3D Investing

Traditional investing frameworks focus on optimizing two portfolio dimensions – risk and return. That’s even true of ESG strategies which often treat sustainability as a supporting input to influence risk-return outcomes or incorporate ESG as a restriction while optimizing the risk-return trade-off.

However, these approaches are too constrained and insufficient to meet the investment needs of a broad swath of sustainable investors. Our 3D Investing approach broadens the solution set by introducing sustainability as a third dimension in the investment equation – weighted alongside risk and return instead of being subordinate to them.

Sustainable investors come in all forms. At one end of the spectrum are philanthropically motivated investors seeking positive social or environmental impact. At the other end are those who integrate ESG analysis to identify downside risks to protect returns or upside potential that can enhance them.

Most sustainable investors fall somewhere in between. They seek to mitigate risks, enhance shareholder value, and contribute to societal impact, while also pursuing competitive financial returns. For example:

• A pension fund or endowment may require better-than-benchmark ESG scores in addition to meeting risk-return criteria.

• A health insurer may favor investments aligned with health-related SDGs to promote population well-being and healthier patient pools.

• Other investors may focus solely on reducing their portfolio’s carbon footprint to meet investor demand or regulatory climate targets.

These preferences, combined with varying appetites for risk and return, make a one-size-fits-all approach insufficient. What’s needed is a flexible, tailored approach that aligns with each client’s unique investment objectives.

3D Investing is designed to not only manage but optimize variations between investors. Elevating sustainability to its own axis expands the investable universe and unlocks a new efficiency frontier, where risk, return, and sustainability are optimally balanced. Each can be scaled up or dialed back as market dynamics evolve while remaining on the efficiency frontier where the client’s investment objectives are optimized.

3D Investing is a compelling solution for investors seeking more flexibility and options in meeting their sustainable investing goals. With three distinct dimensions, the possible investment solutions are expanded – enabling more nuanced portfolio construction that can better reflect individual investor preferences.

While more flexibility and options are positive features, investors should also be open to temporary shifts in portfolio characteristics. For example, if highly sustainable companies become overvalued, we may reduce exposure, which could momentarily impact the portfolio’s sustainability profile. Over time, however, the portfolio is expected to maintain a strong and balanced position along the risk-return-sustainability frontier.

As investment engineers, innovation is in our DNA. 3D Investing reflects our continued commitment to building investment solutions that respond to evolving client needs, shifting market conditions, and emerging regulatory demands.

It is a proprietary approach that combines the quantitative expertise of our factor investing teams with the deep sustainability research of Robeco’s sustainable investing specialists. Investors can customize portfolios based on their risk, return and sustainability preferences using a wide range of sustainability tools – ESG scores, SDG alignment, Paris-aligned benchmarks, or carbon reduction target, among others.

3D Investing opens the door to a more dynamic and customizable investment experience – one that recognizes sustainability not just as an input, but as a core performance dimension. It empowers investors with more tools, more flexibility, and more ways to align their capital with their convictions.