One questionnaire, a multitude of uses
About the CSA engine.
RobecoSAM has been conducting the annual Corporate Sustainability Assessment (CSA) since 1999. Though originally developed to select the components of the Dow Jones Sustainability Indices, over the years the CSA and its many applications have expanded to encompass a wide range of activities at RobecoSAM. In fact, the CSA is the engine that powers everything we do at RobecoSAM, ranging from research and indexing to our asset management activities.
We passionately believe that integrating financially relevant sustainability criteria into financial analysis helps us make better informed investment decisions. Therefore it only made sense that the insights from the CSA would also be applied to a variety of uses. Not only does the CSA determine which companies make it into the DJSI, the insights derived from the CSA are fully integrated into our asset management, engagement and sustainability benchmarking activities. Data from the CSA also form the basis of the ESG information that our parent company Robeco integrates into its mainstream fundamental and quantitative equity strategies as well as its corporate credits strategies.
In addition to continuously refining the CSA methodology to ensure that its criteria remain financially relevant, our Sustainability Investing Research Analysts frequently dig deeper into the CSA’s data to conduct sustainability research, publish relevant white papers, and generate innovative product ideas.
Thus, the CSA continues to serve as the leading global benchmark for corporate sustainability, and continues to provide the basis for new, cutting-edge sustainability products for investors. The CSA remains the foundation of such product development, helping corporations and investors achieve long-term value from sustainability.
We take you behind the scenes onto the RobecoSAM Sustainability Investing factory floor, and highlight how the various outputs from the CSA make their way throughout the entire organization and into a range of end products and services offered by RobecoSAM, our parent company Robeco, and our index partner S&P Dow Jones Indices.
Financial materiality analysis, CSA methodology development, and Company Benchmarking Scorecard
RobecoSAM’s Sustainability Investing Research Analysts (SI Analysts) work with our Quantitative Analysts to test the financial materiality of the criteria and questions included in the CSA. Results are fed back into the CSA methodology development process, and help determine adjustments to the CSA questions and criteria. In turn, the CSA itself serves as an engagement tool by making companies aware of which sustainability criteria and topics RobecoSAM and investors consider to be financially relevant to business performance. Finally, following each assessment cycle, participating companies receive a Company Benchmarking Scorecard comparing their sustainability performance against that of their industry peers. In addition they can request a more extensive feedback call with one of our SI Analysts.
Using insights collected from the CSA, RobecoSAM’s SI Analysts prepare Company Profiles, which are in turn used by RobecoSAM Equity Analysts as well as Robeco’s Equity and Fixed Income Analysts as inputs into their research and investment processes. These profiles form part of the analysts’ investment cases.
Publications & white papers
Reflecting our ambition to be a thought leader in the area of Sustainability Investing, our SI Analysts leverage the wealth of information collected in our sustainability database to conduct empirical research into the impact of various sustainability factors on companies’ financial performance. We regularly publish white papers, studies and articles highlighting the results of our latest sustainability research and insights. In addition, based on information collected through the CSA, each year RobecoSAM publishes “The Sustainability Yearbook,” the world’s most comprehensive publication on corporate sustainability.
RobecoSAM continuously works to enhance the integration of environmental, social and governance (ESG) factors into financial analysis to help investors reap the benefits of Sustainability Investing. Using the information collected through the CSA since 1999, our Quantitative Research Team has developed an advanced Smart ESG scoring methodology.
This new generation of Smart ESG scores builds upon our existing sustainability data collected through the CSA and eliminates known biases such as market cap, industry and regional biases.
By removing these biases, we are able to pinpoint which ESG indicators are the most financially relevant for different industries, sharpening our focus on financial materiality. This results in an unbiased, evidence-based Smart ESG score – a powerful score that has an attractive risk-return profile and low correlation to other common factors. Having enhanced the predictive and explanatory power of our sustainability data, we have integrated Smart ESG into the DJSI Diversified and the S&P ESG family of sustainability indices offered jointly by RobecoSAM and S&P Dow Jones Indices, and are now working on integrating Smart ESG across an even wider range of investment solutions, both active and passive.
