ESG score - or Smart ESG - a powerful score that has an attractive risk-return profile and low correlation to other common investment factors. RobecoSAM's Smart ESG data have thus a positive contribution to stock-picking.

Smart ESG scores are based on the annual RobecoSAM Corporate Sustainability Assessment, RobecoSAM's proprietary methodology that was developed over 18 years and covers 60 sectors. It allows for a detailed assessment of underlying key economic, environmental, and social criteria which are linked to the business model and the financial value drivers of a company. RobecoSAM's proprietary database contains sustainability information for over 3'900 listed companies. This assessment and database also enables the construction of the Dow Jones Sustainability Indices

We select the top 2/3 of the highest ranking Smart ESG Score companies





LEI 13. Measurement of financial and ESG outcomes of ESG incorporation (Private)

LEI 14. Examples of ESG issues that affected your investment view / performance (Private)