This report shows public data only. Is this your organisation? If so, login here to view your full report.

BNP Paribas Asset Management

PRI reporting framework 2017

Export Public Responses
Pdf-img

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities

ESG incorporation in actively managed listed equities

Implementation processes

LEI 03. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
80 %
Percentage of active listed equity to which the strategy is applied
15 %
Percentage of active listed equity to which the strategy is applied (+/- 5%)
5 %
Total actively managed listed equities 105%

03.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

BNPP IP applies a responsible investment policy to all its its open ended-funds that are actively managed.  All the equities are screened using a UN Global filter and a series of exclusion lists for sensitive activities. Dedicated management for institutional investors progressively integrates ESG filters but it is done after clients's acceptance of BNPP IP exclusion lists.

As of today our range of open-ended funds (approx 50% of BNPP IP's total AUM) is plugged to our responsible investment policy and ESG exclusions.

In 2016 we continued moving towards the full ESG integration by promoting BNPP IP internal ESG research in all the investment centers. This has started in 2014 and significant progress was made in 2014 and 2015 to ease the diffusion of all the ESG scores and ESG sectors reviews to BNPP IP portfolio managers, notably through one unique IT front office tool calleds Thinkfolio. The objective is now to have the ESG risks taken into account by portfolio managers in their investment decision process.

In parallel, 2016 was also an important year for BNPP IP as we adopted a climate change strategy and implemented a tool to help portfolio managers to appreciate the impact of their investments in the CO2 footprint of their portfolio (equities only for the moment, other asset classes will be explored in 2017).

 

03.3. Where assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

We have developped a series of Socialy Responsible Investment (SRI) funds using either Best in class or SRI thematic approaches. They all comply to BNPP IP responsible investment policy and the associated exclusion lists but they had another layer of ESG requirements (exclusion of the 30% worst in class companies in terms of ESG for best in class porfolios, or supply of products and services with a proven positive ESG impact for the companies invested in our ESG thematics funds).

 


LEI 04. Type of ESG information used in investment decision

04.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

04.2. Provide a brief description of the ESG information used, highlighting any differences of sources of information across your ESG incorporation strategies.

BNPP IP has benefited from an in-house team of sustainability research since 2002. The team is formed by five senior ESG analysts and three interns. The team has built strong expertise in ESG - sector, company and sovereign - analysis. The methodology and ratings are developed in-house and are proprietary.

As a starting point for their analysis, the team members use:

External specialised providers

- Sustainalytics for UN Global Compact and controversies data

- Trucost/S&P for CO2 data

- MSCI ESG for Governance research

- Vigeo Eiris

- Sell side ESG brokers and other specialised providers for some sectors

 

In-depth qualitative research

- Dialogue with companies and key stakeholders

- Academics

- Institutionals

- Civil society research

04.3. Indicate if you incentivise brokers to provide ESG research.

04.4. Describe how you incentivise brokers.

Historically, BNPP AM was a co-founder of the Enhanced Analytics Initiative, an initiative to financially support the development of SRI brokerage in Europe. The commitment  was to dedicate at least 5% of the total BNPP AM brokers fees to ESG brokers. Since 2004, BNPP IP has always spent more than 5% of its brokers fees to SRI brokers.

 

04.5. Additional information.[Optional]


LEI 05. Information from engagement and/or voting used in investment decision-making

05.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

05.2. Additional information. [Optional]

Every year we publish the results of our Proxy voting activity in a public report that can be found here: http://docfinder.is.bnpparibas-ip.com/api/files/F5492612-F62C-4F97-9F83-1287311BBD3B

 


(A) Implementation: Screening

LEI 06. Types of screening applied

06.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

1) For all funds :

compliance with

  • sector policies (palm oil and wood pulp, coal fired power plants, nuclear energy, controversial weapons, mining, asbestos, tar sands),
  • ESG practices: minimum ESG standards as requested in the sector policies + compliance with UN Global Compact principles,
  • Corporate Governance: minimum Governance standards as requested in the sector policies + compliances with UN Global Compact

 

2) For SRI funds we apply all the above mentioned exclusions and exclusion of companies active in alcohol, tobacco, gambling, pornography, armament sector (if revenue >10% of the activity).In addition, we implemented early 2016 a strict coal-free policy excluding all mining companies  with 10% or more of their revenues generated from “thermal coal” and all utilities whose carbon intensity when producing electricity is higher than 600 kgCO2/MWh. If they emit below this level, we will divest if the following thresholds are exceeded: a company’s coal installed capacity is above 30% and coal production is higher than 30%, and carbon intensity when producing electricity is higher than 400 kgCO2/MWh.

