Moving away from financing emissions-intensive companies and protecting workers' rights in the post-Covid 19 era are Robeco's key themes for active influence in 2021.
Each year, Robeco's Active Ownership team selects four or five new themes for its active influence on companies over a three-year period that relate to financially material environmental, social or governance risks and/or opportunities for those companies.
In a push to target companies on the wrong side of climate change, Robeco's Active Ownership team will focus on influencing financial institutions that finance emissions-intensive companies in 2021. Another program aims to make much-needed improvements to companies that are lagging significantly behind on the road to decarbonization. Two other active influence programs target workers' rights that have been and will be affected by company closures during the pandemic, and human rights abuses in conflict zones and high-risk areas. A fifth issue is ethical problems in the video game industry.Financing the transition
According to Robeco, many financial institutions have extensive business relationships with the fossil fuel industry and are therefore themselves exposed to physical, transition and liability risks due to the effects of global warming. Regulators are increasingly focusing on climate change finance and how the sector should support the transition to becoming more climate friendly. Banks must align lending policies with emissions targets governments set to meet Paris climate agreement.
"We know that many banks are still lending to emissions-intensive companies without demanding commitments from them that they will move to lower-emissions business models," says Carola van Lamoen, Head of Sustainable Investing at Robeco, adding, "This is not how they bring their lending business in line with the Paris climate accord. For Robeco, he said, this is a topic that links corporate governance and environmental stewardship, because it's really about how climate change relates to financial allocations and broader risk management concepts. Ultimately, Robeco expects the financial sector to draw important lessons about the risks and opportunities resulting from climate change. Robeco itself has a portfolio management strategy that is fully in line with the Paris climate agreement, he said.
Stronger action against climate change
The flip side of the coin, he says, is the targeting of emissions-intensive companies. In line with its commitment to carbon neutrality, Robeco would develop an active influence program targeting any companies in its portfolios that lagged in emissions reductions. Companies that did not meet these transition goals risked being excluded after three years of active influence. He said the intention is to focus on the "very worst" companies that are lagging behind in this regard. These companies did not respond to gentle pressure. For them, the transition to lower-emission business models will require fundamental changes.
Workers' rights in the post-Covid 19 era
In addition to climate change, workers' rights have also come into the spotlight after the Covid 19 pandemic further worsened already problematic working conditions in industries hit hard by shutdowns. The focus of Robeco's active influence efforts in 2021 will be risks related to labor conditions in retail, online food delivery services, and the hospitality industry.
Systemic workers in retail stores allowed to continue opening during lockdowns are at higher risk of infection, often receive low wages, work long hours and have insecure employment, according to Robeco. Online food delivery services were and are an important support for many during the pandemic. However, workers in this industry would often have no employment contract and no access to collective bargaining agreements or social benefits such as pension insurance. Furthermore, workers in the hotel and catering industry are massively affected by measures to contain the pandemic. Many would have lost their jobs when hotels and restaurants were ordered to close and would receive little assistance.
"How companies treat their employees provides important clues about how to respond to other shocks," Van Lamoen says. "High employee satisfaction and decent working conditions are critical to having a competitive advantage as the hospitality industry and other hard-hit industries from Covid-19 gradually return to business as usual."
Van Lamoen goes on to say that this theme for active influence extends to three industries in particular, where workers are often less well protected, and builds on Robeco's relevant experience in the agriculture supply chain and the apparel industry. In its dialogue with companies, it also deals with issues such as health and safety, diversity and inclusion.
Human rights in supply chains
With insufficient respect for human rights along the value chain – often in conflict regions where there is little protection – Robeco's focus is on the careful checks that technology, apparel and automotive companies from developed countries must make when sourcing supplies and services from high-risk areas.
Respect for human rights is closely linked to the resilience of value chains and stable business operating environments, he said. In parallel, there is a growing awareness among investors of the significant operational, financial, legal and reputational risks that portfolio companies could face if they do not properly manage human rights risks.
Downsides of the video game industry
Finally, the team will also look at the video game industry, which has made life easier for a growing number of gamers around the world during the lockdowns, he said. As an investor, however, Robeco said it has also found that gamers and game developers are affected by several structural social impacts in the gaming industry. Problems ranged from glorification of violence to stereotypical portrayal of minorities to increasing online abuse of young gamers.
However, there are also labor law problems in the industry because of the many overtime hours worked by game developers, some of whom are forced to work very long hours at times that are not very socially acceptable, he said. Robeco would ask gaming company managements to reflect on their product expectations, design approach and staffing.