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By Gilbert Van Hassel, cheif executive, Robeco

Sustainability investing: meeting the needs of the present generation without compromising those of generations to come

It is with great pleasure that we present to you our Big Book of SI. We firmly believe in sustainability investing, and think all the stars are aligned for this investment discipline. From a bottom-up perspective, sustainability is clearly changing markets. The environment in which companies operate is very different from 20 years ago. Climate change, resource scarcity, pollution and the working conditions in emerging countries are all trends that affect companies, as well as provide opportunities for new markets.

However, they also present risks as they are changing the regulatory landscape, altering consumer behavior and, in many cases, increasing costs. Moreover, clients are increasingly looking to create more sustainable portfolios to meet the demands of their sponsors, participants and regulators. And then there is the socioeconomic perspective and the many global challenges faced by our generation. While prioritizing growth above issues such as climate change risks may yield better returns in the short term, the long-term prospects for such a strategy may be less rosy.

Sustainability investing is of strategic importance at Robeco. We started adopting it in the mid-90s and it has been at the core of our business since the mid-2000s, when Robeco acquired Sustainable Asset Management (now RobecoSAM). The acquisition of SAM gave us the knowledge and insight we needed to integrate sustainability in all aspects of our business. Our current joint sustainability strategy is built on four key aspects:

  1. A unique sustainability culture that has evolved over the last 20 years
  2. Our extensive in-house expertise in research, analytics and investments
  3. A truly integrated investment approach across the asset classes stemming from interaction between our SI
    researchers, financial analysts and engagement specialists
  4. The ability to innovate quickly and offer clients bespoke solutions as sustainability investing evolves

Despite our clear vision on sustainability, we realize that there is no one size fits all, so we offer many different products and solutions for many different clients across the globe. At the time of writing, we manage EUR 100 billion of integrated sustainability assets in equity, fixed income and private equity. We believe that the investment industry will move from creating only wealth to creating wealth and well-being, and it is our intention to contribute to that shift. It is in the interests of both society and our industry, and when these two are aligned progress can be swift.

The topic of sustainability arises within minutes of talking with clients. I believe that we have reached an inflection point. It is already clear that taking a sustainable approach does not detract from performance. We believe that using financially material ESG information leads to better-informed investment decisions and benefits society. The Sustainable Development Goals are a very important development in this context that take sustainability to the next level by making it tangible and measurable. There has been a change in thinking in the asset management world, from avoiding companies that have a negative impact on the environment to investing in companies that have a positive one.

You can embark on sustainability investing in small steps. What we see at Robeco is that, as knowledge and experience in sustainability investing increase across the organization, so too does conviction. I hope that this Big Book of SI will help you find your way in the fascinating, multi-dimensional world of sustainability investing.

Read The big book of SI

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By Jonathan Curtis and James Cross, Franklin Templeton

How many times have we heard the expression: “Data is the new oil”?

As data transmission and storage get cheaper, we generate and collect more and more data. More data enables smarter choices, but only if you can separate signal from noise. As the quantity of data rises exponentially, it becomes a lot harder to do so.

The dazzling array of new technologies continues to amaze us. Yet, technology advancements often come with consequences, such as cyberattacks. And as we move into a world in which virtual reality and augmented reality are set to play an essential role, cybersecurity becomes more important than ever before.

Read Cybersecurity trade offs in technology global

This edition of SIX. Magazine includes

  • Fourteen pages on impact and outcome
  • Two big interviews
  • Four eye-openers
  • Five engagement themes
  • A twenty-four/seven engagement specialist
  • Ten messages in a bottle
  • One spy in the sky
  • Eight times #mySDG
  • Seventy-two pages of thought leadership

Read SIX (Sustainable Investing Expertise), published by Robeco in March 2020

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By Franklin Templeton

Fixed income investing has undergone a sea change in the past decade. By tossing out some active management orthodoxies and embracing new technologies and quantitative techniques, we believe some managers are better equipped to capture unique insights and excess returns for their clients.

Several investment shops, however, have cast this transformation as a binary choice—a confrontation between enlightened quantitative approaches and outmoded “traditional” active managers who remain steadfast in the fundamental economic laws of capital markets. We think this quantitative vs. active debate sets up a false dichotomy. In this paper we explain how our active approach to quantitatively derived insights sets apart our “active quant” investment process.

Read Quantitative science actively adding to fixed income decisions global

The current coronavirus crisis has exposed many weaknesses, one of them being the chronic under-investment in social infrastructure in most countries – developed and emerging. In fact, after a long period of neglect and decay, investment needs and investment gaps were already huge before this crisis, not only for health and disaster management but across the board.

