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Biodiversity, Stock, Stock market ustainable Investing in Asia Luncheon | 25 May 2022 | Q&A discussion

So maybe i can, you know just ask you to raise your hand im, not sure we have an extra mike anybody to have questions for us, maybe while youre thinking about it ill just raise a couple first for sure weve heard of engagements with companies, and that Sounds straightforward? You want to work with them to help them be closer to their sustainability goals. Maybe there are some benchmark companies who could mimic, but that question of engaging with governments always sounds a bit tricky whether it is just the fact that governments, or maybe in asia culturally, is that rather sensitive, maybe laura. I can yeah so thats a very good question, though, and i think indeed there are some cultural differences that we need to take into account when we frame that engagement. So basically, we take our position as investors in sovereign bonds to have that leverage with with the government and we collaborate with a group of more than 50 institutional investors to engage with the government of brazil and indonesia to help them help them shape their different public Policies around climate change and biodiversity and deforestation. So, just to give you an example, the engagement weve been doing with the government of indonesia weve been able to really have a constructive dialogue and really like collaborate together in order to help them out to outline some amendments. Also to the omnibus law that was still under discussion and also give them feedback on the green taxonomy that the ministry of finance is working on at the moment.

So all in all, i think this type of dialogues are very insightful to also you know, engage with this government and be able to steer also companies that are needing to sort of comply with those regulatory requirements to steer them towards more sustainable business practices. Let me just add a little bit onto that, so you know why do issuers engage with us? I mean like, for example, the government of indonesia. They theyre issuing green bonds. I mean singapore. They want to make sure that these cream bones are popular. They want to know that people will buy them. They want to know what investors are thinking, so i think theyre as incentivized to speak to us to make sure that you know particularly now as people to differentiate green bonds. They want the best green bond im sure that singapore would try to make it the best screen born in asia, its just its just how issues and say with issues issuers talk to us about their framework again, because they want to make sure that investors like what Theyre, seeing and because now its becoming a competitive differentiator, so thats why engagement is is also important for us from that perspective, feel free to raise your hands. If you have any question or um, oh evelyn, thank you, im mavelin from wwf singapore. I just want to ask some questions regarding the um asia sustainable bond fund. First of all, i just just look at the slide um.

You were saying that youre investing in green bonds. Does this mean that sustainably linked bonds are excluded? Thats the first question, and then the second question is that, based on the sdg framework, 19 of the bonds in the universe excluded – and i just want to seek further clarification – um youre said that excluded. If the bonds or the bond issuers might be getting the trouble. Regulators, but very often issuers could have certain environmental impacts and not get into trouble with regulators. How? What is your treatment of the kind of issuers? Thank you, okay. I think that the first question was on green, no, so its no, so we do uh have a framework for green, social and sustainable bonds. So we invest in all three, but we have a framework to look at it. I mean just because its labeled you, you still have to do your own uh, looking at the framework uh, quite a few dont make through uh our framework. But having said that, the asia we did a sample size between asian issuers versus european and u.s issuers. In terms of the green bonds and asian issue is actually very similar pass rate, as european us was actually lower than asia in terms of our pass rate for our framework. So, yes, we do all three and the other uh the question you have about our filter. Well, theres theres several filters. I think the first filter is to make sure that uh with the sustainability lens that the companies that are not contributing to the sustainable development goals, or certainly contributing negatively, are excluded, but youre right but thats just the first filter.

We still have our credit research and our esg to then still filter out, companies that have controversies or or have other other undesirable characteristics, so thats the first starting point to at least picking the right companies. But they say that is, that is still theres still many layers for which us to that to to understand and have companies that are way beyond just you know, thats why esg integration is this happens at a second stage. Yeah were often asked. You know i mean i was first asked: i saw an l bond and an sdg bond and i mainly asked my portfolio manager. So can you put that that energy company sdg bond into our portfolio so its not as straightforward as something being labeled sdg, green sustainability, ling, blue bond green bond, whatever that it goes in the portfolio? There is a framework that tuha mentioned that we assess them. I guess most do pass some dont but thats why we like to look more holistically across more companies that dont have labels, but, based on our assessment using the sdg framework, would still meet the criteria. You might have noticed as well on the slide that we include the negative one sdgs right and i i think it was kind of alluded to, but tuja or laura. You may want to talk more about it that theres still the engagement at the end, the esg integration yeah, but i think oh maybe i was just thought that again yeah so um there, because um, particularly for asia and emerging markets.

