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Robeco

PRI reporting framework 2020

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

Indicate (1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and (2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.
SSA
5 Screening alone
0 Thematic alone
0 Integration alone
95 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Robeco categorises the investment strategies in to three different catagories: Sustainability Inside, Sustainability Focused, and Impact investing. The house view is that screening is applied on all strategies, and the ESG integration is part of the investment decision making in all capabilities where this is possible.

The relative size of the different strategies is driven by client demand. 

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

Corporate bonds: Our most important ESG information is provided by RobecoSAM, predominantly in the form of company ESG scores and ESG materiality assessments. Additional data sources are Sustainalytics (including the Controversy Ratings) and Glass Lewis. Information is also derived from daily news screening, sell side research, meetings with companies, etc. Based on these data sources Robeco credit analysts make their own assessment of the impact of ESG factors on the issuers.

Government bonds: The country level ESG information that is used in our investment process is provided by our in house specialists at RobecoSAM. These specialists work closely together with the investment team that manages SSA assets. The ESG specialists gather external information which is used as input data for our proprietary RobecoSAM Country Sustainability Ranking. The ESG specialists and portfolio managers together decide on possible new information sources for the Country Sustainability Ranking. For example, we have recently added the Yale Environmental Performance Index and the Social Progress Index (from Social Progress Imperative) to the dataset. A list of external sources is shown in the answer on question FI.02.04.

02.4. Additional information. [Optional]

An overview of the data sources which are used to construct our Country Sustainability Ranking is shown below. These sources provide detailed information on specific environmental, social and governance characteristics. Data sources are predominantly unilateral organizations, NGOs and universities.

For specific topics (e.g. political risk) we purchase external information. This information can be data series that are used as input for our Country Sustainability Ranking (e.g. PRS data), or it can be in depth analysis of the political situation and governance risk (e.g. EurAsia) which is an add on to our own in house analysis of the governance of a country.

Data Sources:

Environmental Status

  • Yale; Environmental Performance Index

 

Energy

  • World Energy Council/Oliver Wyman; Energy Trilemma Index 

 

  • International Energy Agency; World Energy Balances 2019

 

 

Environmental Risk

  • Bündnis Entwicklung Hilft; World Risk Report

 

  • Germanwatch; Global Climate Risk Index

 

Social Indicators

  • Social Progress Imperative; Social Progress Index

 

  • UNDP; Gender Inequality Index

 

  • UNICEF; Child Labor

 

  • World Bank; World Development Indicators – GINI Index

 

  • OECD; Income Distribution Database

 

Human Development

  • UNDP; Human Development Report

 

Social Unrest

  • Fund for Peace; Fragile States Index

 

Liberty & Inequality

  • Freedom House; Political Rights & Civil Liberties

 

Competitiveness

  • World Economic Forum; The Global Competitiveness Report 2019, WEF, Switzerland, 2019

     

Political Risk

  • PRS Group; Political Risk Services (PRS)

 

Accountability

  • World Bank; Worldwide Governance Indicators

 

Stability

  • World Bank; Worldwide Governance Indicators

 

Effectiveness

  • World Bank; Worldwide Governance Indicators

 

Regulatory Quality

  • World Bank; Worldwide Governance Indicators

 

Rule of Law

  • World Bank; Worldwide Governance Indicators

 

Corruption

  • World Bank; Worldwide Governance Indicators

 

Aging

  • IMF - Fiscal Monitor; NPV of Pension & Health Care Spending Change 2015-50

 

  • UN – Population Division; Old Dependency Ratio & Old Dependency Ratio 2050

 

  • World Bank – Women, Business and the Law; Retirement Age

 

Institutions

  • World Economic Forum; The Global Competitiveness Report 2019, WEF, Switzerland, 2019

 


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

          For all sectors a materiality assessment is available that helps identifying the most material ESG topics per sector.
        

