BNP AM

The sustainable investor for a changing world

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Forward thinking | White paper - 10 Min

Global Sustainability Strategy – An update on how we deliver meaningful returns

2 Authors - Corporate news
01-10-2024 · 10 Min

The latest version of our Global Sustainability Strategy (GSS) updates our strategic approach to applying sustainability considerations to how we invest for clients and how we operate as an organisation. It includes areas where we have made progress since the first edition and our priorities for the coming two years.

At BNP Paribas Asset Management, we are aiming to deliver positive real-world outcomes around sustainability alongside attractive financial returns. Supporting the transition to a sustainable economy is a core objective and guides our strategy, culture, structure, products, and investment processes, as well as our relationship with clients and the companies and markets we invest in.

Our updated Global Sustainability Strategy is supplemented by numerous policy documents which detail our approach. All our sustainability related information is available here.

A sound response to profound change

Over the coming years, we believe the asset management industry will face far-reaching change, driven by a wider need to reallocate capital to a more sustainable and inclusive economy, taking into account geopolitical dynamics, evolving regulation, technological transformation and changing demographics.

This impending and interconnected transition will require long-term investors to not only reposition their portfolios for sustainable growth, but to become a source of funding for the needed transformation.

Since our first GSS in 2019, Covid-19, humanitarian, geopolitical and energy crises, and climate disasters have reshaped economies. Regulations including the Sustainable Finance Disclosure Regulation have shaped sustainability-related investing.

Despite these transformational events, we found that the fundamentals of our approach have remained sound.

In 2021, we launched our comprehensive Biodiversity Roadmap and supported the launch of the Taskforce on Nature-related Financial Disclosures (TNFD). We strengthened our commitment to the Paris Agreement by joining the Net Zero Asset Managers (NZAM) initiative and published our Net Zero Roadmap in 2022, covering our 10 commitments spanning investments, stewardship, and operations.

ESG integration – Enhancing the way we invest

Integrating environmental, social and governance (ESG) considerations into our product offerings has been a key enabler in the transformation of our range into the Article 8 or 9 categories under the Sustainable Finance Disclosure Regulation (SFDR – as of June 2023, 90% of our European-domiciled open-ended funds’ assets under management (AUM) are classified as Article 8 or 9 under SFDR)).

We believe corporate disclosure on ESG will improve further and consumer, investor, and regulatory expectations will continue to increase.

An appreciation of ESG factors also helps us better understand the impact of systemic risks on companies.

Stewardship and ‘walking the talk’ are critical

We believe we should use stewardship – proxy voting, company engagement and policy advocacy – to encourage companies, governments, and markets towards better outcomes. We report on our approach to stewardship and the results we achieve. Collaboration with other investors can often improve the likelihood of success and create efficiencies for all parties involved in a dialogue.

We also believe we must ‘walk the talk’ – that our corporate practices and disclosures should match or exceed the standards we expect from the entities in which we invest. So, we integrate sustainability considerations across our business, including how we manage our facilities, foster diversity within our workforce and company boards, and how we engage with employees on sustainability topics.

Six strategic priorities

Over the past year, we have identified these priorities to help us deliver long-term, sustainable returns for clients.

  • Produce science-led, transparent research: We draw on robust scientific and academic models and frameworks to inform our thinking. We will deepen our relationship with the academic network GRASFI (the Global Research Alliance for Sustainable Finance and Investment).
  • Maintain our bold stewardship approach: We will continue to strive to build our position as a stewardship leader, including our work on policy advocacy and direct engagement, also in collaboration with other investors.
  • Mobilise capital for investment solutions that embed sustainability and meet clients’ long-term needs: We will further widen our range of investment solutions, enabling a wide range of investors to meet their sustainability objectives.
  • Continuing to invest in a sustainability culture: building such a culture throughout our firm remains a top priority and is part of our Employee Value Proposition.
  • Drive sustainability in emerging markets: Given that emerging markets face the biggest emissions and biodiversity pressures, and the greatest need to shift towards sustainable energy systems and land use, we will use our significant presence to work on enabling a net zero, environmentally sustainable and inclusive transformation.
  • Achieve tangible impact: A growing number of clients seek to invest for impact – accordingly, we will help them achieve this by enhancing our range of impact investment strategies as well as focusing on the impact we have across our organisation.

