Earning a good return and contributing to the Sustainable Development Goals at the same time? Building a strategy that does just that, has turned out to be a challenge. The main difficulty is to quantify a company’s contribution to the SDGs. RobecoSAM is now one of the first to solve the puzzle, developing an SDG framework that scores companies on their contribution to the SDGs. It will be used in the global SDG credits strategy that will be launched in mid-May.
Ever since the United Nations defined its Sustainable Development Goals (SDGs) in 2015, investors have become increasingly interested in investments that contribute to the realization of these goals and provide a good return. The 17 goals, which should be achieved by 2030, target a broad range of topics such as the availability of water and sanitation for all, food security, achieving gender equality, and access to affordable and sustainable energy.
It is easy to imagine that, for example, a solar company has a positive impact on the goals, and an oil company a negative one. The challenge, however, is to properly evaluate and quantify the contribution of all companies in an investment universe when building a targeted SDG strategy. This requires a framework, with clear, objective and consistent rules.
RobecoSAM is one of the first asset managers to meet this challenge by developing a proprietary SDG framework. This consists of taking a three-step approach. Robeco’s Credit team will use this framework for the global SDG credits strategy that will be launched in May. We will briefly explain the three steps.
Step 1: What does the company produce?
In step 1 we link companies’ products and services to the SDGs. To what extent do they contribute? Companies are assessed on an extensive set of rules and Key Performance Indicators (KPIs). These are summarized in a guidebook. The guidebook states whether the contribution of these products and services is positive, neutral or negative.
For the telecom sector, for example, the starting point is positive. Telecommunications are an essential part of the infrastructure in a safe and connected society. Farmers can use mobile phones to check market prices before selling to middlemen, and market traders can accept payments in mobile money. This way, the telecom sector can contribute to a proper infrastructure (SDG 9), economic growth (SDG 8) and ultimately to the reduction of poverty (SDG 1).
We then determine the extent of the contribution, which in the case of telecom we deem low. Subsequently, we then dig deeper by looking at the individual companies within this sector and how they score on a set of KPIs. If, for example, more than 25% of the telecom company’s sales take place in emerging markets (which have most to gain from a good telecom network, as e.g. mobile payments can provide large numbers of unbanked with bank accounts), we upgrade the impact from positive-low to positive-medium. See figure 2 for an illustration of the KPIs used.
Step 2: How does the company operate?
SDGs are also about how companies operate themselves. Are they polluting, do they respect labor rights, do they refrain from corruption? In step 2, the credit analysts check if the way the firm operates is compatible with the SDGs. If necessary, the SDG ratings can be adjusted.
Step 3: Are controversies known?
In the final step, we check whether the company concerned has been involved in any controversies, such as oil spills, fraud or bribery. This step can lead to adjustments in the rating. If firms commit serious and structural breaches of the UN Global Compact, they are excluded.
The outcome of this three-step analysis is quantified with an SDG score. This is shown in Table 1.
Robeco’s credit analysts and RobecoSAM’s SI analysts have done a mapping exercise of some 450 companies. 62% of the companies have been assessed as making a positive contribution, such as grid operators, healthcare companies, banks (by providing finance, especially in emerging markets, banks play an important role in fostering innovation and stimulating economic growth) and utilities with a relatively small share of coal, nuclear energy and oil in the energy generation mix.
26% of the companies analyzed make a negative contribution. Examples are energy producers with a relatively large share of fracking, companies that produce unhealthy food, or car manufacturers with a low share of EV/hybrid models.
Assessing a company’s contribution to the SDGs is a challenge. However, we have found a way by applying the RobecoSAM SDG framework, which quantifies the contributions that a company’s products and services make to the SDGs. Results of our analysis indicate that sectors with a weaker SDG profile include the energy, car manufacturers and food & beverage sectors. However, we have also found that there are more than sufficient issuers to create a well-diversified global credit portfolio with a positive impact on the SDGs.
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.