Seeing is believing   As a responsible investor you want to see proof

To meet the climate challenge and associated European legislation requirements, KBC Asset Management revamped its responsible investment methodology in September 2022. In addition to giving equal importance to the environment, social issues and good governance (ESG), the asset manager now also focuses on sustainability transition by including a climate target, among other things.  

Today, KBC is taking a further step towards transparency. Through a new report titled ‘Responsible Investment’, it gives all investors in responsible funds the opportunity to accurately assess the impact of their investment decisions. The report is available to all investors, not just to institutional investors. With this report, KBC wants to reaffirm its pioneering role in responsible investment. 

Investors want to have concrete and relevant information, not all information. For asset managers, it is therefore important to make choices and report on those matters that effectively have an impact. Quantifying impact is not an easy thing, though. After all, there’s no set definition of impact. 

KBC shows the parameters for which it effectively sets targets at the fund level.  By consistently comparing the fund’s status against its target and making adjustments over time, investors are able to follow how the manager is trying to fulfil the ambitions at the fund level. You will find that the journey isn’t always a smooth, straight line. Responsible investment is a process of trial and error. Making mistakes is allowed. Not learning from them is not. 

• ESG risk rating 

A company’s environmental, social and governance (ESG) risks, hidden or otherwise, make your portfolio vulnerable. If a company causes environmental damage, markets a dangerous or controversial product, doesn’t treat its employees well or is involved in an accounting scandal, it will affect the company’s results and therefore its value to you as an investor. It’s therefore no wonder that investors take ESG risks into consideration when assessing their investments. 

The ESG risk rating for companies that is presented in the report ‘Responsible Investment’ measures the difference between a company’s exposure to ESG risks that are relevant to its sector on one hand and the extent to which a company hedges those risks on the other. For countries, it assesses how well public policies perform in environmental, social and good governance terms.  

• CO2 intensity 

At the World Economic Forum in Davos, climate change was recently identified as the most important risk that could endanger our economic and social stability. Climate change can affect both a company’s physical assets and its business model. Non-life insurers, for example, will have to pay an increasing number of claims due to global warming and the extreme weather events that it brings with it. Changing public opinion can also damage or degrade a brand if the company in question does not or no longer meet the standards set by society.  

CO2 emissions are a major cause of climate change. In the report ‘Responsible Investment’, KBC lists the carbon intensity of companies. The carbon intensity shows how many tonnes of CO2 a company emits, compared to its turnover. A country’s CO2 intensity shows how many tonnes of CO2 that country emits, relative to its Gross Domestic Product.  

• Principles of the United Nations Global Compact 

The UN Global Compact is an international corporate social responsibility initiative with ten guiding principles covering the areas of human rights, labour, the environment and anti-corruption. Companies that seriously violate the UN Global Compact’s sustainability principles are excluded by KBC from its universe of responsible funds. 

The world in which we live and work is ever changing, as are our norms and values. Precisely for that reason, it is important to KBC that the report takes a dynamic approach. 

For KBC, pursuing social responsibility goes beyond simply selecting companies that score the highest. As an asset manager, you also have to look at companies that may not be quite there yet, but now really focus on progress.  

Companies should be given that chance. If only because they usually operate on a scale that is so much larger than what we as individuals can affect. By taking small steps, they can often have a big impact. When these types of companies consciously aspire to better their scores, and thus fully commit to their sustainability potential, they deserve recognition for it. 

The report ‘Responsible Investment’ is not set in stone, but can rather be seen as an evolving report, where parameters can be omitted and added. If this report serves as the basis for an investor to accurately assess the impact of investments, we should be able to adapt it to what exactly is important. Our society is evolving. Values and norms are changing. KBC realises that its ambitions must be high and remain to be so to make a real difference. Making strategic choices is a continuous process of looking in the mirror and pushing for better results. Responsible investment deserves to be underpinned by relevant, tangible and up-to-date evidence.