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 SRI/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 controversial 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.
For each area, the sections below contain background information and key definitions on activities and companies concerned. Investment criteria addressing the main ESG issues and 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 integrate the feedback of the engagement results.
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.
SRI best in class funds select the companies that best perform in term of ESG. All companies within a given sector are benchmark against a set up of ESG indicators - developed by our in-house research team -. The best performants (top 2/3 ) are included in the investment universe; in other words, the bottom one third is excluded. The same occurs for countries and supranationals
For non SRI 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.