3D investing for sustainable portfolios

Sustainable investing has evolved rapidly over the past decade, expanding far beyond simple carbon footprint measures to now encompass various ESG risks, SDG alignment, and increasingly forward-looking climate and biodiversity indicators. In our new white paper, we set out how Robeco’s 3D investing framework takes into account these sustainability considerations alongside traditional financial objectives, addressing alignment challenges in a coherent and dynamic way.

We first outline the key sustainability concepts and metrics used in modern portfolios, including carbon emissions, ESG scores and SDG alignment. We introduce Robeco’s proprietary sustainability expertise, developed by our SI research team, such as the SDG Framework and the Climate and Biodiversity Traffic Light models. These metrics capture distinct and only weakly correlated dimensions of sustainability, spanning current impacts and forward-looking transition alignment, and together provide a more nuanced picture of corporate sustainability performance.

Traditionally, sustainability considerations have been quasi-implemented through portfolio constraints, as an afterthought to risk-return optimization. Our 3D investing approach takes a different route. By explicitly incorporating sustainability as a third objective alongside risk and return, the framework extends classical mean-variance optimization into a mean-variance-sustainability setting. This allows portfolios to balance trade-offs more efficiently, particularly where sustainability objectives would otherwise impose high implicit costs, and makes it possible to explore the full ‘efficient surface’ of risk, return and sustainability outcomes.

Using empirical examples from both equity and credit universes, we show how meaningful improvements across different sustainability dimensions can often be achieved with relatively modest increases in active risk when implemented through a disciplined quantitative process.

Crucially, the 3D framework remains adaptive: as market conditions change, it can continue to improve sustainability outcomes when the cost of doing so is lower. The real edge lies in combining advanced sustainability expertise with robust investment processes, allowing risk, return and sustainability to reinforce one another rather than compete.

Lastly, we demonstrate the practical application of the 3D concept in equity and credit investing, highlighting the characteristics of the Robeco 3D Global Equity Indexing ETF strategy as well as the Robeco 3D Global Enhanced Index Credits ETF strategy.