The results of the CSA form the research backbone for the construction of all Dow Jones Sustainability Indices (DJSI). Offered jointly by RobecoSAM and S&P Dow Jones Indices, the DJSI track the stock performance of the world’s leading companies in terms of economic, environmental and social criteria. The indices serve as benchmarks for investors who believe sustainable business practices may lead to long-term shareholder value and who wish to reflect their sustainability convictions in their portfolios.
Morever, the DJSI serve as an effective engagement platform encouraging companies to adopt sustainable best practices. The range of indices developed and offered jointly by RobecoSAM and S&P Dow Jones Indices include the flagship Dow Jones Sustainability Indices, the DJSI Diversified, S&P ESG, and the S&P Fossil Fuel Free Indices. All index families include global and regional subsets.
Integration into financial valuation
Sustainability information from the CSA is fully integrated into our financial models to arrive at a fair value for the companies in which we invest. But rather than simply applying a company’s total sustainability score to its fair value, we take a more nuanced view and make these adjustments to the financial assumptions at a more granular level.
We do this by identifying the most financially relevant factors that are likely to have a material impact on companies’ business drivers such as growth, profitability, capital efficiency and risk through our materiality framework. Once we have identified and prioritized the material sustainability issues for each industry, our analysis shifts to the company level and evaluates how well company management is addressing each of these factors. Based on this analysis, we adjust the assumptions of the return on invested capital and the weighted average cost of capital in order to obtain a fair value that balances short-term financial projections with the consideration of longterm sustainability factors.
Product Development & Innovation
As a growing number of investors demand that their portfolios generate social and environmental impacts in addition to financial returns, RobecoSAM has increasingly turned to our vast database of corporate sustainability information collected over the years through the Corporate Sustainability Assessment. Our SI Analysts and Product Development team continuously dig deeper into our CSA data to identify subsets of data that can be used to develop innovative product ideas, particularly in the area of Impact Investing.
Social Impact: Global Gender Equality Impact Equities
Growing evidence suggests that gender diversity contributes to better corporate performance in terms of share price, profitability and risk reduction. To this end, RobecoSAM has been collaborating with EDGE Certified Foundation since 2012 to develop and define the CSA criteria for assessing companies’ performance on gender diversity and equality. Using this data, RobecoSAM has constructed the RobecoSAM Gender Score to rank companies based on their performance on a range of key labor and gender-related criteria that go far beyond board diversity. Such criteria include:
- ability to retain female talent across all management levels
- a comparison of remuneration levels between male and female employees (both base salary and bonuses)
- availability of work-life balance and flexible working solutions that enable childcare options
- ability to track employee satisfaction levels, broken down by gender
The Gender Score derived from the CSA is then combined with traditional investment factors such as valuation and momentum, to construct a global portfolio of companies that are leaders in promoting gender diversity and equality.
Social Impact: Global Child Impact Equities
Similarly, for investors who wish to make a positive societal impact in areas related to children’s rights and welfare, RobecoSAM and the Global Child Forum have been collaborating to develop questions related to children’s rights and welfare in the Corporate Sustainability Assessment. Using data from the CSA that address children’s welfare and children’s rights, we have developed the RobecoSAM Global child Score based on the following factors:
- supply chain management policy and risk management measures preventing the use of child labor
- compliance with international labor standards
- child-related issues such as product safety, responsible marketing, sexual exploitation, as well as water, sanitation and environmental issues affecting children’s well-being
- board-level accountability for policies and procedures that protect children’s rights
- corporate citizenship and philanthropic initiatives that promote children’s welfare
The Global Child score is then combined with traditional investment factors such as valuation and momentum, to construct a portfolio of companies that excel in supporting children’s rights and welfare.