03.3. Additional information. [Optional]

Corporate bonds

Our ESG opinion is formed in close cooperation with analysts of RobecoSAM. Based on their proprietary methodology and analysis, the RobecoSAM team is ideally positioned to identify companies leading/lagging with respect to their peers in terms of sustainability and thus stakeholder value creation. All information, which is based on detailed assessment questionnaires and self-assessments, is summarized in a sustainability report by RobecoSAM, exclusively provided to Robeco analysts.

Government bonds

The Country Sustainability Ranking is available for the portfolio managers of the SSA fixed income team and has also been made available for portfolio managers and analysts of other Robeco investment teams. The CSR model tool gives the possibility to look at detailed country data, to see the historical development of the 17 indicators and to compare countries with their peers.

Relevant trends in the ranking are analyzed by RobecoSAM and discussed after every update of the Country Sustainability Ranking. In addition, the SSA fixed income team and RobecoSAM together write and discuss country reports. In these reports countries are analyzed in detail. Their strengths and weaknesses are discussed in country committee meetings. The RobecoSAM analysts participate in these meetings.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Robeco's Exclusion Policy is based on the following negative and norms based screening:

Negative screening:

  • Controversial weapons
  • Tobacco
  • Controversial countries

Norms based screening

  • Controversial behavior: Robeco acts in accordance with the United Nations Global Compact (UNGC) to assess the behavior of listed companies. An enhanced engagement process is applied with listed companies that are severly breaching the UNGC principles. If this enhanced engagement, which may last up to a three year period, does not lead to the desired change, Robeco can decide to exclude the listed company from its investment universe.

Robeco’s exclusion policy and exclusion list are available on our website:

https://www.robeco.com/docm/docu-exclusion-policy-and-list.pdf

04.3. Additional information. [Optional]

Positive screening:

In collaboration with RobecoSAM, we have developed a proprietary methodology using a three step approach to assess a company’s alignment with the SDGs. The methodology has been formalized in the SDG Guidebook. The three steps in the SDG Guidebook comprise the products or services the company provides, how the company operates to produce these products or services, and if any controversies are known.

Furthermore Robeco uses screening to identify thematic engagement opportunities on ESG issues and to pick engagement and investment themes, and select companies. The identification and prioritization of themes and candidates for engagement involve rigorous research and analysis to determine the relevance of a particular theme, the sectors and companies being mostly impacted by that theme, and the performance of companies in that respect. Our screening process is backed by proprietary research as well as external analyses provided by specialized parties.


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Negative screening: we exclude controversial weapons, such as cluster munition.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We exclude companies based on behaviour that is not compatible with the UN Global Compact.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

In collaboration with RobecoSAM, we have developed a proprietary methodology using a three step approach, to assess a company’s alignment with the SDGs. The methodology has been formalized in the SDG Guidebook. The three steps in the SDG Guidebook comprise the products or services the company provides, how the company operates to produce these products or services, and if any controversies are known.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Our country sustainability ranking is used in our sustainable government bond portfolios to select securities

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Robeco deems investing in government bonds (federal or local) of countries where serious violations of human rights or a collapse of the governance structure take place as unsustainable. In addition, Robeco will follow applicable sanctions of the UN, EU or US to which it is subject and follows any mandatory (investment) restrictions deriving therefrom. To identify these countries we use data from: 1. World Bank: World Governance Index (WGI) on Political Stability and Absence of Violence/ Terrorism. 2. Freedom House: Freedom in the World (FIW) index on Political rights and civil liberties. 3. Fund for Peace: Fragile States Index (FSI). 4. International sanctions. 

05.2. Additional information.


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]

The exclusion policy is monitored and coded by Investment Restrictions.

Positive screening:

Monthly (on the first business day of every month), the Fixed Income Portfolio Information (hereafter FI PIM) team extracts the most recent SDG scores as input for the FI PIM screening tool from the RobecoSAM database where the SDG scores are being stored. Secondly, the FI PIM team extracts from the most recent coverage list of the Robeco Credit Analyst team the tickers of all issuers currently under coverage, the Bloomberg (BB) Global ID and their respective score from the Robeco Credit Analyst team. This is to ensure control over the ultimate eligible universe only consisting of names that are under actual coverage of the Robeco Credit Analyst team in Rotterdam (as the Investment Team from Rotterdam is ultimately responsible for the investment decisions of the above mentioned funds). The coverage list is of key importance and contains separately monitored key controls.