We do find that because were very strict about our criteria. So if you dont have a certain percentage in certain uh assets, youre excluded – and i think we think in asian, emerging market theyre, theyre transitioning companies and therefore its important for us to have a bucket for companies that with wasting and transitioning or that were engaging in. So that they dont get, you know filtered out just because theyre not there yet and thats particularly applied to emerging market in asia. Maybe if i can add to that, so we also use these sdg scores for the actual engagement that we do with companies right. So if we see that a company is uh contributing negatively to the sdgs, then we have like a clear framework on which areas for improvement are out there to make sure that the company can basically have an upgrade in this course. So we use the framework as a sort of roadmap, also to better shape that engagement dialogue and really steer the company towards improving that you know ultimate sdg score that we will assign once we see those improvement on the environmental and social practices. While waiting for more questions, i receive a couple of on my phone and i think again its on engagement and governments right because youre using a jackie benchmark to sovereigns. So how that is done and also in terms of country assessments. Esg wise weve been asked that question quite a bit: russia, myanmar, maybe companies that were excluding.

But what do we do in terms of us robeco assessing investments in such countries, not just in companies and isolation by countries born not equity, wise yeah? So we have a a already a framework in place that you know um, taking a lot of data assessing some of these uh factors that the risk we have, our sustainable government sustainability score, which is already existing and were also probably going to be releasing an sdg Framework for sovereigns as well, i think sovereigns – are tricky for a lot of reasons because its not like a company where its uniform there. You know you may be doing well in some areas and then negative in others. So i think you know obviously theres controversies, which, which definitely are already with a part of our exclusion, but other aspects that were looking for is also um, which is you know. Uh were working very much on momentum like which are the sdg scores that youre doing well in momentum. Wise and youd, be quite surprised that actually, in certain sdgs and momentum in in emerging market, is actually much better than developed markets. But in some areas, not so well so again, this is a great framework for us to have this type of engagement. You know on the areas that are weak, as well as as talking about areas that are strong, so were talking were really thinking about momentum here, as well. Yeah for the equity fund range for asia, pacific.

We do not exclude certain countries at this moment, but for assessing those countries affecting the industries or companies, then we will factor the risk into our dcf model in order to factor in the risk that will be associated for the target price and also the valuation. In order to pick certain companies, so frontier markets will then prove an issue as a result. Actually i do want to take the chance to also ask laura to speak a little bit about country, sustainability, ranking and assessments. Is there more we can share here yeah, so we have a framework where we basically rank countries in the way that they contribute to different environmental, social and government aspects, and we publish the assessment of of these analyses on a yearly basis and the type of dimensions That we look at, for example, is the overall freedom of speech in the country. How well countries are upholding human rights on the environmental side, we have included actually biodiversity this year as a component. We also look at, for example, deforestation rates. How aligned the national policies are to tackle climate change and on the governance structure? We look at the usual type of components there. So, by bundling the assessment looking at those three criteria, what we do is to come up with a scoring mechanism that enables us to you know when we look at a top down approach across our investment process and we look at the countries. We are better positioned to understand what the overall efforts from a government perspectives in terms of promoting sustainable business practices.

