Engagement related to controversial behavior aims to correct any activity that breaches international standards, with divestment and exclusion from portfolios used as a last resort. But how to define what constitutes behavior that goes against sustainable investing policies and best practice?
Over the last year, Robeco has refined its approach towards managing controversial corporate behavior within its investments. In the first report, Robeco’s new controversy engagement specialist Yumi Fujita runs us through the updated process, from the new Controversial Behavior Committee to our structured approach to evaluate and track corporate breaches of international norms.
One sector that has certainly seen room for improvement is the palm oil industry, led by deforestation for new plantations, along with poor labor practices. As Robeco’s enhanced palm oil engagement came to an end in 2021, we enter into a new three-year enhanced engagement cycle. Peter van der Werf reflects on past successes, shares the ideas behind our new 80% certification objective with the Roundtable on Sustainable Palm Oil (RSPO), and talks about the challenges ahead.
High cost of extraction
Mining is another sector facing challenging environmental issues. While holding the key for the future of clean technologies, mineral extraction can come at high costs for biodiversity and local communities. Sylvia van Waveren explains the importance of integrating sustainability across a mine’s lifecycle, not only while the mine is operating, but also when assets are retired.
Aside from engagement, an effective means of voicing concerns is through voting. Carolina Vergroesen and Lucas van Beek provide an insight into Robeco’s collaborative engagement with Brazil’s stock exchange and regulators. In an extensive effort, Robeco’s proxy voting team has joined forces with Brazil’s Stewardship Association to improve the country’s complex proxy voting process, an engagement which is already showing its first results.
A strengthened approach
“In this report, we want to provide you with a special insight into how Robeco assesses companies displaying controversial behavior, and explain our strengthened controversy engagement approach,” says Carola van Lamoen, Head of Sustainable Investing.
“The newest report by the UN Intergovernmental Panel on Climate Change (IPCC) highlighted how natural ecosystems and biodiversity are being put under increasing threat as climate change advances. In this context, we want to reflect on our ongoing engagement with the palm oil sector. We have now entered an ambitious new three-year engagement cycle, urging companies to reach at least 80% RSPO certification by the end of 2024.”
Overcoming the disclosure gap
“Closely linked to biodiversity, our ‘Lifecycle management of mining program’ is entering the last year of its engagement, addressing not just water and tailings dam risks, but increasingly also pushing for adequate asset retirement planning. The engagement aims to encourage companies to think about the end-of-life management of their mines, and overcome the wide disclosure gap currently obscuring risk management processes.”
“Lastly, we are pleased to share the outcomes of our engagements with the Brazilian Stock Exchange, around creating a stronger proxy voting process. The Brazilian proxy voting system has long been a thorn in the side of international investors, limiting investors’ ability to challenge director appointments and have a say on last minute agenda additions.”