 

Screened by

Description

see above

Screened by

Description

Since 2012, we have applied the UN Global Compact Principles as a filter to all the open-ended funds. As a result, we exclude the companies in systematic breach – currently about 30+ companies – from  all open-ended funds across BNPP IP. Compliance officers are in charge of ensuring the exclusion lists are respected by the porfolio managers.

06.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

http://www.bnpparibas-ip.com/publications/documents/other/IP/documentlist/csr/20131101_bnppip-responsible-investment-policy_eng.pdf

As part of the UN Global Compact filter, we screen more than 5000 companies for their complying with Universal Declaration of Human Rights, the International Labour Organization Conventions, the United Nations Convention Against Corruption and the OECD Guidelines for Multinational Enterprises
 

UN Global Compact filter:

The following principles govern the implementation of ESG Standards in investment processes:

1. Investment universes are periodically screened with a view to identify issuers that are potentially in breach of UN Global Compact Principles and/or mandatory requirements applicable to controversial sectors and products.

2. This assessment is conducted by our ESG Research Team on the basis of internal analysis and information provided by external experts (Sustainalytics)  and in consultation with BNP Paribas Group CSR Team.

3. As a result from this process, BNPP IP establishes and maintains two lists:

  • an exclusion list of issuers that are associated with serious and repeated breaches of UN Global Compact Principles and/or mandatory requirements related to controversial sectors and products.
  • a watchlist of issuers that are at risk of breaching ESG standards and with whom we engage in a dialogue in order to encourage improvements.

4. The exclusion and watchlists are communicated by CIOs to investment teams on a regular basis and are reviewed twice a year. As a result, investment teams should not initiate new investments in excluded companies with immediate effect. Existing investments should be divested from relevant portfolios based market conditions but not later than one month after communication by CIOs.

5. The exclusion list applies to all open-ended funds managed by BNP Paribas Investment Partners entities, with the exception of portfolios which replicate the composition of indices (eg ETFs and indexed funds). Exceptions may also be granted in cases where exclusions from actively managed portfolios would result in significant market risk versus the benchmark.

6. The exclusion list applies to all types of securities (equities, bonds, convertible bonds) issued by aforementioned companies, as well as bonds issued by related financial vehicles. It also applies to participation notes and derivatives issued by third-parties on such securities. These restrictions apply to securities negotiated on primary and secondary markets, as well as OTC instruments.

7. Pre-trade and post-trade compliance checks are conducted by Investment Compliance teams to ensure that exclusions lists are implemented by all relevant portfolios.

 

Sector specific minimum ESG standards:

In addition to the UN Global Compact principles, BNP Paribas Investment Partners implements a series of ESG standards related to investments in sensitive sectors and products. These standards are consistent with sector policies adopted by the BNP Paribas Group and cover the following areas:

  • Palm oil and Wood Pulp The aim is to encourage the production of sustainable palm oil and wood pulp by investing only in companies that meet minimum environmental and social standards. Consequently, companies that do NOT adhere to such minimum standards (eg by converting protected areas into palm oil and wood plantations, or using child/forced labour) should not be invested in.
  • Nuclear. The objective is to ensure that we invest in companies that operate in countries with a proper legal framework, use appropriate technologies and adopt adequate health & safety monitoring and accident prevention measures.
  • Coal-fired Power Generation. The aim is to ensure that we invest in utility companies that decrease their CO2 intensity by operating more efficient coal-fired power stations and diversifying to cleaner sources of electricity generation.
  • Controversial weapons. The objective is to ensure that we do not invest in companies involved in the production, trading and storage of controversial weapons. These include cluster ammunition and antipersonnel landmines, chemical and biological weapons, and nuclear/depleted uranium weapons. Most of these weapons are covered by international conventions and investments are already prohibited in some jurisdictions.
  • Asbestos. The objective is to ensure that we do not invest in companies involved in the extraction or production of asbestos fibers banned today in more than 50 countries.
  • Mining: the objective is to ensure that we do not invest in companies that use Mountain Top Removal (MTR) technics or with low ESG standards and practices.

