Is ESG integrated into your investment process? How? Which funds or does this apply to the entire firm? 

At BNPP AM, we focus on achieving long-term sustainable returns for our clients. In line with this, we are committed to integrating sustainable investment practices across all of our eligible strategies.

Our ‘Global Sustainability Strategy’ (GSS) details our approach to sustainable investment, setting clear objectives and commitments, and focusing on three key sustainability themes: Energy transition, Environmental sustainability and Equality and inclusive growth (the ‘3Es’). It reinforces our commitment to invest for the long term, engage with companies and regulators to promote best practice, and raise awareness of the role that finance can play in achieving a sustainable world.

We integrate ESG factors throughout our investment processes. From investment philosophy, research and idea generation, to portfolio construction and risk management, as well as engagement, voting, disclosure and reporting.

The process for integrating and embedding ESG factors was guided by formal ESG integration guidelines and overseen by an ESG Validation Committee (members include the Global Head of Sustainability and asset class Chief Investment Officers).

Our ESG scoring framework is central to our sustainable investment approach. Covering more than 13,000 issuers, it provides insights that help our portfolio managers pinpoint a company’s performance on material ESG issues, and integrate these into their investment decisions.

Our ESG Integration Guidelines apply to the vast majority of our investment processes (and therefore funds, mandates, and thematic funds). However, they may be ‘non-applicable’ for specific products such as index funds and exchange traded funds (ETFs) or single-client dedicated product. Some index funds and ETFs do however apply specific sustainable investment practices such as a low carbon, thematic or Sustainable and Responsible Investment (SRI) approaches.

Who conducts ESG analysis within the team? Is it done by PM, financial analysts or a central ESG team? 

Our Sustainability Centre oversees the development and implementation of our sustainable investment strategy.

Our team of ESG analysts carries out ESG research on issuers in our investment universe. Our sectors specific ESG research covers a broad range of potentially material risks, including systemic risks to the environment and society, from climate change to incidences of bribery and corruption, to consumer privacy breaches.

BNPP AM’s ESG research platform is the foundation of our sustainable investment approach. The platform includes our proprietary ESG scoring framework. We adopted a ‘whole firm’ approach to the development of our ESG scores, leveraging on the expertise of the Sustainability Centre, Quantitative Research Group (QRG) and investment teams.

This includes enabling investment teams to provide inputs for data corrections and qualitative overlays, subject to a rigorous review by the Sustainability Centre to ensure the integrity and consistency of the framework. This mind-set is reflected in all the key phases of our ESG scoring process. The nature of our ESG scores as a ‘living model’ that will continue to evolve with inputs from all internal stakeholders. For further information on this scoring process, you may refer to this brochure about our methodology: Creating value with our proprietary ESG scores.

Please summarise the key ESG metrics that are core to your strategy?

Metric selection balances materiality, data availability and measurability to achieve ESG insights. Each ESG analyst (in collaboration with the Quantitative Research Group) is specialised by sector and is therefore the best placed to select relevant ESG metrics. Raw data and data points are provided by our data providers, which include Sustainalytics for a majority of metrics, ISS for governance-related metrics and Trucost for absolute GHG emissions and intensity.

Our approach is based on two critical beliefs:

• Sustainability is imperfectly understood, under-researched and mispriced in the markets.
• Not all ESG issues matter equally: companies that do well on material topics outperform the market, even if they have a poor performance on immaterial issues.

To produce ESG scores that provide useful investment insights, we select metrics using three criteria:

1. Materiality: we reward companies that score highly on ESG issues that are material to their business, based on the expertise from our Sustainability Centre as well as frameworks such as SASB and empirical studies;

2. Measurability and insight: we prefer insightful performance metrics over policies or programmes;

3. Data quality and availability: we favour metrics for which data is of reasonable quality and readily available so that we can compare issuers fairly.

As a result of this stringent approach, our ESG scoring framework is markedly differentiated, using a focused set of ESG metrics, with a clear preference for performance over policy metrics.

On average, we use 37 metrics per sector to calculate a company’s ESG score. For consistency and communication, the metrics for each company are grouped into 11 common themes.

How is this research carried out? Positive/negative screening? Qualitative? 

Our ESG research platform includes our proprietary ESG scoring framework, developed with the insights and expertise of our Sustainability Centre, Quantitative Research Group and investment teams.

Our ESG scoring framework is central to our sustainable investment approach. Covering more than 13,000 issuers, it provides insights that help our portfolio managers pinpoint a company’s performance on material ESG issues, and integrate these into their investment decisions.

Our four-step methodology sets out:

1. ESG metrics and weighting selection

On average, we use 37 metrics per sector to calculate a company’s ESG score, with a clear preference for performance over policy metrics. We select metrics using three criteria:

• Materiality;
• Measurability and insight;
• Data quality and availability.

2. ESG assessment versus peers

Our ESG scoring framework is primarily sector-relative where we score companies against a peer group defined by sector and geography. Two critical measures are applied to all companies in a uniform manner: carbon emissions and controversies.

