Energy Super has selected Robeco for a $650 million global equity enhanced indexing mandate incorporating sustainability criteria.
Stephen Dennis, Robeco Australia head
Robeco’s enhanced indexing strategy “aims to deliver better than market returns after costs while integrating value, momentum and quality factors,” the fund manager said.
The mandate is managed by Robeco’s Quantitative Equities team, which consists of more than 40 portfolio managers and quantitative researchers dedicated to quantitative investing, research and model development. As of September 2019, Robeco managed $116 billion based on quantitative models.
While not commenting directly on the mandate from Energy Super, Stephen Dennis, Robeco Australia head explained that the enhanced indexing approach enables a “comprehensive integration of environmental, social and governance (ESG) characteristics at every step of the investment process.”
“We can analyse portfolios, we can look at the environmental footprint of a portfolio, for example,” when a client appoints us, we work to achieve certain aspects whether it be carbon, waste, what have you, we look at whatever the client’s preferences are and structure a portfolio with that in mind,” Dennis said. “We also can have the profile of a total portfolio to have a better ESG profile than the index that they’re managing towards, and we can have that at different levels, depending on what the client is trying to achieve.”
Enhanced index construction means a flexible approach to setting the terms, particularly around ESG performance. Robeco’s approach allows for the introduction of ranking methodologies based on sustainability scores. In addition, Robeco’s Active Ownership team actively engage with companies to make an impact. As of September 2019, Robeco managed over $200 billion in assets with ESG integration.
“Every client is coming at this from a different angle, and that’s one of the beauties of our approach,” Dennis said. “We’re sitting and collaboratively working with them on what they’re trying to achieve. If the mandate is coming from another manager that doesn’t have that composition in place, it’s looking at the holdings that will provide the profile what the client is after, and transitioning towards a more sustainable portfolio. Some clients that we have, it’s a journey- they may start out with just wanting to have an ESG profile that’s as good as the index or better, and move to a profile that’s 10% better with a 25% cut in carbon. It comes back to the flexibility of what we can offer the clients.”
Transitioning from a legacy a portfolio towards a higher ESG performance portfolio can take time, and necessitating discussion with the client to determine the balance between the timing of the transition versus the costs incurred by moving.
Enhanced indexing strategies are attracting attention from investors, Dennis noted.
“We’re seeing quite a bit of interest in the sustainable aspects of enhanced indexing,” Dennis said. “There’s a lot of money going into passive investing in Australia. The clients realise that they can, for incremental increases in fees, they can target an alpha that is 1% and also have a more sustainable portfolio. Little increase in cost for large benefits form an alpha point of view. Flexibility they have and the knowledge that they have that we know what we’re talking about when it comes to sustainability because we’ve been doing it for so long.”
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