So we use that in our portfolio construction process and we also use those insights in our engagement work with sovereign. And maybe, if i can just quickly add to the discussion that helen was also talking about and how to look at those high risk countries, we do incorporate that in our engagement efforts as well. So, for example, in myanmar – and we also see other high risk countries where we see human rights risks being more at the forefront. We then look at what type of industries are actually linked to that region, either through their direct operations or their supply chain, and this enables us to target the engagement dialogues with these companies to make sure that they are mitigating. This type of human rights risks help and notice. The banner behind you mention about biodiversity laws. I know we are doing a lot of exciting work on this topic, a lot of collaboration and english initiative to wonder. If we can share with us we what we can expect from this topic, yeah sure so a lot of moving pieces. I think when we talk about biodiversity, so just from the fundamental perspective tropico, we recognize how biodiversity loss is pretty much interlinked with the climate change challenges that we have ahead. So that meant that a couple of years ago, we already made a first commitment, together with a group of more than 30 financial institutions, to basically start mapping out the biodiversity footprint of our funds by 2025.

And by making that commitment, we realized that we needed an internal governance structure to really work towards that goal. So we establish a task force on biodiversity, which is being shared by our climate change strategies at the organization and basically, the work that were doing there is to find out which type of tools we can have access to to better quantify. What is you know? The footprint of our investing companies across our portfolios when it comes to have a positive or negative impact on biodiversity laws. So there are a lot of data related challenges here to be honest, but what we found very useful was to partner up with wwf in the netherlands, so they are basically like our strategic strategic advisor. If you would like to call it like that, but what they are doing is to give us a sense of direction on the type of proposal that we are working on at the moment to find that methodology that enables us to quantify that biodiversity related impacts and Influences for our investigate companies across our portfolios, so this is work in progress at the moment and we think that this partnership is really useful for us to make sure that we can sort of advance. The work in that field were also doing extensive engagement, work on the topic of biodiversity laws, especially linked to deforestation, because we know that land use change is one of the main drivers of biodiversity laws across the globe.

So we are doing a lot of work. Looking at the supply chain of soy, palm oil, cocoa, natural rubber, so also engaging with quite some companies here in asia on this topic and trying to find the ways in which they can decrease or really achieve zero, uh deforestation across our supply chain and also how Can they work towards restoring those degraded ecosystems where they operate? Maybe you can mention a little bit about the the the engagement we were doing with the indonesian stock exchange, because thats again, yeah well thats part of our of our brother engagement with government, where we also touch upon the topic of biodiversity laws and how it links To deforestation but yeah a couple of months ago, we had a discussion with the stock exchange in indonesia and they are basically well. They already have in place four indices to really uh identify those listed companies in indonesia that are more sustainable, that their peers and they wanted to get feedback from investors on what type of sustainability disclosures they can encourage for listed companies going forward. So we are working on providing concrete feedback, also on the topic of deforestation, but more broadly, on which sustainability topics are important, also from a regulatory perspective. As you know, in europe we have sfdr, and there are quite some expectations on what type of disclosures asset managers and asset owners have to put forward. So are basically also giving that as a piece of feedback to the stock exchange in indonesia on how to drive better corporate disclosures on sustainability topics that are ultimately relevant for investors as well.

So with all that work in biodiversity. And if we have better definition on the footprint, those information will be very important for, for example, the sustaination star strategy. When we map out the specific uh risk and also impact on the companies – and that would be part of the framework for us to get better informed decisions for our stock pick, we have talked about how investors are embracing sustainability. Asset managers also doing the same, but our point is that its a lot more nuanced to conversation. We have evolved over the last 20 years beyond the exclusions labels and were looking at engaging with companies to make real world positive impact, and it is not all engagement and even in things like having a framework to assess companies based on these sdgs has been very Helpful for us so wed like to say for investors who are thinking about this. It is going to take a while. The real outcomes are hard to assess. Data is hard to obtain, but we are working collaboratively with the community and with our clients to help understanding of that, because we know too its not easy to explain it to your clients. So we are available. We have our expertise on the ground, not only to do the engagements, but also with you with your advisors, your clients, so look to us uh. Thank you for being with us today. Sustainable investing in asia is not just about exclusions, its about a lot of opportunities.

Theres opportunities in the listed space and theres an investment driver sustainability driver behind all of that, but sustainable asian bond is not just about labels. We look at companies across the board. Beyond the labels beyond indices, look forward to your questions, theres a lot more. We can send you as a follow up, thank you and have a good rest of the week. Thank you.

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