3. Qualitative review

The Sustainability Centre manages, documents and regularly reviews this process. Refining and combining third party data with our in-depth research and investment teams’ knowledge and interaction with issuers allows us to correct and adjust data and ensure this ESG qualitative overlay.

4. Final ESG score

We combine the qualitative and quantitative ESG score and rank issuers against peers.

In addition to the above, we also apply norm-based screening and sector exclusions accordingly we do not invest in companies in violation of the UN Global Compact Principles, the UN Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines).

Companies struggling to meet the standards laid down in the UN Global Compact Principles, the UN Guiding Principles on Business and Human Rights or OECD MNE Guidelines will be put on a watch list (or not invested in).

How do you measure your success regarding ESG? Performance against benchmarks (which ones)? Reports?

We measure our ESG integration achievements at both company and fund levels.

At the company level

External assessment of both the approach and results of any ESG integration effort is vital to ensure that both are as successful as possible.

As a founding-signatory of the UN-backed Principles for Responsible Investing (PRI), we take part in their comprehensive annual Transparency Report, which details individual signatory’s responses to the Reporting Framework, providing an overall picture of achievements and progress in terms of ESG integration.

In addition, regular assessments of our approach to sustainable investments are performed by external organisation and NGOs (e.g. ShareAction, WWF, etc.), along with audits from various organisations that issue SRI fund labels.

We also commit to publish a Sustainability Report on an annual basis, which demonstrates the value our approach creates for our clients. It includes information that we provide to the PRI (part of our commitment as a signatory) and updates on our sustainability targets. It also includes a comprehensive stewardship section, providing an overview of our voting and engagement activities for the year.

At the fund level

At BNPP AM, we have developed reports that include two ESG indicators (ESG scores and carbon footprint), reflecting our commitment to integrating sustainability considerations across our investments.

Our institutional reports and fund factsheets include a dedicated section with ESG components, including:

• ESG global score
• ESG contribution by pillar (E, S & G)
• Carbon footprint
• Coverage rate

Is your business a signatory to PRI? Why, why not?

The UN-backed Principles for Responsible Investment (PRI) were created in 2006, with BNPP AM as one of the founding signatories. The rationale for supporting the creation of the PRI was our strong conviction that Environmental, Social and Governance issues (ESG) are important for investors.

We launched our first Socially Responsible Investment (SRI) funds in 2002, foreseeing the development of the market for responsible investment. ESG has since demonstrated its added value both in terms of financial returns and risk reduction. Joining the PRI was a natural step to support both global awareness on ESG and the development of responsible investment. BNPP AM signed the UN PRI on 27 April 2006.

Every year since 2016, the PRI has granted BNPP AM the highest score, A+ or A, for strategy and governance, commenting on our “overall approach to responsible investment, including governance, responsible investment policy, objectives and targets, the resources allocated to responsible investment and the approach to collaboration on responsible investment and public policy-related issues”. In the PRI’s latest Assessment Report, BNPP AM received the top A+ rating in five out of seven modules, including strategy and governance: https://docfinder.bnpparibas-am.com/api/files/242072B0-14BC-46E5-B375-56DCD93A82D0.

Are you disclosing climate change policies in line with the Task Force on Climate-Related Financial Disclosures (TFCD)? Please briefly outline your policies.

BNP Paribas Asset Management (“BNPP AM”) is a majority owned-subsidiary of BNP Paribas Group. BNPP AM’s Task Force on Climate-related Financial Disclosures (TCFD) is part of the BNP Paribas Group’s report.

Climate change is identified as having a significant impact on the value of our investments and is therefore included in our sustainable investment policies. Energy transition is a key pillar of our Global Sustainability Strategy and climate risks are included in our firm-wide approach to sustainable investment (e.g. we have exclusion policies covering the most sensitive sectors for climate change, climate indicators are integrated in investment decisions, our engagement and voting policies actively encourage better disclosure and practices).

BNP Paribas Asset Management joined the Net Zero Asset Managers initiative. We have been working on addressing Climate change for several years and joining this initiative continues our journey.

Has your business signed up or committed to any other campaigns relating to ESG?

BNPP AM recognises engagements on sustainability issues may often require a collective effort. We also acknowledge that we can be more influential when working with others, and that we can benefit from partnering with organisations dedicated to the analysis, research or advocacy of individual ESG issues. We are active participants in a number of industry groups and collaborative engagement initiatives as outlined from page 19 in our 2021_EU_Sustainable Finance Disclosure and annual sustainability reports. These include, but are not limited to, membership of the Institutional Investor’s Group on Climate Change (IIGCC), Climate Action 100+, Task Force on Climate-Related Financial Disclosures (TCFD) and the Global Network Initiative. More recently, we joined Net Zero Asset Managers Alliance and Fairr.

In total, BNPP AM is an active member of more than 40 industry, multi-stakeholder or public initiatives and networks in relation to sustainable finance, environmental, social or governance issues.

 

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