Our approach to sustainability is based on these six pillars

1: Forward-looking perspective – the ‘3Es’

We believe the optimal economic model can be built on a successful Energy transition, healthy Ecosystems, and greater Equality in our societies – what we have labelled the 3Es. Taken together, these form a pathway to economic sustainability helping to safeguard long-term returns for clients.

Energy transition

For us, such a transition needs to be ‘just’ – a shift will be inclusive and responds to the needs of displaced workers and those communities and regions most affected by climate change.

In 2022, we published our Net Zero Roadmap. While this initially covers 50% of our assets under management, we aim to increase this proportion to ensure we reach net zero by 2050 or earlier.

As part of our net zero commitments, we are progressively aligning our investments with global climate goals by increasing our holdings in companies with climate strategies that are consistent with 1.5°C pathways or which offer solutions to mitigate climate change . Previously, we committed to aligning our investments in power generation with climate scenarios aiming to reduce global warming to well below 2°C. We have a strict coal policy and have substantially reduced our exposure to unconventional oil & gas.

As we strive to improve our knowledge of climate-related risks and opportunities, we are working on better tools and metrics to assess exposures and track and report on our net zero commitments.

Healthy Ecosystems

We believe we need to understand how our investments impact nature and how nature loss may translate into financial risks and impact our investments. Our work includes the biodiversity roadmap, Sustainable by Nature, and research to determine the biodiversity footprint of our investments.

Our areas of focus for 2023-2025 includes updates of our forest and water analyses, efforts to strengthen and promote our range of nature-based solutions and establish a future forestry fund, and efforts to engage on deforestation, sustainable proteins, and plastics pollution.

Equality

Unequal access to opportunities widens the gap between the wealthy and the rest of society, threatening social mobility, cohesion, and stability, and creating downward pressure on aggregate demand.

We believe investors can address inequality as an opportunity to foster economic growth, reverse wage stagnation, increase purchasing power, and improve financial market stability along with social cohesion.

Our areas of focus for 2023-2025 include incorporating enhanced social indicators into our corporate and sovereign ESG scoring models, developing new and promoting existing investment strategies linked to equality and social themes, addressing both the causes and symptoms of systemic inequality through our proxy voting, and influencing public policy through engagement.

Details on our approach will be available in our Equality Roadmap, to be published in 2024.

2: Responsible business conduct

We expect investee companies to meet their fundamental obligations in the areas of human and labour rights, protecting the environment and ensuring anti-corruption safeguards wherever they operate. We have a series of policies that set out the conditions for investing in specific sectors and guide our screening requirements and engagement approach. We aim to engage with companies where they fall short and exclude the worst offenders from investment.

Our Responsible Business Conduct (RBC) policy applies, with a small number of exceptions, to eligible open-ended funds managed or delegated by BNPP AM entities. We are engaging with clients to further extend the applicability of this policy across mandates.

3: ESG integration

We believe that analysing investments using ESG criteria helps us account for a wider set of risks and opportunities and better understand the role of companies in driving systemic risks. We accomplish this by applying our ESG Integration Principles & Guidelines, and developing proprietary sustainability research.

We assess and integrate ESG factors across our investment research, investment universe screening, idea generation, security valuation, portfolio construction, risk management, asset allocation and scenario analysis. Our ESG Integration Principles and Guidelines provide details on our approach. As of September 2023, our assets integrating ESG criteria totalled EUR 346 billion.

Our proprietary research encompasses quantitative and qualitative views from Sustainability Centre analysts, ‘ESG Champions’ in investment teams and our Quantitative Research Group. We look beyond headline values to assess metrics that can give worthwhile insight into risk and opportunities. Covering nearly 13 000 issuers of securities (as of November 2023), our proprietary ESG scoring methodology helps our portfolio managers pinpoint an issuer’s ESG performance and integrate this into their investment decisions. We believe our methodology is markedly different, with a more focused number of ESG metrics and a clear preference for ‘performance’ over ‘policy’ indicators.

4: Stewardship

Bold engagement with issuers can enhance investment processes. It enables us to manage long-term risk for clients better. Accordingly, we collaborate closely with peers and organisations, for example by participating in the Climate Action 100+ and Nature Action 100 initiatives.

To ensure our activities are effective, consistent and support our objectives and duties as fiduciaries, they are detailed in our Stewardship Policy, Governance and Voting Policy and Public Policy Advocacy Policy and reviewed annually, revised as needed and approved by the Stewardship Committee.

