Greater focus on the S for Social within ESG

Asset manager Robeco's employees are gradually returning to their familiar office environments, but the world has changed considerably in recent months. Robeco's COO Karin van Baardwijk has observed a remarkable shift within the ESG criteria that the group uses as its guideline: 'There is now a greater focus on the 'S' for Social.'

Karin van Baardwijk

Source: Management Scope (02/09/2020); Interview: Xavier Baeten | Author: Angelo van Leemput | Photo: Rogier Veldman

When Karin van Baardwijk joined Robeco 14 years ago, sustainability was already a topic but only occupied a 'niche position' at the financial services provider. These days, sustainability has become mainstream and has been integrated into the entire organisation. The UN's Sustainable Development Goals (SDGs) are here to stay, and Robeco is preaching about ESG (Environment, Social & Governance). If the COVID-19 crisis has taught us anything, it is that the ESG factors include the 'S' for Social alongside the 'E' for Environment. Van Baardwijk feels at home with all the letters of the abbreviations on the list of sustainable concepts.

Slowly but surely, life is returning to Robeco's office tower in the heart of Rotterdam. In recent months, almost everyone has been working from home, and employees are now cautiously returning to their offices. At Van Baardwijk's conference table, overlooking Rotterdam's Central Station, we find Xavier Baeten, Professor of Reward Management & Sustainability at Vlerick Business School and responsible for Vlerick's activities in the Netherlands. Baeten has come to Rotterdam to interview Van Baardwijk about sustainability, maturity & materiality, and leadership.

Has the coronavirus crisis had an impact on Robeco's sustainability strategy?
'No. Sustainability has become an integral part of Robeco. As early as the 1990s, this company recognised the potential of sustainability as a way of adding value for clients. The COVID-19 crisis has not changed that. Sustainability is one of the main topics on Robeco's own strategic agenda and that of our clients. The current trends are the same as those before the coronavirus. In my view, the crisis will continue to have a short-term impact on people and the economy but not on long-term trends such as sustainability.'

Do you think this period will have an inhibiting or accelerating effect on sustainability?
'Everyone will have noticed the effects of the global lockdown, both positive and negative. First of all, there were the effects on human health. Many people were able to reflect on their work/life balance. In addition, the quarantine also had a worldwide effect on the planet. Nature started to recover, and the air and water became cleaner. On the other hand, many companies were getting into difficulties because it was no longer possible to obtain supplies from Asia. Globalisation suddenly took on a different aspect; travel was no longer possible and is still not always possible today. We have learned important lessons from this; for example, many entrepreneurs realised that they had to spread their risks and are now working with multiple and local suppliers. Digitisation and automation suddenly started happening faster than ever, and in turn, the companies focusing on this are reaping the benefits.'

Do you expect a return to the 'old normal' soon?
'We are being forced to adapt to the new reality. I am frequently asked whether we will still need all of our modern offices. After all, the recent period has shown that we can also work from home. I recently implemented the biggest operational migration in Robeco's history by outsourcing Robeco's back and middle offices. I supervised most of this from home, and it all went without a hitch. Having personal contacts with each other and feeling the connection with Robeco is also essential. In the coming period, we will need to find a good balance between working from home and working from the office.'

You say that the ESG concept is well-represented in Robeco's managed assets. Can you also identify a trend here? I have noticed that as regards ESG, the main focus has always been on the 'E' for Environment.
'That's certainly the case, but there is now a shift towards the 'S' for Social.'

I have noticed that too. For example, employee vitality is becoming more important, as is solidarity. What's your view of this?
'I found it a striking aspect of the coronavirus crisis that during a period of limited freedom, there was rightly a great deal of attention on the collective. Each individual was asked to show solidarity with vulnerable groups and to impose restrictions on themselves to protect others. All at once, there was this collective sense of solidarity. That's all connected with that 'S' in ESG. The focus is shifting from 'E' to 'S'.'

