The sustainable investor for a changing world

Portfolio perspectives | Podcast - 11:05 MIN

Talking Heads – Taking a closer look at climate focused equity investing

Daniel Morris
2 Authors - Portfolio perspectives
08-29-2023 · 4 Min

Within the thematic investing approach, climate-focused strategies allow investors to invest in companies with a climate-friendly strategy and so do good while earning a return. Such strategies can enable them to manage future (climate) risk, benefit from long-term opportunities and leverage strong support from regulators and policymakers in the fight against climate change.    

Listen to this Talking Heads podcast with Martina Jung, Portfolio Manager for European Equities, and Daniel Morris, Chief Market Strategist. They discuss developments since the 2015 Paris Agreement and ways to implement sustainability-related criteria in stock selection and portfolio construction.

You can also listen and subscribe to Talking Heads on YouTube


Read the transcript

This is an article based on the transcript of the 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 climate-focused investment strategies. I’m Daniel Morris, Chief Market Strategist, and I’m joined by Martina Jung, Portfolio Manager for European Equities. Welcome, Martina, and thanks for joining me.

Martina Jung: Hello, Daniel. Thank you very much, great to be here.

DM: In recent years, investors have been increasingly looking at thematic investing to find better-than-benchmark returns, but also something that can have a positive impact on the planet. This is where climate-focused investment strategies come into play. One key driver of the increased awareness around climate was the Paris Agreement eight years ago. Could you update us on what’s happened since then and the importance of those developments for investors?

MJ: The Paris Agreement on climate change highlighted the urgency of limiting global warming to 2.0 or even 1.5 degrees above pre-industrial levels. Since then, many measures involving governments, companies and financial markets have been put in place to reduce greenhouse gas emissions and decarbonise the [global] economy.

For example, in 2019, the European Union committed to reaching carbon neutrality by 2050, meaning it wants to achieve net zero greenhouse gas emissions by removing as much CO2 from the atmosphere as is released into it. The EU then introduced the Paris-Aligned Benchmarks – tools that are part of a framework to encourage sustainable investment to help investors construct portfolios in line with the transition to a low carbon economy.

Finally, the latest Markets in Financial Instruments Directive came into force last year for banks and investment firms regarding the integration of sustainability into their investor suitability assessment and product governance. Under this framework, financial advisors and distributors have to ask clients to specify their sustainability preferences, according to which they must structure and offer products.

DM: What has BNP Paribas Asset Management done in this respect?

MJ: We have been developing our own net zero strategy. We signed up to the Net-Zero Asset Managers Initiative and published our net zero roadmap. We have developed a range of investment solutions that integrate environmental, social and governance (ESG) criteria. And one of the solutions that we believe specifically contributes to our net zero objective is our climate-aligned investment strategy.

DM: What exactly is that strategy, and why should clients invest in a portfolio aligned with the Paris Agreement objectives?

MJ: Our climate-aligned investment strategy integrates the fight against global warming into the investment process. It is about investing in European companies whose decarbonisation strategy is aligned with the Paris Agreement objectives.

To identify eligible companies, we have developed a proprietary climate alignment assessment methodology. This first assesses each company’s climate credentials. If a company is not disclosing its carbon emissions and has no emissions reduction targets, it is excluded from our investment universe. Companies that do disclose data and that have set climate targets will go through to our evaluation of climate performance. For this, we first check if a company is in a sector for which institutions such as the International Energy Agency have defined a specific decarbonisation pathway. If so, we assess whether the company’s strategy is aligned with this pathway.

For companies in a sector with no such pathway such as healthcare we assess whether its decarbonisation plans are aligned with the requirements of the United Nations Intergovernmental Panel on Climate Change.

Also essential to our climate assessment methodology is whether a company respects the EU’s Paris Aligned Benchmark standard. At the company analysis level, consideration of the PAB leads to the exclusion of all energy companies due to their exposure to carbon, oil & gas, for portfolio inclusion. We seek to ensure that the portfolio has a carbon footprint at least 50% below that of the benchmark at all times. On top of that, we work to reduce the carbon intensity of the portfolio by at least 7% a year. We also aim for a minimum exposure to sectors highly exposed to climate change issues. This has to be at least equal to that of the portfolio’s benchmark.

Such an approach enables us to exclude companies with the worst ESG performance and those that have more than 10% exposure to controversial activities, for example, alcohol or weapons. A company will only be selected for our climate-aligned portfolio if the required decarbonisation strategy and ESG credentials are accompanied by a sound financial profile.

We believe clients should invest in a portfolio aligned with the Paris Agreement objectives as it is an opportunity to invest in companies with a climate friendly strategy. In our view, such a portfolio can help to identify future risks, but it can also exploit the long-term opportunities that fighting climate change creates.

Finally, it allows investors to benefit from the strong support from regulators and policymakers in the fight against global warming.

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

MJ: Thank you very much, Daniel.


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.

Related insights

11:17 MIN
Talking heads – Full valuations make 2022 a challenging year
Maya BhandariDaniel Morris
2 Authors - Portfolio perspectives
01-10-2022 · 2 Min
10:55 MIN
Talking heads – Financing sustainable development
Alex BernhardtDaniel Morris
2 Authors - Portfolio perspectives
01-24-2022 · 2 Min

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2023 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP PARIBAS ASSET MANAGEMENT is the global brand name of the BNP Paribas group’s asset management services. © 2023 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP Paribas Asset Management seeks to integrate environmental, social and governance (“ESG”) factors into all of our portfolios as a means to mitigate certain short, medium and long-term financial risks, identify better long-term investments, and encourage more responsible corporate behavior. We will never subordinate our client’s interests to unrelated objectives. Certain issuers and industries are excluded from our actively managed portfolios based upon our view of their ESG performance and risk profile. As a result, we may pass up certain opportunities when these excluded issuers or industries are in favor. Due to significant gaps in disclosure regimes around the world, we may need to rely upon voluntary disclosures by issuers, which are often not audited. We therefore may not have consistent access to complete, accurate or comparable information about the ESG performance of our holdings. Please consult the applicable offering document for more information about the specific ESG strategy employed by each investment strategy since a given strategy may not have specific ESG guidelines, and investments are not limited to securities that are ESG compatible.

To access insights from our teams worldwide visit:
Explore VIEWPOINT today