The screening tool is fed with the following data:

  • Most recent SDG scores
  • Most recent coverage list from the Robeco Credit Analyst team composed of covered tickers and individual identifiers labelled as “green bonds” (with their own scores)
  • Most recent Enhanced Exclusion list constituents

The ultimate eligible ticker list is sent to the COO Data Management team and the Compliance Restrictions monitoring team. The COO Data Management team safeguards that no ineligible ticker can be invested without a pre-trade alert. The compliance team permanently coded the restrictions as such that any ticker not being eligible will be flagged and results into a pre-trade compliance alert that needs to be addressed by the pre-trade restriction team and the portfolio manager responsible for the respective fund. In addition, the eligible ticker and green bond ISIN enables the daily Compliance post-trade check, ensuring the portfolios being monitored are compliant on an ongoing basis.

To safeguard a sound backup, continuous operation and present detailed operational knowledge in case of ad-hoc client/prospect and portfolio manager questions, FI PIM safeguards sound knowledge sharing within their team and that at least two people evaluate the changes and investable universe list together.


(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

Corporate bonds

Robeco's credit analysts express a view on what they think of the company's fundamentals, aggregated in what we call the F-score (Fundamental Score). This view is built on five building blocks: business position, strategy, ESG factors, financial position, and structure. The assessment of the ESG factors in the information derived from RobecoSAM forms an important input for the analyst formulating their view on ESG factors. Other information sources include external ESG data providers, management meetings, Robeco's 'Active Ownership' (engagement) team, Google searches, news articles, litigation, sell side research, etc.

The prime goal of integrating ESG factors in our analysis is to strengthen our ability to primarily assess the downside risk of our credit investments. The conclusion of this section is a transparent impact on the F-score.

Government bonds

The prime goal for integrating ESG factors into analysis for government bonds is to enrich the knowledge on individual countries and strengthen the country selection process. The ESG analysis focusses on different topics than the traditional bond analysis and thus brings new and valuable information to the investment process.

 

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

Since 2009 Robeco has collected data on sustainability at a country level. For ESG risk on a country level, RobecoSAM and the Robeco portfolio managers have together developed a research methodology which makes it possible to compare countries on ESG metrics which are relevant for the investment process. The result of this analysis is the RobecoSAM Country Sustainability Ranking. This ranking helps to anchor ESG factors into our investment process. The ranking gives an overview of how well a country scores on sustainability criteria that we find relevant. These criteria give a broad overview of how well a country guards the interests of future generations. They include ESG data that one probably would expect, like policies on greenhouse gas emissions and corruption, but also non-traditional angles like investments in innovation, labor market unrest, or aging policy.

The output of the ESG analysis is a score for each of the countries in the investment universe. This makes it possible to rank countries (the RobecoSAM Country Sustainability Ranking) and to see how the scores evolve over time. Changes in the scores and the resulting ranking act as flag for developments that could be relevant for our investment process.

We discuss individual countries on a regular basis to identify material changes in their ESG profile. To build a longer term perspective and prepare decision making we construct country reports. In these reports we describe the results of a more detailed country analysis including sustainability information. The country reports are discussed among the portfolio managers in Country Committee meetings. These meetings lead to conclusions for investments in the country. The ESG analysts from RobecoSAM participate in the Country Committee meetings.

For all investment decisions we write an investment thesis. In such a thesis, the ESG risks or opportunities are a standard element. Obviously ESG information only plays a role in investment decisions when deemed relevant. ESG is an integrated part of our country analysis, but it is not the only criterion. Hence not every position can be fully explained by the ESG scores only. As ESG is fully integrated in our country analysis, not every position can be fully explained by the sustainability ranking alone. Other fundamental factors play a role too. Furthermore, our Country Sustainability Ranking is updated twice a year. In our decision making process we can take more timely information into account.