Impact Investing: Environmental Monitoring Tool
A growing number of investors wish to limit the negative environmental impacts of their investment portfolios. But in order to manage these impacts, they must first be measured. With this in mind, RobecoSAM has leveraged the environmental data collected through the CSA to develop an analytical reporting tool that helps investors monitor their portfolio’s impact on a selection of quantitative environmental indicators. We screen a client’s portfolio to determine each company’s environmental footprint on four environmental indicators:
- Greenhouse gas emissions (GHG)
- Energy consumption
- Water consumption
- Waste generation
The environmental footprint calculated for each company’s exposure is aggregated to determine the portfolio’s total environmental footprint, which in turn enables investors to gain an understanding of the magnitude of their portfolios’ environmental impact per invested dollar. Armed with this information, investors can make better-informed decisions on how to adjust their portfolios in order to maximize the positive impacts and minimize the negative environmental impacts of their investments.
Our parent company, Robeco, has made Sustainability Investing one of its strategic priorities. As a subsidiary of Robeco focusing exclusively on Sustainability Investing, we are uniquely positioned to provide our parent company with financially relevant sustainability expertise, much of which is derived from insights gained through the CSA.
Robeco systematically incorporates an analysis of ESG factors into its mainstream investment activities, totaling USD 93 billion in assets under management.1
The manner in which our Robeco colleagues integrate sustainability information from our CSA into their investment process is tailored according to the specific characteristics of each individual investment strategy. In some cases, information from the sustainability Company Profiles is integrated into valuation analysis, much in the same way it is done for RobecoSAM’s own Global Equity strategies. For quantitative equity products, the Sustainability Scores are adapted and combined with other quantitative factors such as valuation and momentum to identify the most attractive investment opportunities suitable for that investment strategy.
1 As of September 2015
When it comes to fixed income investing, a corporate bond investor’s primary concern is the investee company’s ability to repay its debt. Therefore one of the cornerstones of the Robeco Credits team’s investment philosophy is that avoiding losers is more important than picking every winner. Integrating sustainability information into its credit research process strengthens the Credits team’s ability to assess the downside risk of its credit investments.
Not only are the Sustainability Scores from the RobecoSAM CSA used to screen the investment universe for the 50% highest ranked companies in terms of sustainability, Robeco’s Credits team also integrates sustainability into its bottom-up credit analysis. The team uses sustainability information from the Company Profiles generated from the CSA as one of five building blocks that make up the Credits team’s fundamental opinion on a company’s credit. Moreover, the Credits team has recently begun to use RobecoSAM’s Environmental Monitoring Tool, which is also based on data from the CSA, to reduce the portfolio’s environmental footprint in terms of greenhouse gas emissions, energy consumption, water use, and waste generation.
By engaging in a constructive dialogue with companies, we can encourage them to improve their management of environmental, social and corporate governance (ESG) risks, which in turn enhances competitiveness and profitability.
But in order for an engagement initiative to be effective, it is important to focus on topics that are financially relevant both to investors and the companies themselves. This is where the CSA comes in: it guides our Governance & Active Ownership team in selecting financially material engagement themes and objectives. The results of our engagement efforts are then communicated to the analysts and portfolio managers throughout the Robeco Group so that they can incorporate this information into their investment decisions.
As of September 30, 2015, RobecoSAM’s Governance & Active Ownership team had USD 191 billion in assets under engagement and voting.
Over more than 15 years of assessing companies on sustainability factors, RobecoSAM has found that a process of competitive benchmarking provides an incentive for many companies to improve their performance on factors that long-term investors consider important. Based on the information collected through the CSA, RobecoSAM’s Sustainability Services team taps into our unrivaled sustainability database to provide companies with a range of benchmarking services comparing companies’ sustainability performance with that of their industry peers, identify competitive strengths and weaknesses, and highlight examples of sustainability best practices.