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Portfolio perspectives | Podcast - 10:25 MIN

Talking Heads – Stewardship, the power of persuasion

Daniel Morris
2 Authors - Portfolio perspectives
05-15-2023 · 4 Min

On behalf of our clients, we act as a steward for the companies in which we invest, to encourage better governance and improve their financial, environmental, and social performance.

Stewardship at BNP Paribas Asset Management means exercising our rights as shareholders, through engagement with investee companies on issues relevant to the sustainability and long-term performance of their businesses. These issues typically include corporate governance, due diligence, executive remuneration and the overall business strategy.

Listen to this Talking Heads podcast with Michael Herskovich, Head of Stewardship at BNP Paribas Asset Management, and Daniel Morris, Chief Market Strategist, as they discuss the role stewardship plays in our asset management.

You can also listen and subscribe to Talking Heads on YouTube.

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Read the transcript

This is an edited transcript of the audio recording of this Talking heads podcast.

Daniel Morris:

Hello, and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing stewardship. I’m Daniel Morris, Chief Market Strategist, and I’m joined by Michael Herskovich, Global Head of Stewardship. Welcome, Michael, and thanks for joining me.

Michael Herskovich:

Thanks, Daniel, and great to be here.

DM: To start us off, perhaps you could just explain to us what stewardship means, particularly for an asset manager.

MH: Stewardship is about using our investment and influence with companies and policymakers to contribute to a low carbon, environmental sustainability, an inclusive economy. We use different tools. Voting is a major stewardship tool because it involves exercising your rights and responsibility as a shareholder to vote at annual general meetings. The second tool is what we call engagement. How do we proactively engage with issuers – not only of equities but also of bonds – with the aim of improving their performance in terms of their approach to sustainability or governance? This is the second pillar of engagement. And the final way we define stewardship relates to public policy: How do we engage with regulators and policymakers to shape the markets in which we invest and the rules that guide and govern company behaviour? So that is the framework of our engagement strategy: Voting, engagement and public policy.

DM: Can you explain BNP Paribas Asset Management’s approach to voting and give us some of the key figures over the last year?

MH: Well, we vote on average at 2 000 general meetings a year. The full details and the figures are in the Sustainability Report we have just published. It is important to point out our level of opposition. We are an engaged investor. We do not hesitate to vote against [investee companies’] management proposals and we opposed one proposal out of three – a 33% opposition rate – which has been part of the DNA of our strategy because when you vote against a proposal, you’re sending a strong message for the company to change its approach and to adopt our policy and our guidelines.

If we look more closely at our opposition, when you vote at a general meeting, it can be about board elections, electing a director to serve on the board, or on financial operations, or on executive compensation. They are the three most common topics when you vote and where our opposition rate is the highest, including 60% opposition on executive compensation.

We also incorporate more and more environmental and social aspects in the way we vote at AGMs. We expect transparency from companies on their [greenhouse gas] emissions, but also transparency on their strategies, their commitment to reaching net zero by 2050. Last year, we also incorporated biodiversity elements, especially transparency on water and forestry strategies of companies in sectors that are key in terms of biodiversity.

Another dimension to voting is shareholder resolutions. As a shareholder, we have a right to submit our own proposals, We have done this especially as an escalation process when we have not had the engagement or results that we were expecting. We have a lot of support on shareholder proposals, especially when they help to improve the environmental and social dimension.

DM: Another key pillar you mentioned was engagement. What’s the main focus for BNP Paribas Asset Management and how you go about it?

MH: In our engagement with companies, we focus on our global sustainability strategy, which centres around the energy transition, environmental sustainability and equality and inclusive growth. So our engagement is thematically based on the key elements that will impact the strategy and the long-term performance of the company. We engage with companies and issuers based on their their environmental, social and governance (ESG) performance. We to seek to engage with companies that have low scores on ESG or that have some improvements to make.

We engage individually on behalf of BNP Paribas Asset Management, going to our main holdings and having discussions as an investor with those companies. But we are also increasingly working collectively with other investors because collective engagement has greater leverage due to the greater weight of capital invested in the company. We have been doing that for a long time, but it has become a growing trend in recent years. In our industry we are seeing more and more new initiatives. We were recently involved in the launch of Net Action 100, which is a collective initiative on biodiversity that you can find out more about on our website. And we have been an active member of Climate Action 100+ for a long time. All of this is about tackling [investee] companies’ climate change and net zero challenges. We are playing a key role in the collective initiatives of the industry to try to push companies to improve their sustainability practices.

DM: Michael, thank you very much for joining me.

MH: Thanks a lot. It was a pleasure.

This is an edited version of a discussion on current market events and is not intended as investment advice or an offer of products or services by BNP Paribas Asset Management. Please keep in mind that the information and analysis in this presentation is only current as of the publication date.

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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