Corporate (financial)

For all issuers under coverage the Robeco credit analysts express a view on the company fundamentals as well as an investment recommendation. This fundamental view is built on five building blocks: business position, strategy, ESG factors, financial position, and structure. In the ESG pillar the analyst considers the impact of key sustainability factors on the credit fundamentals of the issuer. These key ESG factors differ per sector.

As an example, for banks we focus on: corporate governance, risk culture and sustainable banking, and for insurance on corporate governance, risk culture and sustainable insurance. The latter includes business ethics, sustainable investment integration and product governance and sales practices. To form an opinion how banks are positioned on these factors the analyst has multiple sources. An important input is the annual Corporate Sustainability Assessment (CSA) of RobecoSAM. In this CSA RobecoSAM scores companies based on their ESG efforts. Sub-scores on criteria such as corporate governance, codes of conduct, risk culture, anti-crime policies and measures indicate a lot on how a bank is positioned vis-à-vis these key ESG factors. Other information sources include external ESG data providers (Sustainalytics, Glass Lewis), management meetings, Robeco's ’Active Ownership' (engagement) team, proprietary Google searches, news articles, litigation, sell side research, etc.

Corporate (non-financial)

The approach for corporates is exactly the same as for financials described above, the only difference is that given the key material factors are sector dependent, the key ESG factors are different for various industries.

To form an opinion how corporates are positioned on these material factors the analyst has multiple sources. An important input is the annual Corporate Sustainability Assessment (CSA) of RobecoSAM. In this CSA RobecoSAM scores companies based on their ESG efforts. This indicates how corporates are positioned vis-à-vis these key ESG factors. Other information sources include external ESG data providers (Sustainalytics, Glass Lewis), management meetings, Robeco's ’Active Ownership' (engagement) team, proprietary Google searches, news articles, litigation, sell side research, etc.

10.3. Additional information [OPTIONAL]

We update the country sustainability ranking twice a year.


FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer`s ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify in Additional Information

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

SSA

ESG issues are identified via the regular updates of the Country Sustainability Ranking. As the scores change over time and the resulting ranking changes, positive or negative trends come to surface. The model makes it possible to identify which of the 17 ESG indicators is responsible for the change in score. This is a starting point for further analysis. All portfolio managers participate in the discussions about the ranking update.

The ESG profile of a country is analyzed in country reports. Each country report contains a list of focus areas. ESG topics are often part of these lists of focus areas. After a country report has been written and country committee has taken place, we continue to discuss countries on regular basis (e.g. weekly, biweekly), focusing on the topics mentioned in the country report. All portfolio managers participate in these discussions.

Corporate (financial)

For every sector the credit analysts have defined the most material ESG issues from a credit perspective. These could relate to Governance factors, but also to Environmental and to Social factors. Subsequently, the analysts assess how individual companies are positioned versus those key ESG factors. Important inputs are factor specific scores from RobecoSAM and Sustainalytics. These include governance scores, scores on environmental management systems, labor practice indicators, human rights, health & safety, etc. Apart from that the analysts can use information from Robeco's 'Active Ownership team', Sustainalytics Controversy ratings, company meetings, news articles, sell side research, etc.

Corporate (non-financial)

For every sector the credit analysts have defined the most material ESG issues from a credit perspective. These could relate to Governance factors, but also to Environmental and to Social factors. Subsequently, the analysts assess how individual companies are positioned versus those key ESG factors. Important inputs are factor specific scores from RobecoSAM and Sustainalytics. These include governance scores, scores on environmental management systems, labor practice indicators, human rights, health & safety, etc. Apart from that the analysts can use information from Robeco's 'Active Ownership team', Sustainalytics Controversy ratings, company meetings, news articles, sell side research, etc.

12.3. Additional information.[OPTIONAL]


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