What is the big thing to watch in 2022?
“For sustainable investors as well as for all investors and industries generally, the continuing economic recovery from the pandemic will, of course, be a key topic in 2022. For sustainable investing, a key question is whether the acceleration of awareness and demand for more action on sustainability (reflected in the unprecedented inflows into SI funds over the last two years) will be sustained. The outcomes from COP26 will hopefully play a key role in that. We’ll be watching out for the commitments made by governments worldwide and, above all, whether they actually take action to implement these commitments in 2022.”
“As I speak, we’re only halfway through the conference and there are some positive signs, but still much to be done. All would not be lost without global agreement, as local action and grassroots movements can achieve a lot. But realistically, we need global consensus to effect meaningful change within the 2050 timeframe. Otherwise, the emphasis in future years will have to shift entirely to adaptation because we’ve missed out on our chance to prevent and mitigate. I’m hopeful that change will happen, but the timeframe is going to be critical.”
“From an environmental perspective, we don’t have a lot of time left to make changes. The changes we do make must be significant and fast, meaning it’s going to have an impact on individual businesses as well as whole industries. That’s something that investors really need to be on top of.”
What is the biggest change you have seen since Covid-19 kicked in, that has a lasting impact, also into 2022?
“I think the biggest shift has been in social awareness of sustainability. We saw very quickly the positive environmental impact that accompanied a sudden shutdown in industry. A lot of people experienced losses of freedoms, and limited access to healthcare, that is, things they may often have taken for granted in the past. That has led to a much better understanding of the social inequalities that marginalized groups have been facing for many years. I think that shift in social mindset has also come with a realization that we are powerful – individually and collectively. We can actually effect change by putting pressure on leaders. Social movements like Black Lives Matter have gained traction. If we can collectively retain this energy and vision, it could have a profound effect on driving real change in the next few years.”
“While the last couple of years have served as a very important reminder not to forget about the social pillar of ESG, I think that the environmental pillar has not lost any of its urgency. The E in ESG has always attracted a disproportionate amount of attention from an investment perspective, as there’s generally been much more information available, which makes it easier to measure and quantify, and the opportunities have become more visible.”
Where are you most out of consensus with your approach or vision?
“As analysts, we are always most interested in where we differ from consensus – what do we know that the market doesn’t! From an SI research perspective, it’s even more important to understand why we have a particular view of the impact that ESG issues will have on company fundamentals, because there is no standardized way of evaluating sustainability. This is why we have sector specialists in our SI Research team, so they can give a true expert’s opinion based on their industry and company knowledge and not just rely on a standardized ESG assessment framework.”
“That’s one key difference between Robeco and many other asset managers. Many of our peers still treat SI Research as a support function, but our SI Research team contains both sustainability and sectoral specialists. It has become common practice for traditional equity and credit analysts or portfolio managers to say that they integrate ESG, but in practice, no-one’s an expert on everything and the idea that one person can know everything they need to know about every sector, every asset class or every ESG topic is unrealistic. Having a team of sustainability and sector specialists allows us the time and expertise to gain deep insights into the non-financial issues that are driving the profitability and opportunities of an industry in the future.”
What is the biggest ‘external’ challenge or game changer in 2022 (think of government policies, regulations, central bank policies, inflation, etc.)?
“Policy and regulation are bringing big changes for sustainable investing. We’ve seen a lot of progress over the last couple of years in terms of regulation in Europe, with the goal of creating more transparency, improving standardization and increasing investor protection; but there’s still a lot of uncertainty around implementation as the guidelines require a lot of interpretation. We’re also seeing other regions introducing their own frameworks, which creates the risk of conflicting frameworks. In practice, many other regulators are looking to Europe and existing best-practice frameworks to decide how to shape their rule books.”
“My biggest personal concern is how we make sure that increased regulation does not stifle innovation or detract from focusing on real-life outcomes. The goal of SI is to drive change – we don’t want it to become a box-ticking exercise focused solely on reporting, on backward-looking metrics or on having the right statements in place. The need for investor protection must be balanced with the goal of directing capital to areas where it’s going to make a real difference to achieving the SDGs. I think next year is going to be critical here as the European regulation really starts to bite and other parts of the world develop their own frameworks.”
What is your personal ambition/inspiration that will help you navigate through the coming year?
“For me, it’s all about trying to keep the focus on what’s meaningful. If we think about what my team does and our research objectives, it would be very easy for it to become a numbers game, simply making sure that every company in a portfolio has an SI rating and an SDG score. But that would be missing the real purpose of SI Research - we are here to enhance investment decisions by feeding our insights into Robeco’s investment strategies, into the conversations we have with companies or into the engagement calls that our active ownership team conducts. We really have to focus on adding value to the investment process and to think about how our work contributes to creating real-world change.”