Mainstreaming ESG integration

Give a brief overview of your innovative approach to ESG incorporation, its coverage within your firm and why you decided to undertake this approach. 

BNPP AM has consolidated its position as an early leader in sustainable investment with the launch of its Global Sustainability Strategy (GSS). Launched in March 2019, it is a firm-wide blueprint to mainstream BNPP AM’s sustainable investment culture. 

As part of the GSS, BNPP AM defines four pillars of sustainable investment: 

1. ESG integration
2. Stewardship 
3. Responsible Business Conduct Expectations and sector-based exclusions 
4. A Focus on the Future.  

The final pillar is a forward-looking perspective to enhance investment decision-making by focussing on three key sustainability issues that the firm believes will be critical pre-conditions for a more sustainable and inclusive economic system: energy transition, environmental sustainability, equality, and inclusive growth. 

At the core of all BNPP AM’s investment processes, analysts and portfolio managers integrate relevant ESG factors into their company, asset and sovereign evaluation and investment decision-making processes. This allows them to identify and assess areas of risk or opportunity which may not be understood by all market participants, and which could give them a relative advantage.  

BNPP AM’s goal was that by 2020, every investment process and strategy will have been reviewed and approved by the firm’s ESG Validation Committee. As of the end of 2019, The Committee had validated 59 processes covering 295 strategies, which is the equivalent of 935 funds and mandates including BNPP AM’s full flagship range. 

BNPP AM’s 25-person, multi-disciplinary Sustainability Centre provides investment teams with research, analysis and data at company and sector levels, and supports the integration of sustainability-related risks and opportunities into investment strategies. BNPP AM has increased the coverage of its ESG research from 2,600 to over 12,500 companies by 2020. 

How does this approach stand out in the market? Why is it unique? 

BNPP AM decided to put sustainability at the heart of its strategy at the firm level, and while there are a handful of boutique firms that do this, BNPP AM’s size and scale makes this unique among the larger asset managers. In addition, BNPP AM’s approach stands out because:  

• All the firm’s investment strategies aim to have better ESG scores and lower carbon footprints than their benchmarks.   
• All the assets of the firm, from real assets to systematically managed portfolios, are covered by its ESG strategy.  
• BNPP AM has a structured way of integrating ESG research into all of its investment platforms, and has plans to consistently measure and report on it.  
• The entire company is involved in the company’s sustainable journey: everyone from investments to sales-and-marketing to accounting and procurement. 
• BNPP AM engages with regulators, stock exchanges and other industry bodies to promote a range of outcomes – from mandatory corporate ESG reporting to the mainstreaming of ESG futures. 

Give a practical example of how you have applied your approach to an investment (security/issuer/sector/asset class/portfolio), including any challenges faced and how you adapted to them. 

One example is private infrastructure debt, where BNPP AM pre-screens the sponsors and then carries out an ESG analysis on the operational aspects of the project using a specific taxonomy to identify the nature of the activity, its environmental and social contribution and/or impact.  

This is followed by an ESG assessment of the underlying asset itself and how it is managed, making it possible to assess the practical integration of ESG considerations into the management of the project. It includes both qualitative criteria, namely the ESG management systems set up by the sponsor, the ESG policies developed, standards deployed, and quantitative criteria relating to environmental and social performance.  

The final step is an impact assessment, which is carried out by an independent expert and focuses on calculating the induced and avoided emissions, the project’s alignment to a two-degrees Celsius trajectory and its contribution to the energy and ecological transition. 

For BNPP AM’s multifactor strategies, the fund managers use the ESG ratings of the Sustainability Centre and carbon footprint data, a proprietary calculation done in-house, to improve the average ESG decile rating of the strategy by 20% and reduce its carbon footprint by 50% relative to its benchmark. 

What were the outcomes of this initiative for the investment and how have you measured its success? What have you learned from this approach that can be applied more broadly? 

BNPP AM’s firm-wide, target-driven approach has yielded several transformational outcomes for the firm: one of which lies in having all investment teams include ESG criteria in a material way in their strategies.  

Success can be measured in three ways: 

1. PEOPLE: An important milestone of BNPP AM’s ESG integration drive has been the appointment of ESG Champions around the world. They are the link between the Sustainability Centre and the investment teams and keep abreast of relevant ESG market developments, as well as updates to ESG research methodology, exclusion policies and stewardship activities. 
2. PERFORMANCE OBJECTIVES: All chief investment officers and ESG Champions have sustainability as one of their performance objectives. In transforming the firm’s ESG culture, BNPP AM found it critical to involve investment experts from the bottom-up, rather than dictating terms and conditions top-down, to empower them and multiply the number of sustainability ambassadors.  
3. TRAINING: Additional firm-wide online training and resources for all staff are organised centrally, as BNPP AM works to enhance the firm’s overall capacity on ESG issues. 

The figures bear out the success of the strategy: When analysing the top 100 gross inflows of 2019 into BNPP AM’s strategies, ESG was the key success factor in 10% of deals, and a supporting factor in 29% of deals.