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Robeco

PRI reporting framework 2020

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(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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