The financial crisis 2007/09, austerity policies and other unfavourable regional developments, led to a more or less pronounced dearth of social investment by the public sector, notably in Europe but not only. Private sector finance of social infrastructure, too, has widely fallen back over the last decade – in contrast to economic infrastructure. Important questions arise about why, and what can be done. A first, systematic study on “Social infrastructure and Institutional Investors. A Global Perspective” seeks answers. The paper gives an overview, facts and figures on worldwide investment in the field, including the activity of institutional investors, the range of traditional and new investment vehicles and the new opportunities. It provides several key conclusions and recommendations for both policy makers and investors.

Good facilities for education, health, care, housing, security, emergencies, culture and recreation are – evidently – essential for all political systems. Economists measure the substantial contribution of social infrastructure to economic growth and employment. Social scientists stress the links to human and social capital formation, inequality and poverty, social cohesion and community welfare. Demographic factors will put even more pressure on care and health spending. Even from a pure infrastructure investor perspective, the operation of transport, energy, water and communication networks benefit from a healthy, progressive social infrastructure.

Social infrastructure investments are not new to most institutional investors as they are often part of generalist infrastructure funds or direct strategies. However, overall investment volumes have remained very small even at times of booming (economic) infrastructure allocations. Investor experiences have often been a rollercoaster. There were some significant clusters of investor engagement since the 1990s in schools, hospitals and other public buildings, e.g. public-private partnerships (PPP) in the UK (PFI), Canada, Australia, France and other EU countries, Korea and also in some Latin American and other remerging markets. Over the last decade, however, the supply of such assets has dwindled in most places.

The world is changing fast and it is uncertain how the (political and financial) world post coronavisus crisis will look like. Even under more normal circumstances, the public sector will remain the dominant funding and financing source for social infrastructure. Nonetheless, much more private capital could flow with favourable macro and sectoral condition. An integration of infrastructure policies with a proper long-term social policy vision is needed, using not only financial but also social services experts.

Investors require greater clarity on social assets and projects, especially credible longer-term funding propositions as well as consistent rules.  What can reasonably by funded by consumers and users of services?  What needs to be provided by the public sector in support of the vulnerable or as a public good? Asset recycling or value capture, e.g., could be used more and better, at least for certain segments, in a socially acceptable way. The degree of “financialization” of social infrastructure is, in the end, a matter of political choice, and it should be made in the open to create consensus.

Clarity in funding facilitates financing and investing. The investment characteristics of social infrastructure assets are potentially attractive, such as non-cyclical demand, steady income and low correlation to other asset classes. However, they can also be small and fiddly, rather heterogeneous across sectors, with outputs difficult to measure, and subject to political and renegotiation risks.  They are typically very “local” and subject to different laws and customs across countries, regions and municipalities. This requires capabilities in both public and private sector, transparency, competent management and good governance.

The global experience so far shows that matching private capital investors’ expectations with the available assets and projects in social sectors is a bigger challenge than previously thought even in advanced markets. Many policy initiatives to mobilize more private capital may sound good but have not been very effective on the ground. It is worth investigating what approaches have worked successfully in the past for different infrastructure assets, at least in some places and for some time.

In social infrastructure, there are various investment strategies and instruments that can realistically be improved, scaled-up and expanded. For example, many investors these days seek real estate-like social infrastructure with steady expected income from users or hybrid fees, like student accommodation and other university facilities, care homes and kindergartens, judicial and other public buildings, affordable housing or urban regeneration. Another example is private equity firms/funds that have increased their investment in health care or prisons (arguably with a controversial record of innovation and efficiency gains versus poor service quality and profiteering).

Smaller investors in particular would need more well-diversified (and cheap) products or investment platforms in this field. Sub-government revenue (e.g. municipal) bonds are well-established while there is an expanding social bond market. More and more investors are trying new investment routes into social housing or community and city development etc. Sustainable, impact and SDG investing are gaining traction, opening a new door for asset owners. Working out an investible pipeline for social projects may be strenuous across financial and social departments but Governments finally need to get their act together.

One of the outcomes of the last global (financial) crisis was a – slow – revival of economic infrastructure policies, and a growing activity by asset owners. Will this decade see a renaissance of – public and private – social infrastructure investment?

Assessing the economic impact of the COVID-19 pandemic is essential for policymakers, but challenging because the crisis has unfolded with extreme speed. This paper identifies three indicators – stock market volatility, newspaper-based economic uncertainty, and subjective uncertainty in business expectation surveys – that provide real-time forward-looking uncertainty measures. The authors use these indicators to document and quantify the enormous increase in economic uncertainty in the past several weeks.

The authors also illustrate how these forward-looking measures can be used to assess the macroeconomic impact of the COVID-19 crisis. Specifically, they feed COVID-induced first-moment and uncertainty shocks into an estimated model of disaster effects developed by Baker, Bloom and Terry (2020). The illustrative exercise implies a year-on-year contraction in US real GDP of nearly 11 per cent as of 2020 Q4, with a 90 per cent confidence interval extending to a nearly 20 per cent contraction. The exercise says that about half of the forecasted output contraction reflects a negative effect of COVID-induced uncertainty.