Solving the sustainable investment dilemma

Solving the sustainable investment dilemma

25-05-2020 | Interview

Combining quant and sustainable investing efficiently requires expertise. We talked with Jan de Koning and Georgi Kyosev, from our Quant Equities team, about the most recent trends in this area and what sets Robeco’s offering apart.

  • Jan de Koning
    de Koning
    Portfolio Manager
  • Georgi Kyosev

Speed read

  • Combining quant and sustainable investing is easier said than done 
  • Decarbonization and engagement have become crucial aspects
  • Being able to adjust sustainability criteria over time is also key

What are the main changes you see in the way clients are grasping sustainability?

Georgi Kyosev: “Just a few years ago, sustainability wasn’t really a conversation topic. It was all about the ‘factor’ side of our quant strategies. But now, sustainability is becoming increasingly prominent. Quite often, it’s first ESG and then factors.”

Jan de Koning: “And sustainable investing itself is changing rapidly. This is good news, but that also means that, as asset managers, we need to be fast and flexible. Ten years ago, most investors were happy with simple exclusions. Now, they increasingly ask for more and more improvements. One reason is that the definition of sustainability is not carved in stone. It is very personal and I’ve never met two clients with the same requirement. They have their own goals, different legislations, different pressure from trustees, and so on.”

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates

What is the focus right now, the thing that most people ask for?

J.D.K.: “Carbon footprint reduction. One reason is that ESG scores’ integration is more complex – which scores should you use? – and values-based exclusions are very personal. Meanwhile, you don’t have much discretion regarding what a 50% carbon footprint reduction means, and it is very easy to communicate about it. It is tangible. This is why carbon is very popular.”

G.K.: “Another reason why clients are moving away from exclusions is that many of them already hold passive products and want strategies that will not alter the risk-return profile of their portfolio. So, they are quickly disappointed with exclusions, as they often do not significantly improve sustainability and come with relatively high tracking error.”

So, they may want to do something simple, but simple is not that simple, right?

J.D.K.: “Yes and because clients know sustainability is not static and not their only goal, they also want to remain flexible. They want to be able to customize today and tomorrow. In all these aspects, active managers can make a difference relative to conventional index providers, and offer portfolios that avoid unwarranted factor exposures, high turnover, undesired country or sector biases, etc.”

Index providers often need to sacrifice ESG improvements to prevent tracking error from soaring

OK. But what about the sustainability improvements themselves? This is also an area where active managers may stand out…

G.K.: “Certainly. Index providers often need to sacrifice ESG improvements to prevent tracking error from soaring. Or they may be able to limit tracking error but have high turnover. We call these tradeoffs the sustainable investment dilemma. The good news is that it is possible to solve this with an innovative approach that provides high levels of sustainability, low tracking error and low turnover at the same time.”

J.D.K.: “Also, our 20-year expertise in both quant and sustainable investing, as well as our size and global reach, enable us to remain very agile. We have quants who focus on sustainability data and sustainably experts who know a lot about quant investing. This enables us to both shorten time-to-market and to make our latest modifications available even for small mandates.”

“For instance, when quants came with the idea of ‘decarbonizing’ value strategies, we were able to put this to work quickly and to share insights on how to assess corporate sustainability profiles with our sustainability experts. Index providers and asset managers that either have very large teams working in silos, or that use generic ESG scores, for example, have difficulty going this extra mile.”

Are there any other elements that really set Robeco’ quant offering apart from the competition?

G.K.: “Next to our quant expertise, we also have an experienced engagement team. This is something only very few asset managers can provide. This aspect used to be overlooked by clients, but today, we see it coming back in almost every meeting. And we are perhaps one of just a handful who can offer the combination of a sustainable index and engagement.”

J.D.K.: “Active ownership and engagement with companies are clearly one of the biggest dilemmas of our time. We have huge passive managers that basically pass the parcel to index providers, claiming that the result of engagement should be reflected in index design in order to be able to lower the index weight of a company that fails to listen and thereby improve its corporate behavior.

“Whereas index providers pass the parcel to either asset managers or the regulators as their job is not to engage but just create indices. So, as a sustainable investor, you’re caught in the middle of conflicting incentives of index builders and passive managers. Who is going to force companies to change for the better?”

How about delivery? Robeco offers not only traditional quant funds and mandates but also indices…

G.K.: “Different clients come with different needs. Indices are suitable for those requesting full transparency and those willing to split intellectual property from fulfilment. In that case, they can keep their existing asset management contracts in place and only change the index they track. Indices also allow us to partner with an investment bank and build more complex structured products.”

“For example, one of our most recent clients implements our sustainable factor index though a total return swap. In this case, our ability to deliver a strategy as an index is essential. This was also the case for a partnership with a global asset consultant, that for cost and transparency reasons wanted a solution managed in the form of an index for its pension clients.”

J.D.K.: “On the other hand, our quant equity strategies are most appealing to investors who are looking for a one-stop shop. Having experience as a quant equity investment manager for over 20 years gives us enormous credibility in the field and we are consistently seen as a thought leader.”

Many roads lead to sustainable Rome and these roads can change over time

On a final note, can the sustainability components of our indices be adjusted over time?

G.K.: “Yes. In fact, this is something that really sets us apart from most index providers. At Robeco, we like to say that we partner with our clients, not just with our prospects. When we are in talks with a prospect, we really strive to come up with a solution that meets  their needs in the best possible way. But our conversation doesn’t stop once they become a client.”

J.D.K.: “And because sustainability is so changing and personal, leaving the door open for potential future enhancements we believe gives investors a competitive advantage. Many roads lead to sustainable Rome and these roads can change over time.”

This article was initially published in our Quant Quarterly magazine. 

Important information

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.

Subjects related to this article are:


1. General
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:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

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.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

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. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree