BNP AM

The sustainable investor for a changing world

FORWARD THINKING | Article - 4 Min

Setting out our progress towards a sustainable transition

Our 2022 Sustainability Report[1] highlights our key achievements. These include our continued focus on integrating environmental, social and governance (ESG) factors into our fund offering, updated documentation with new sustainability indicators, and our commitment to support investing aligned with achieving net zero emissions by 2050.  

Other sections cover our research to determine the biodiversity footprint of our investments and our voting record at almost 2 000 annual general meetings of shareholders.

This report summarises the progress made on embedding our approach to investing sustainably into our business. We believe analysing investments using ESG criteria helps us account for more risks and opportunities. It helps us make better-informed decisions, aligned with our fiduciary duty. We do this through our ESG Integration Guidelines and the development of proprietary sustainability research.

To give us more insight into the performance of companies on the Sustainable Development Goals, we have launched cutting-edge SDG scoring with Matter, the Danish fintech. This helps us assess the SDG alignment of company revenues at the business line or activity level and informs our sustainable investment determination, which is critical for Article 9 portfolio construction and security selection.

Embedding ESG integration

Under the Sustainable Finance Disclosure Regulation (SFDR), we have made a firm-wide effort to meet the obligations in terms of portfolio management, disclosure and controls. This has resulted in 89% of the assets of our European domiciled open-ended funds being classified as Article 8 or 9 at end-2022.

In our SFDR disclosure statement, we detail how we integrate major adverse impacts into our assessments of investments. We have worked simultaneously on the integration into our product range of the new portfolio-level criteria introduced by the MiFID regulation in 2022. We are continuously adapting our range to integrate sustainability criteria further.

We have reinforced the link between voting and ESG integration, sanctioning issuers on ESG-related topics such as non-disclosure of greenhouse gas emissions. We strengthened our climate-related expectations, added two new areas of focus: biodiversity and low ESG scores and included new criteria to guide our voting on ‘Say-on-Climate’ proposals by investee company management.

We voted at 1 976 general meetings in 2022 – 46% in Europe, 27% in North America, 22% in Asia – reflecting the split of our assets under management. Over the past three years, we have maintained a high and rising opposition rate and made our own voting decisions – a rare practice among large asset managers. Issues opposed included executive compensation and board elections.

Exhibit 1 – Say-on-Climate voting[2]

We opposed a third of all resolutions we voted on because we did not believe they were in the best interests of clients. Moreover, the integration of environmental and social criteria into our voting policy led us to oppose around 1 400 resolutions, mainly on climate and biodiversity grounds.

In 2022, we engaged with 373 companies through 634 interactions. We signed 543 letters sent to companies through collaborative organisations we are a signatory to or supporter of.

Energy transition – Getting to net zero

Our net zero roadmap covers investments, how we will act as stewards to help achieve our goal and how we will walk the talk by cutting the emissions of our own operations. One stepping-stone along our way was the introduction of tighter restrictions related to unconventional oil & gas activities. We now exclude companies that generate more than 10% of their revenues from unconventional oil & gas or from activities in the Arctic. We do not invest in companies with oil & gas reserves in the Amazon.

As at the end of 2022, almost all – 98% – of our in-scope open-ended funds where we could calculate a carbon footprint have a footprint lower than that of their benchmark or investment universe.

Having had this practice in place for a number of years we are now in a good place to meet our net zero commitments. These include reducing the carbon footprint of our investment portfolios for in-scope holdings by 30% by 2025 and by 50% by 2030.

Environmental sustainability

In 2022, a year after releasing our biodiversity roadmap, we published the first results of our efforts to determine the biodiversity footprint of our investments. The analysis covers more than 1 800 companies included in our equity and bond funds, equal to about 70% of our ‘corporate’ assets under management.

We can now establish a baseline against which we can monitor our future performance and identify where closer analysis of individual issuers is warranted.

We believe it is important to know how companies perform when it comes to biodiversity, as this may influence our decision whether to invest.

Equality and Inclusive growth

Extensive evidence shows that companies with more diverse boards or management teams generate more sustainable value creation over the long term.[3]

In 2022, we identified 40 companies held in our active equity portfolios to engage with over board diversity. Our action meant 20 companies adopted changes in gender diversity in line with our expectations. At the AGMs of the other companies, their failure to meet this threshold meant we opposed the (re-)election of one or more male board directors.

Today, we are on track to meeting our medium-term goal: 40% of all board members are to be women by 2025 in all markets.

Exhibit 2 – Gender diversity on boards2

Women in asset management

In a still male-dominated industry, we continue to challenge ourselves with ambitious targets:

•  All Executive Committee members have a diversity, equity and inclusion objective.

•  In 2022, we recruited 279 employees, of whom 38% were women. In our investments division, of the 54 people we hired, 35% were women.

•  We offer leadership development programmes tailored to women to support their career growth, so that they can reach senior leadership roles.

Exhibit 3 – Walking the talk – More women in senior roles2

Professional development

We invest significantly to ensure our employees have the most up-to-date knowledge on sustainability issues and investment. In 2022, we formalised our sustainability education strategy developing six training pathsdepending on the level of knowledge employees require in their roles.

Highlights from the training include the launch of a Sustainable Investing Primer e-learning co-built with the CFA Institute to support the understanding of the importance of acquiring ESG skills. We make this available to clients.

[1] This and other sustainability documents can also be found on Sustainability documents – BNPP AM Corporate English (bnpparibas-am.com)  

[2] Source for all exhibits is BNP Paribas Asset Management, unless stated otherwise  

[3] See, for example, Data Shows That Diverse Boards Create More Value 

Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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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.

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