Are we heading for a wall? Robeco CEO Gilbert Van Hassel talks about leadership in sustainable investing, business opportunities, the lack of regulation and clear definitions, SDGs and the challenge of staying ahead of the pack.
“There’s no one response to that question. In the Netherlands, and northern Europe, we are ahead of the game. Here, it is already part of pension funds’ fiduciary duty to incorporate sustainability. So the two are perfectly compatible. But even in Scandinavia, which is actually a leader in this area, the degree to which it is integrated varies a lot. Norway and Sweden are quite far along, but people in Denmark still question whether you can reconcile the two and how pursuing well-being will impact the creation of wealth.”
“More and more academic work gives proof that there is a link between sustainability and long-term value creation. Especially on the G component of ESG this starts to be conclusive. However more academic work is needed to establish the full link between the two.”
“But in the US, most pension funds are subject to ERISA, an act drafted by the Department of Labor that states that their fiduciary responsibilities include maximizing returns on behalf of participants. As long as there is no fully proven causal relationship between sustainability and wealth creation, those funds will be unable to implement sustainability on any appreciable scale. There’s just not enough scientific evidence yet, the data series are too limited and the track record of funds is too short to give them academic weight. Until the fiduciary responsibilities are reformulated, their participation will be marginal at best. Their hands are tied.”
“I think it’s about 50-50. If risk increases over time, then clearly returns will follow. If you take a really simplistic look at what will happen in the long term – if we don’t change the way we treat the climate, with CO2 emissions – then it’s obvious we are eventually going to hit a wall. The global economy will stop growing and start contracting, and large amounts of value will be wiped out. So basically, risk and return are two sides of the same coin for me.”
“Absolutely. And it’s not just a passing phase. Of course, a lot of people see this as a window of opportunity and are therefore jumping on the ESG bandwagon. But I’m convinced that sustainability will become standard before we know it. Right now, it’s fashionable, but in three or four years from now, sustainable investing will be standard practice. And it’s essential that that happens. If you read scientific reports about climate change and CO2 emissions, you realize that we really have to act now.”
“As things stand now, we’re heading straight for that wall. People are becoming more and more anxious. I think that both governments and businesses – and every one of us as individuals – must take responsibility. The long-term survival of society depends on it. And it’s going to require a huge effort from the entire planet. The question is whether we can afford to do it from an economic standpoint. Then again, can we afford not to? What would the world look like then?”
“One of the key challenges is deciding how to define sustainability. It seems like the number of things that are considered sustainable grows with each passing year. If you expand the definition to include not only the climate but also diversity, income equality and poverty, then it’s painfully clear that things have to change.”
“I think that the SDGs offer a really good framework, because they enable us to better define what sustainability means. But that’s not enough. The next step is being able to measure and report on sustainability. And a lot of work needs to be done before we’re in a position to do that. It’s of the utmost importance that we develop a framework for this with the help of the European regulators.”
“We embraced SDGs early on. We were one of the first to launch an SDG Equities product and after that, we were the first to develop a model that allowed us to apply it to credits, too. That’s great, but ultimately, the SDGs will only have a really significant impact once the EU develops a solid framework and we have generally accepted definitions. Only then will we be able to really measure sustainability and see the impact on the SDGs. So yes, we can play a part in this, every asset manager can make a contribution. But ultimately, there needs to be a coordinated effort, driven by EU regulations, that allows the government to draw on the expertise of industries such as ours.”
“This is definitely something I lose sleep over, despite innovation being in the company’s blood. We invest a lot of time and energy in it. With sustainability, it all started with an enthusiastic team in Zurich that began looking at companies out of a real passion for green solutions and embracing the ideology of sustainability. Since then, we’ve come a long way together. Sustainability has become an integral part of the financial analysis. I call that ‘applied research’ because it’s used to analyze the value of assets and it plays a role in building portfolios and, ultimately, generates alpha. We are still making great strides, but we have a ways to go. And there are no limits on that, either.”
“Only time will tell. But when I see what peers are doing... Then yes, you have the handicap of progress against you, but the process of building experience and expertise can’t be rushed. It takes time, by definition. And we really do still have an edge on our peers. Our clients tell us so. It helps if you’ve been doing it for a really long time, and therefore had the opportunity to gain experience and keep getting better, and make improvements. Building up expertise takes time and many hours of practice. I think other parties can probably catch up a bit, but we will still be ahead of the pack.”
This interview was first published in Sustainability Inside
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