Robeco’s Active Ownership team has selected five new engagement themes for 2018. I like to explain why they were chosen, and what are the challenges in trying to get companies to improve themselves.
1. What are Robeco’s engagement themes for 2018? Why did you pick these ones… is it based on where we have the most investments?
We select engagement themes in a very structured way. We ask input from our portfolio managers and analysts, and from the SI research teams at RobecoSAM, and match them with the ideas of the engagement specialists within my team. We ask clients what they consider to be most relevant to focus on, and with all that input we come up with a balanced set of financially material themes. We also aim to align engagement themes where possible with the UN Sustainable Development Goals (SDGs). Through that process, we came up with five themes.
The first focusses on challenges relating to climate change where we will target the world’s biggest carbon emitters. The second topic is discussing food security with agrochemical, seeds and fertilizer companies. The third is cyber security, where we will focus our efforts on companies in the ICT and consumer sectors that are vulnerable to these issues. The fourth one is good governance, amongst others looking at Brazilian and Chinese companies. And the fifth topic is waste management, specifically within the tech and solar power industries.
2. Is targeting climate change linked to Robeco’s new climate change policy, or the commitments to adhering to the SDGs?
Our climate change policy aims to reduce investment exposure to climate risk, and we do that in many different ways. We are part of a global collaboration of 225 investors who have joined forces to get into dialogue with the top 100 carbon emitters in the world. In this ‘Climate Action 100+ initiative’ we’ll be taking a leading role in engaging with some of these companies. We will also co-file shareholder proposals with regard to two-degree scenario planning and methane emission reduction targets at some companies.
3. Why are you targeting technology and solar companies in the drive to reduce waste? Why not target the plastics companies or polluters?
We’ll focus specifically on a transition to circular business models, so that no waste will be produced. In the production process of solar energy, toxic waste is still an issue. Currently, the product cycle of solar panels is linear: at the end of their life they are disposed of, instead of recycled. Actually, they were never designed to be recycled to begin with. They are not biodegradable, so how do you decompose them – we don’t want them to end up on an Indian beach. If companies have an adequate approach to manage the end-game through the initial manufacturing process, it can alleviate this problem. This is also aligned towards the SDG on responsible consumption and production.
4. Do you think cyber security is getting worse? Which companies are particularly threatened by cyber crime?
More data is stored now in systems around the world due to cloud computing and social media – 90% of the data in the world today has been created in the last two years. There have been many more attempts to steal this data through hacking attacks. The level of security needed is getting more advanced, but the skills of the hackers and their incentives to steal more valuable data are growing more quickly than the abilities of companies to respond to the threats. We will focus on the ICT and consumer sectors for this engagement. Retail companies now operate much more online, while banks face an obvious security threat.
5. Why are you targeting Brazilian and Chinese companies for governance improvements? What are you looking for in particular?
There isn’t a common denominator as such, but a lot of the suggestions we received from clients and the investment teams related to trying to achieve governance improvements in emerging markets. We see a lot of upside potential there. There’s a difference in the quality of corporate governance in developed markets compared with emerging markets, including structures needed to improve disclosure, shareholder rights and these kinds of issues. Our engagement specialist in Asia specifically focusses on governance issues. Corporate governance standards have been improving in several countries following pressure from investors, governments and other stakeholders, but there are still a lot of challenges.
6. Is food security a big issue again? Hasn’t a lot of progress been made in recent years in areas like palm oil, cocoa and reducing fertilizer use?
It’s still on the agenda; we’ve made a lot of progress but like climate change, it remains a large global challenge. Weather patterns will negatively affect farmers in emerging countries due to droughts or flooding, along with urbanization in low-income countries. A global population growing to 10 billion by 2050 is a big driver of demand for food systems. So there is a lot of room for improvement. We engage with agrochemical, seeds and fertilizer companies on the role they can play in developing yield-enhancing solutions for famers, with a specific objective to support smallholder farmers. Similar to with waste management, there was a strong desire from a client to do this. And the whole topic is aligned with the SDG relating to food.