5: Integrating sustainability in our product range

We apply several frameworks and methodologies to integrate sustainability in our product range and ensure that the claims our products make are demonstrated: our own ESG integration framework (RBC, etc.), our SFDR framework for Article 8 and 9, external label frameworks, as well as other strategy-specific criteria. The list of ESG criteria applicable to our open European products is clearly stated in their SFDR precontractual documentation.

Our goal is to apply a consistent approach to classifying our products: the ESG attributes of our products are reflected in product-level legal documentation.

We provide distributors with solutions to meet end clients’ ESG preferences in the context of the recent updates of Markets in Financial Instruments Directive (MIFID) II and Insurance Distribution Directive (IDD). For each European product classified as Article 8 or 9 under the SFDR, its positioning in relation to the different criteria (such as Principal Adverse Sustainability Impacts or PASI), minimum proportion of sustainable investments and minimum proposition of taxonomy-aligned assets) is defined and disclosed in its precontractual documentation.

We provide our clients with investment solutions that focus on companies positively contributing to the transition towards a more sustainable economy. Our sustainability-focused product offering is organised around four main families spanning asset classes, from listed equities and bonds to private markets and real assets: Labelled funds, Sustainable thematic solutions, Decarbonisation solutions and Impact solutions.

  • Labelled funds: These products adhere to one or more of the European sustainability labels.
  • Sustainable thematic solutions: These products allow investors to access specific sustainable transition themes by focusing their investments on a universe of companies or projects whose products, services or operations positively contribute to that theme. A market leader in sustainable thematics[1], BNPP AM offers a wide range of solutions covering various asset classes, investments styles and themes.
  • Decarbonisation solutions: These products cover a wide range of strategies implementing greenhouse gas (GHG)-related constraints at portfolio or investment level (e.g. alignment with Paris Aligned Benchmarks or Net Zero products).
  • Impact solutions: BNPP AM adheres to established market standards when identifying a product to be included in the impact category, such as the Impact Principles[2] .

In addition to the building blocks outlined above, our solutions and client advisory team works with clients to propose a holistic approach using proprietary methods to build sustainable portfolios.

6: ‘Walking the talk’: our CSR approach

Achieving our objectives requires us to build a culture of sustainability from the inside out. That is why we added our Corporate Social Responsibility (CSR) strategy to our sustainability approach. Our CSR strategy has four main strands: decreasing our operational CO2 emissions, reducing our waste to landfill, creating a culture of diversity, equity and inclusion, and belonging, and focusing our community initiatives on youth inclusion.

In practice, this means improving our operational emissions data so that we can drive down emissions, reducing paper consumption, eliminating single-use plastic, and taking a responsible end-to-end of-life approach to IT assets.

We believe that promoting diversity, equity, inclusion and belonging can help employees unlock their potential and set us apart as an asset manager. Externally, our commitment to Diversity, Equity, Inclusion & Belonging (DEI & B) means encouraging our employees to volunteer or become mentors to young people needing help to overcome barriers to success. Volunteering helps us ‘walk the talk’: every volunteering activity and every hour given back helps to build stronger, more resilient communities. It also helps each of us develop both professional and personal skills, while connecting better with colleagues and society.

Sustaining our culture through ongoing training

We believe education is a key lever to building a strong sustainability culture, to attract and retain employees and to ensure we can deliver on our business strategy. We are investing significantly to ensure our employees have the most current knowledge on sustainability issues through the implementation of our Sustainability Academy @AM.

Transparency and reporting

As part of our CSR approach, we endorse transparency and reporting as key ingredients of good stewardship. Accordingly, we publish an annual Sustainability Report as well as reports on stewardship and proxy voting and a Principles for Responsible Investment Transparency report. We provide extra-financial reporting on investment portfolios. Our thought leadership pieces are available to employees, clients, the media, and other external readers.

Strategy drives action

As ‘the sustainable investor for a changing world’, our sustainability strategy sits at the heart of our corporate and investment approach. Our renewed focus on the six pillars of our sustainability approach, plus our six strategic priorities, set a clear framework for action underpinned by a transparent set of policies. We look forward to engaging with clients and industry stakeholders to bring our approach to life.


[1] Morningstar data, BNP Paribas Asset Management analysis, as of end of September 2023

[2] See Invest for Impact | Operating Principles for Impact Management (impactprinciples.org) for more information.

[3] PASI – Principal Adverse Sustainability Impacts

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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