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Sustainable investing: we are not just bystanders

BNP Paribas Asset Management
 

Jane Ambachtsheer, Global Head of Sustainability at BNP Paribas Asset Management, addresses some of the main issues around sustainable investing and the use of environmental, social and governance (ESG) criteria in selecting assets for investment that are appropriate for a future low-carbon, inclusive world.


What does sustainable investing mean to you and what is the focus and approach of BNPP AM?

For us, sustainable investing includes these elements:

  • One is responsible corporate behaviour. This is aligned with the UN Global Compact. It involves sector policies which rule out investments in, for example, coal and tobacco.
  • Another component is ensuring that each of our around 80 investment process fully integrates our ESG guidelines.
  • On stewardship, we actively exercise our proxy votes. We are not shy about voting against management when we believe that it needs to focus more on disclosure around climate, for example, or diversity issues.
  • Finally, we focus on the shift towards a low-carbon, inclusive economy and the roles individual companies and countries are taking.

Exhibit 1: Three challenging areas of action

three-Es

Source: Global Sustainability Strategy by BNP Paribas Asset Management; March 2019

On stewardship, what is happening in terms of a broader push?

BNP Paribas Asset Management is an active member of Climate Action 100+ and one of 300 or so investors representing USD 30 trillion who are targeting the biggest greenhouse gas emitters. We are asking these companies to have a business plan aligned with keeping the rise in global temperatures to 2C; to have climate-competent boards; and to provide appropriate disclosure on climate-related issues.

There is a fundamental shift in where money is going as awareness grows, asset owners become more aligned and are working to clarify and harmonise the terminology and disclosure. What is BNPP AM’s contribution?

We support GRASFI. This alliance brings together 18 top universities as they seek to establish an academic discipline focused on sustainable finance and investment.

We are also a member of the CFA committee establishing a new ESG standard. In our own reporting, we are covering the impact of each of the elements of sustainable investing: exclusions, risk management, engagement and advocating a sustainable economic growth model. We are going to publish, for the first time, a robust report on all our stewardship activity.

Has sustainable investing become mainstream?

We have flipped from a place where managers needed to explain why they were putting such focus on sustainable investing to a point now where managers would need to justify why they’re not putting more focus on it. It has become a must-have.

This means that as asset owners, we must be active stewards, think about the future, and protect the economy over the long term. This is the right thing to do in terms of financial results, as well as socially and environmentally.

Exhibit 2: BNP Paribas Asset Management’s investment beliefs

investment-beliefs

Source: Global Sustainability Strategy by BNP Paribas Asset Management; March 2019

Governance has become a prerequisite as an investment criterion, also in emerging markets. It has become a topic for issuers such as superstar firms, particularly in the tech sector where governance and shareholder access are often not as good as they are in other sectors. More and more investors are engaging on governance.

What is next in terms of asset classes?

After equities, sustainable investing is entering areas which no one has really explored from a sustainability perspective.

  • For example, private debt investing. Here it is more difficult to get information from the companies, you have a narrow window to do your analysis, and you may not have direct access to the company.
  • In structured products, we are working on a responsible derivatives policy.
  • In fixed income, we are finalising our approach to researching sovereigns. We focus on the ESG performance of a country: not just in absolute terms, but also in terms of the relative ability of that country to actually implement strong ESG practices in the context of their income levels, whether it is social infrastructure, schools, hospitals, etc. We also look at a country’s performance on climate. Are countries on a 5°C pathway or a 2°C pathway?

Climate change is central when it comes to sustainability. How does an asset owner approach this?

Clients demand and deserve to work with financial institutions which acknowledge and embrace their role in influencing a future aligned with the Paris Agreement. We tackle that through Climate Action 100+ and we are actively encouraging policymakers to implement the changes that are required to put the world on a low-carbon pathway.

We are also working to progressively align our portfolios with the International Energy Agency’s 2°C scenario and steps towards decarbonisation.

How can investors select the right funds and managers?

You need to look at both the investment process as well as the portfolio. For BNPP AM, the process involves our ESG integration guidelines: we are making sure that each investment process meets the same standards and that we can communicate on that. From my experience in the industry, that is unique.

We want all of our portfolios to have a better ESG score than the relative benchmark. To help investors in their evaluation of these strategies, we want to be clear on what we are doing, why we are doing it and how we are doing it and provide consistent reporting on the actual results.

What is the biggest challenge you face in this area? And the biggest opportunity?

Getting consistent and reliable information is a challenge as it is not always reported by the company or the issuer. Half of the carbon foot printing data now is estimated. Helpfully, there is a push on corporate disclosure from investors and regulators.

To me, the big opportunity is in the role finance can play in establishing a low-carbon, inclusive economy. For the financial community, that is not just an opportunity, but also an obligation. We are not just bystanders.

 

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Investments in the aforementioned fund are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment. Source: BNP Paribas Asset Management Holding.