Investment criteria addressing the main ESG issues are split into two categories:

  • Mandatory requirements are to be understood as sine qua non: those have to be met without exception for BNPP IP to invest in a company.
  • Evaluation criteria provide a framework for further contextual analysis and dialogue with companies, based on which BNPP IP may decide not to invest even if mandatory requirements are met.

The sector policies are reviewed once a year by BNPP Group with help of external and internal experts and also integrates the feedback of the engagement results.

 

SRI funds

For SRI funds we apply all the above mentioned exclusions and exclusion of companies active in alcohol, tobacco, gambling, pornography, armament sector (if revenue >10% of the activity).

In addition, we implemented early 2016 a strict coal-free policy excluding all mining companies with 10% or more of their revenues generated from “thermal coal” and all utilities whose carbon intensity when producing electricity is higher than 600 kgCO2/MWh. If they emit below this level, we will divest if the following thresholds are exceeded: a company’s coal installed capacity is above 30% and coal production is higher than 30%, and carbon intensity when producing electricity is higher than 400 kgCO2/MWh.

The other type of SRI funds we have are thematic. Each thematic fund aims to invest in different ESG activities and/or themes. They are “solution oriented” and normally either social or environmental. As an exemple, our Green Tigers environmental thematic fund only invests in 6 themes and specific policies are applied e.g. 1st generation biofuels are excluded but not 2nd, etc.

 

For mainstream funds :

progressive use by all the investment centers of our ESG scores and research to reduce risk exposure to ESG factor and to identify new investment opportunities.


LEI 07. Processes to ensure screening is based on robust analysis

07.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

          Participation of the Porfolio Managers to ESG sector reviews with EG analysts
one-to-one interviews with companies by ESG analysts
        

07.2. Additional information. [Optional]

Each GICS sector is reviewed annually by the ESG research team. The purpose of the ESG sector review is to benchmark all companies within a sector against a set of ESG indicators. These indicators are chosen by the sector analysts after in-depth research and analysis undertaken by the analyst based on an ample pool of sources. For all equities, a one-to-one meeting or conference call is conducted with each company to doublecheck, verify and discuss findings and data. In many cases, discussions are followed by email exchanges.

There are 10 sector reviews a year ; well prior the review a meeting is set  up with fund managers and financial analysts where the analyst presents an overview of the key ESG drivers that will be analysed – including the  weighting breakdown between environmental, social and governance issues - in the coming sector review.

Once the ESG analysis is completed, an ESG score and a ranking is given to each company of the sector in which BNPP IP invests or has an interest – icl. non-listed companies within the fixed income universe, large and medium caps,etc.  The results are presented formally to fund managers and financial analysts.

The analyst monitors the evolution of sector, and the ESG behaviour of the companies during the entire year. When a company faces a relevant change and/or controversy, it is put under monitoring and a meeting is set up with the company following which, the analyst will change or not the company’s score, rating and inclusion in SRI funds.


LEI 08. Processes to ensure fund criteria are not breached

08.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

08.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

Both for UN Global Compact, sector policies and for the SRI products that are invested in best in class or thematic, the exclusion list and the buylist are programmed in our compliance systems that block pre-trade and post-trade.

In case of breach, a cascading process is activated, from on screen alert messages and emails up to the information of the CIO. The portfolio manager has then a maximum time frame of 1 month to sell the position in the best interest of the client.

