Robeco has launched a new framework to help investors engage with countries’ governments to tackle sustainability challenges.
The framework – originally published through an academic paper last week in the Journal of Sustainable Finance and Investment – maps out methods of engaging with governments to advance the United Nations’ Sustainable Development Goals (SDGs).
Robeco said that governments have good reasons to work with the investors who buy their sovereign bonds as it means they can get better access to finance and to sustainability expertise.
Sovereign bond values are partly determined by the sustainability credentials of a country – including for example its record on deforestation – making it in the country’s interest to raise its score, the manager said.
One of the first countries to do so was Brazil, whose vice president met with a group of 34 investors in July 2020 to discuss concerns about deforestation in the Amazon rainforest. A follow-up meeting was held in January 2021.
Engagement work has now begun with Indonesia as well, focused on unsustainable palm oil.
The framework, Robeco said, seeks to address three key questions: who to engage with, what to engage about, and how to conduct the engagement itself.
Firstly, relevant countries are prioritized based on relevance in the investment universe and portfolios and the country’s progress on the SDGs.
Countries with significant investment exposure and high sustainability challenges are relevant candidates for engagement, since these are the countries where an investor can make a difference.
Secondly, SDG targets facing slow progress within that country are identified as priorities to engage on.
Thirdly, a detailed roadmap is provided that offers a systematic process for conducting the engagement itself, including goal setting, finding partnerships in the process, reporting and monitoring progress.
The paper said that the aim of the framework is to offer investors “a systematic approach to navigating engagement with sovereign entities on the SDGs”.
The authors* of the paper said: “Normally sustainability discussions can be fraught with subjectivity. We find a sustainability topic important, but the party we engage with might disagree. The SDGs make sustainability objective. Countries already adopted them. They find them important so we can align on that.”
Investor-led engagement with countries on sustainability topics is a new phenomenon, but engagement can be an important tool with which sovereign debt investors can operationalize their sustainable investing strategy, the paper said.
“By engaging with countries in an active dialogue, an investor can encourage the country to improve its performance on sustainability topics that not only are important to advancing sustainable development in general, but also are relevant for the investor’s strategies,” the authors said.
In turn, finding ways to improve its sustainability profile can help a country to gain better access to capital markets and obtain financing at lower costs.
* Jan Anton van Zanten, SDG strategist at Robeco and of Rotterdam School of Management at Erasmus University, Rikkert Scholten, senior portfolio manager for fixed income, sustainable investing at Robeco, and Peter van der Werf, Robeco’s senior manager for engagement, active ownership.
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