Robeco has extended its commitment to sustainable investing by excluding investments in thermal coal, oil sands and Artic drilling, arguing that they have by far the worst impact on the environment.
The fund house has a longstanding commitment to ESG (environmental, social and governance) and sustainable investment.
In its Sustainability Policy, the firm declared: “We see sustainability as a long-term force for change in markets, countries and companies.
“We are convinced that considering ESG factors results in better informed investment decisions and therefore leads to better results for our clients. […] By exercising our voting rights and engaging with the companies in which we invest we aim to have a positive impact on both our investment results and on society.”
The firm already has investment exclusions on several areas of the market. These areas are controversial behaviour, companies in severe breach of the United Nations Global Compact (UNGC) and Development (OECD) Guidelines for Multinational Enterprises, those involved in the production of palm oil and controversial products, including the production and manufacturing of weapons, tobacco and fossil fuels.
Carola van Lamoen, Robeco’s head of active ownership and the head of the sustainable investing centre, said the latest exclusions deal with the “worst of the worst”: carbon emitters.
Van Lamoen said that Robeco wants to support progress towards a low carbon economy, seeking alignment with the Paris Climate Agreement. This is an agreement between the UN members to take a global response to climate change and keep the global temperature rise this century below 2C.
Part of this process, van Lamoen said, includes supporting an economic shift away from fossil fuels.
“What we’ve done is we’ve focused on the worst of the worst,” she said. “So we’re excluding thermal coal, oil sands and Arctic drilling. We focus on those fossil fuel activities which have the most severe and negative impacts on worldwide carbon emissions.”
Companies which derive more than 25 per cent of their revenue from thermal coal or oil sands, or more than 10 per cent from Arctic drilling, will be barred from Robeco’s investment portfolios.
Thermal coal is the highest carbon-emitting source of energy in the global fuel mix. Meanwhile, oil sands are among the most carbon-intensive means of crude oil production and Arctic drilling poses higher risks of spills compared to conventional oil and gas exploration, as well as having potentially irreversible impacts on the Arctic ecosystem.
These exclusions apply to all of Robeco’s mutual funds including sub-advised funds, but not to client-specific funds and mandates.
But why engage with companies involved in these practices at all? Why not put the threshold down to 0 per cent?
Van Lamoen said sustainability is not something that can be achieved overnight as it is a “transition” for companies to move from being high carbon emitters to more sustainable businesses.
Engaging with companies during that transition is a huge part of the management’s process, van Lamoen said, and the companies in that stage still present investment opportunities.
“Within the engagement we’re focusing on lowering the carbon footprint of companies and also making high carbon companies transition-proof. And we will keep that focus to decarbonise,” she said.
But there are limits as to which companies can be reasonably engaged with to make lower carbon changes, van Lamoen said. Ultimately companies above these 25 per cent and 10 per cent thresholds are beyond the reasonable point of becoming sustainable.
She said: “The companies which are proposed for exclusion are now far away from a reasonable rate of transition and basically we concentrate our efforts where sectors and companies can make a meaningful change.”
One of these sectors is the automotive industry, an area where van Lamoen said “a multi-decade transformational change has begun”.
“What we see is that ultimately manufacturers are starting to transition to electric cars and place more emphasis on renewable transport systems. If you compare this approach in the automotive industry to a couple of years ago, this is a massive change,” the Robeco head of active ownership explained.
“We started that engagement [with nine car companies] in 2017 and at that time achieving zero emission transport was not even being considered by any major car manufacturer. But now three years later the world is thinking [about it] and there is an industry acknowledgment of achieving zero emission transport.”
This, van Lamoen said, is an example of an industry where there are substantial efforts being made to lower carbon emissions.
“We do this for a reason and it’s part of our entire sustainable investing approach. Being a sustainable investor not only means you exclude it means that you integrate ESG, you vote, you engage,” van Lamoen concluded.
“And for those companies which are the worst of the worst you also exclude.”