Author: Maha Khan Phillips
Masja Zandbergen is Head of ESG Integration at Robeco, the international asset management firm. She talks to Professional Investor about integrating ESG factors into the investment process, and why it leads to more informed decision-making.
1. What is the one thing you want people to know about sustainability investing?
The goal determines the strategy. Many people do not distinguish between ethical decisions (based on reputational or branding motives or beliefs), financial motives or impact motives. First decide your investment belief with respect to sustainability investing and then start thinking about implementation. Often I see that negative screening or exclusionary approaches prevail. This leads to restrictions for portfolio managers. Of course they do not like this, living in a world where performance is everything. At Robeco we started off with the clear belief that integrating ESG leads to better informed decisions. How to integrate ESG was left to the investment teams, with the clear guidance that is should be done in a sensible and value added way. This worked.
2. Should all investors automatically be integrating ESG factors into their investment strategies?
Sustainability is becoming more and more important, so it would make sense. Implementation depends very much on the investment strategy. If you are a value investor, you might look for companies that can improve. If you are a long term investor, analysing external factors like developments in ESG, can be relevant to your investment case. If you have a short term strategy, you might use big data on ESG news and momentum to supplement your analysis.
3. How do you measure or score ESG?
The key in measuring ESG is financial materiality. In our quantitative strategies we use a smart ESG score that is based on the Corporate Sustainability Assessment from RobecoSAM. This assessment has a focus on financial materiality and therefor contains over 50% of different questions for each industry. (We distinguish 60 different industries.) This score is then corrected for regional and size biases and focuses on those ESG indicators that have statistical relevance in predicting share price returns. This makes it an excellent score to use in quantitative strategies.
On the fundamental side, the underlying research is far more important. RobecoSAM’s research team focuses on four to five key material aspects and compares companies within their peer group. This information can then be incorporated into an investment case and valuation model.
Besides the traditional ESG measures, we also have research on environmental footprints (GHG emissions, energy use, water and waste production), alignment with sustainable development goals, and sustainability themed research.
4. Something that keeps you up at night?
I sleep quite well. However of course I am concerned at what we are doing to our planet and to the people on it. Three main areas of concern to me are climate change, the severe loss of biodiversity and the increasing inequality within countries. All these issues can lead to serious social problems, but also loss of economic value. The financial sector could play a role in helping to solve these issues. However, we are still in a very early stage. I hope we can implement sustainability investing in such a way that it creates both social, environmental and financial value. The worst thing for me would be to look back ten years from now and see that we have not solved the sustainability issues and have destroyed financial value in the meantime.
5. If you could change one thing about the investment industry, what would it be?
I would welcome more diversity in thinking. That people do not have to set aside their personal views and values, but that they can actually use them to become even better investors. I feel there is little room for that currently.
6. Something we don't know about you?
There's a lot you do not know about me! To give but one example, I like gardening. No paved garden for me, but giving room to plants, flowers, birds and bees. I really enjoy being outside and it is my small, more symbolic contribution to increase biodiversity.
7. Any advice for investment professionals beginning their careers?
8. Last great book you read?
To be honest I prefer to read novels rather than business or finance books in my free time. I am currently reading the book White Houses, that describes the love affair of Eleanor Roosevelt with the female journalist Lorena Hickok. It gives a wonderful insight into the life and loves of the two women that came from completely different backgrounds. On the business front I just started reading Winning Sustainability Strategies, a book of Jan van der Kaaij and Benoit Leleux that aims to inspire companies to implement sustainability by drawing from their experience in working with sustainability leaders.
9. If you weren't head of ESG at Robeco, what would you be doing?
I would be a teacher or have my own gardening company. Both things I very much enjoy doing.
10. Is it too late for us to reduce climate change?
I think recent data shows that the climate is already changing and also we know already that the level of CO2 in the atmosphere will increase. So it certainly is getting late. Coordinated action is needed, because we are heading for a higher than 2 degrees’ scenario on business as usual. So we need to be prepared for the consequences as well. However, I am optimistic by nature. So it’s not too late….!.