Of course, the question is whether this solidarity is genuinely sustainable and in our DNA. And anyway, isn't sustainability in the financial sector a bit of a contradiction in terms?
Smiling: 'I'm used to the financial world getting the blame. But Robeco has been at the forefront of sustainable investment with RobecoSAM for 25 years. Investors are increasingly focusing on the contribution to a future-proof world when selecting an investment fund, and not just on a good return. This is a clear change that we describe as the shift from wealth to wellbeing. By investing in a company, shareholders can use their influence to help this company move towards a more sustainable business model. This is called engagement and has been common practice for us for over 15 years. So, I don't think there is a contradiction in terms. On the contrary, the financial sector is playing a vital role in the area of sustainability.'

Nevertheless, I often see various types of rainbow-washing, with companies showing off their list of SDGs or just choosing something at random. Supervisory board members and directors are still very much searching for answers. I think it's essential to examine maturity and materiality at board level. Maturity is about to what extent sustainability is already embedded, also in the culture. Materiality means you need to be well-aware of the aspects of sustainability that are strategically important for the company. Making a decision is a challenging exercise for supervisory board members. Choosing sustainability goals is much more complicated than deciding on financial KPIs.
'No company can meet all 17 sustainable development goals in the short term, nor should it become a goal to tick all the boxes quickly. It's mainly about awareness and the quality of the discussion you have about it. I'm convinced that the SDGs are taking the global search for sustainability to a higher level. I find integrity fundamental, as in what do we see when we look in the mirror? Where do we score well, what do we still need to work on, and how seriously are we tackling this? It's crucial to walk the talk. What we convey at the shareholders' meetings of companies in which we invest should be no different from what we feel applies to ourselves. Trust is essential in our industry, and that includes our credibility.'

Perhaps it would be a good idea to set up Sustainability Committees at Supervisory Board level as well. We already have Remuneration Committees and Nomination Committees, so why not have Sustainability Committees?
'I think it depends on your organisation's position on the sustainability ladder. Of course, sustainability is self-evident here. Whereas it used to be the topic of a group of specialists, today it is at the heart of our company. Sustainability is no longer a subject that requires the individual attention of a committee; it is firmly embedded within the organisation.'

Let's talk about leadership. Without wanting to be disparaging about it, boardrooms are still mostly populated by men aged 60 and above. Don't we need much more female leadership?
'Many boards do match that well-known and traditional image. For me, diversity mainly means diversity of minds. That has nothing to do with being a man or a woman, but everything with having different backgrounds. Diversity is necessary to achieve good insights and better decision-making. That includes men aged 60 and over, provided that women in their early 40s are at the table as well.'

I recently saw the outcome of a study showing that ethical leadership has a positive impact on business results, as long as there is a clear ethical culture and a clear corporate ethics programme. All the studies show that the CEO's value pattern is crucial. Increasingly, the CEO is not only the Chief Executive Officer but also the Chief Ethics Officer. Do you agree?
'The person in the hot seat is unquestionably the person who determines the culture or can influence it. A CEO determines so much more than just the strategy; the role involves so much more than just managing a bunch of executives on a daily basis. I am convinced that the CEO's personal standards ultimately also determine the company's values. A good CEO must have the right mix of integrity, vision, and behaviour. The CEO is supposed to create a culture in which people dare to speak out, but at the same time, the CEO must also intervene if people fail to act in accordance with the standards. Therefore, it involves weighing up interests on an ongoing basis, and the latter is particularly tricky.'

Speaking of interests, what do you do if you encounter a serious dilemma? I always explain to my students that a dilemma can be recognised by a knot in your stomach.
'I do indeed feel an ethical dilemma directly in my stomach. For me, my own moral compass always takes precedence, and I also dare to rely on it. I always say that any fish you don't put on the table is going to stink anyway. A culture of transparency and honesty will be rewarded, while a smelly fish on the table will make tomorrow's agenda more difficult. Still, in the long run, you benefit from having cleaned up the offending article. Ethics are also an important part of a long-term sustainable relationship. This applies both internally to our employees and in the relationship with our clients.'

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Xavier Baeten

Xavier Baeten

Professor in Reward & Sustainability