Managing Sustainability Risks for Investors – Where to start?

A case study

Amsterdam, 29 October 2014

Robeco Investment Solutions

Jaap Hoek

1

For professional investors

Source: Do institutional investors have sensible investment beliefs? Kees Koedijk & Alfred Slager (2009)

The setting

What are the investment beliefs?

2

Strategic Asset Allocation process & Sustainability

3

> Ang, Goetzmann and Schaefer (2009, “The Norwegian Study”) and Koedijk, Slager and Stork (2013) conclude that allocation to systematic factor premiums should be a strategic decision

> Equity factor premium investing should play a key role in strategic asset allocation process

> The challenge is to embed sustainability in this process

Strategic Asset Allocation process & Sustainability

4

The integration of Sustainability into the SAA process involves 3 steps: Assess the Sustainability profile of the investments

Assess the exposures of the investments to strategic factor premiums like Value,

Momentum and Low Volatility

Assess the risk/return profile of the investments in different scenarios, and, if necessary, mitigate adverse exposures

Case study: from mainstream index towards sustainable fund

5

MSCI World

MSCI World ESG

DJSI World Developed Diversified

Example Fund – Quant Sustainable Global Equities (QSGE)

− Launch date July 1999 − 1612 companies

− Launch date October 2007 − 822 companies

− Launch date May 2013 − Back-tested data October 2002 − 543 companies

− Launch date February 2014 − Back-tested data September 2001 − 485 companies

“Does it cost performance?“

“What is the best way to measure sustainability?“

“How does it affect my strategic factor premium exposures?”

“Does it cost performance?” (1)

6

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2008 2009 2010 2011 2012 2013

MSCI World

MSCI World ESG

DJSI Diversified

QSGE

Source: Robeco, MSCI and DJ The value of your investment may fluctuate. Past performance is no guarantee of future results

“Does it cost performance?” (2)

7

MSCI World

MSCI ESG

8%

9%

10%

15% 16% 17% 18% 19% 20%

Ret

urn

Risk

Risk-return plot

Source: Robeco and MSCI The value of your investment may fluctuate. Past performance is no guarantee of future results

“How does it affect my strategic factor premium exposures?” (1)

8

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Top Middle Bottom

Value Momentum LowRisk

Factor scan for DJSI Developed Diversified

Source: Robeco and DJ

“How does it affect my strategic factor premium exposures?” (2)

9

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Top Middle Bottom

Value Momentum LowRisk

Factor scan for Quant Sustainable Global Equities

Source: Robeco

From Mainstream Index Towards Sustainable Funds

10

MSCI World

QSGE

MSCI ESG

8%

9%

10%

15% 16% 17% 18% 19% 20%

Ret

urn

Risk

Risk-return plot

Source: Robeco & MSCI The value of your investment may fluctuate. Past performance is no guarantee of future results

What is the best way to measure sustainability?

11

Source: Robeco & MSCI

Strategic Asset Allocation process & Sustainability

12

The integration of Sustainability into the SAA process involves 3 steps: Assess the Sustainability profile of the investments

Assess the exposures of the investments to strategic factor premiums like Value,

Momentum and Low Volatility

Assess the risk/return profile of the investments in different scenarios, and, if necessary, mitigate adverse exposures

For discussion

Should one include strategic factors or financial risks in the allocation to sustainability, or is that best dealt with in other parts of the portfolio?

Important information

Robeco Institutional Asset Management B.V. (trade register number: 24123167), hereafter Robeco, has a license as manager of UCITS and AIFs from the Netherlands Authority for the Financial Markets in Amsterdam. Without further explanation this presentation cannot be considered complete. It is intended to provide the professional investor with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products. All rights relating to the information in this presentation are and will remain the property of Robeco. No part of this presentation may be reproduced, saved in an automated data file or published in any form or by any means, either electronically, mechanically, by photocopy, recording or in any other way, without Robeco's prior written permission. The information contained in this publication is not intended for users from other countries, such as US citizens and residents, where the offering of foreign financial services is not permitted, or where Robeco's services are not available. The prospectus and the Key Investor Information Document for the Robeco Funds can all be obtained free of charge at www.robeco.com.

14