08.3. Additional information.[Optional]


(B) Implementation: Thematic

LEI 09. Types of sustainability thematic funds/mandates

09.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

09.2. Describe your organisation’s processes for sustainability themed funds. [Optional]

All thematic funds follow a three-step process:

1) Controversies screening.

All companies are thoroughly analysed in order to ensure that they have not been involved in controversies due to poor practices
Companies that pass this first screen are compliant to the UN Global Compact  and BNPP IP sector policies

2) ESG scoring

All companies are evaluated according to an ESG scoring process to ensure that they are actively involved with the performance of their Environmental, Social and Governance practices
This filter eliminates the bad ESG performers. We exclude all companies belonging to the last ESG decile (10% of the total universe).

3) Be part of the solution

Environmental or Social screen (depending on the fund) follows the guidelines set in our internal Sustainability Thematic Handbook, which outlines the activities  and business models that are investable for each sustainable strategy and potential controversies that may arise in any given sector . The handbook describes in detail the policies  applied e.g. biofuels first generation will be excluded except that generated from sugar cane. It also specifies all the activities included in detail. For example, in energy efficiency there are three themes included:  building energy efficiency, industrial and power. For each one, there is a specific list of which technologies are included and the conditions they need to cover (ex. Detailed below in additional information).  
Companies must have coherent activities and a turnover of min. 20% in the identified themes or 40% if they are suppliers in the value chain.


(C) Implementation: Integration of ESG issues

LEI 10. Review ESG issues while researching companies/sectors

10.1. Indicate if E, S and G issues are reviewed while researching companies and/or sectors in active strategies.

ESG issues

Coverage/extent of review on these issues

Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

10.2. Additional information. [Optional]

As explained above, the ESG Research Team analyses all sectors within the economy (incl. activities such as tobacco or defence even when they are excluded for SRI funds), and scores on ESG  all companies (World Developed Markets) and ranks them each against their peers from the same geographical area (Europe – analysis which includes a discussion with the company - ; North America and Asia Pacific – Japan, Singapore, Australia and New Zealand).  This analysis includes, of course, companies’ exposure and management of any controversial matter.

For non-Developed Markets companies that are not included in an SRI fund, the analysis is based on whether or not they comply with the UN GC principles and the ESG controversies they might face.


LEI 11. Processes to ensure integration is based on robust analysis

11.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

11.2. Describe how ESG information is held and used by your portfolio managers.

11.3. Additional information.[Optional]

Since 2014, through the ESG correspondents, we have started sharing the deliverables of the ESG Research to all the mainstream portfolio managers, namely ESG sector reviews and  ESG scores for corporate issuers and sovereign issuers.

In 2016 we integrated the ESG scores to Thinkfolio our front office tool. We also developed an IT solution to store our ESG research and ESG companies profiles. the objective is to have the largest number of portfolio managers using these tools in their investment decision process for a better understanding of the ESG risks associated to each companies they invest in.

 


LEI 12. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

12.1. Indicate which aspects of investment analysis you integrate ESG information into.

12.2a. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

          we integrate ESG as a quality/risk factor for a company to be put in balance with its financial grade given by the fundamental analysis
        

12.3. Describe how you integrate ESG information into portfolio construction

we encourage mainsteam portoflio managers to underweight/ not invest in the companies with the worst ESG rating (namely decile 10 according to our inhouse research) and to favour companies with the highest ESG rating.

In 2015 we have also introduced a CO2 footprint calculator to help portfolio managers understand the impact of their stock picking and sector allocation to their final CO2 footprint. it has been complemented in 2016 with the adoption of a climate change strategy (http://docfinder.is.bnpparibas-ip.com/api/files/C7415B62-3F41-4D20-88BF-DDBBA97CC75F) to progressively make our investments compatible with a 2°C compatible scenario.

12.4a. Describe the methods you have used to adjust the income forecast / valuation tool

as mentionned above, the ESG scores are now progressively integrated by portfolio managers to their quality/risk assessment of companies. Depending of the investment centers they give a specific % of depreciation/appreciation depending of the score.

12.5. Additional information.


Top