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BNP Paribas Asset Management

PRI reporting framework 2017

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(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]


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