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Upping the game on ESG
Environmental, social, governance or ESG has become a “competitive advantage and point of differentiation” for BNP Paribas Asset Management (BNPP AM) since the firm set up a Global Sustainability Strategy in 2019, says Ou Yong Xuan Sheng, green bonds and ESG analyst at the firm.
The strategy continues today as a market-leading commitment to take a top-down and bottom-up firm-wide approach to sustainable investment, and one that has won BNPP AM the title of Best ESG Manager in Asia in Asia Asset Management’s Best of the Best Awards 2023. The firm was also awarded country awards for Best ESG Manager (Malaysia), and Best ESG Management Initiative (Hong Kong and Singapore).
As of September 2022, BNPP AM had 290.70 billion euros (US$317.65 billion) of assets under management that integrated environmental, social, governance (ESG) criteria. The company also had 213.2 billion euros in SFDR Article 8 and Article 9 funds across all types of products, including 87% of open-ended funds, with 156 labelled funds totalling 114.6 billion euros in AUM.
ESG is successfully managed across a range of strategies, following carefully defined robust policies and procedures to ensure effective integration into investment processes. This includes all in-scope funds having successfully been through the firm’s ESG Validation Committee, representing no less than 295 investment strategies and 945 products. The firm has also significantly expanded its ESG scoring coverage to over 13,000 issuers globally, including over 5,000 issuers in Asia Pacific and more than 1,100 in China. As of November 2022, this has provided coverage of key indices, including 99.89% of MSCI AC Asia ex-Japan and 95.78% of MSCI China 10/40.
“To ensure our approach delivers actual sustainability for our clients, we have included in our guidelines portfolio KPIs such as targeting a higher weighted average ESG score and a lower carbon footprint than the benchmark. Almost all of our wholly own funds now meet these two binding considerations,” explains Ou Yong.
“Our efforts to up the understanding of sustainable investment runs through the entire organisation, from sales, through to IT, product development and legal. When clients speak to us, it’s not just about interacting with the research, sustainability or the sales teams. It’s about the product and legal teams being able to explain the terms and conditions, and when it comes to sustainability, being able to speak confidently about sustainable investing,” he tells AAM.
Sustainable thematic strategies
BNPP AM is also a leader in sustainable thematic investment, with more than 21.4 billion euros in sustainable thematic funds that focus on environmental, climate and social themes. These key issues guide the firm’s innovation around thematic investing, namely energy transition, environmental sustainability, and equality and inclusive growth. Separately, the firm manages more than 13.7 billion euros in Paris Aligned/Climate Aligned Benchmark, Low-Carbon and Fossil-Free funds.
In equities, BNPP AM Environmental Strategies Group manages around US$4 billion across four funds, three of which focus on climate solutions. In fixed income BNPP AM’s Sustainability Centre has developed a proprietary methodology for analysing green bonds, while the BNP Paribas Green Bond strategy invests in global green bonds supporting environmental projects, issued by corporates, supranational agencies, local entities and governments in hard currencies. In May 2022, the firm launched the first Asia-focused fixed income strategy in the market classified as SFDR Article 9.
The Sustainable Asian Cities Bond Fund is aligned with aspects of sustainable cities such as clean transport, renewable energy or healthcare, and focuses on developing Asian cities sustainably in light of the challenges of increased urbanisation, impacts of physical climate change and inclusive growth.
“As a French asset manager, and European domiciled, most all of our funds are primarily first domiciled in EU and then seconded to different parts of Asia. In Taiwan one of the investment strategies we offer is an energy transition equity strategy, whereas in Malaysia we have our ESG integrated sukuk funds for the domestic market,” he adds.
In terms of ESG engagement initiatives in Hong Kong and Singapore, Ou Yong says the focus is on influencing companies to move in the right direction.
“For example, in Hong Kong, we’ve had ongoing dialogue with one of the power providers on its decarbonisation strategy journey, talking to them about what the potential divestment opportunities of its existing coal assets and what the existing opportunities are in the renewables asset market that they are trying to expand into. We always try to inform management about our opinions as an investor,” he adds.
On the other side is policy engagement with regulators and policymakers.
“We believe that a rising tide raises all boats,” he adds. “We are science-led and aim to help policymakers improve disclosures to the extent that we as investors can make better decisions to mandate sustainability disclosures, so that those markets in Hong Kong and Singapore, and all companies within those jurisdictions, can up their game from a universal owner theory perspective.”
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