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BNP Paribas Asset Management

PRI reporting framework 2020

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
95 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
5 %
Total actively managed listed equities 197.5%

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

Through our Global Sustainability Strategy (GSS) launched in March 2019, we committed to integrating sustainable investment practices across all our assets. This includes actively managed listed equities .

Underpinning our approach to sustainable investment and working towards a sustainable future are our beliefs that:

1.     We are long-term, forward looking investors

„ As active investors, we are forward looking.  We analyse the past in order to better anticipate future developments; we place greater emphasis on  identifying and helping to promote positive change in the future than rewarding (or punishing) past or current behaviour.

„ We are long-term investors, and are prepared to be patient to achieve better results for our clients, and for the world at large.

2.     Our fiduciary duty is aligned with sustainable investment

„ We believe that our fiduciary duty to our clients includes taking environmental, social and governance risks into consideration in our investment decisions.

„ We have a fiduciary duty to our clients to make informed decisions taking reputational, operational and financial risks into careful consideration.

3.     Stewardship is an opportunity and an obligation

„ Stewardship is an integral, and crucial, part of sustainable investment. As active asset owners, we believe that we should use company engagement, proxy voting and policy advocacy to influence companies and the world for the better.

„ Stewardship, if done correctly, can reduce risk, unlock value and impact the world around us in a positive way through the promotion of improved sustainability practices, disclosure levels and transparency.

„ We believe that engagement is generally more effective than exclusion but divestment can be effective as a last resort.

„ Company disclosure is a fundamental requirement for sound investment decision-making.

„ Collaboration with other long-term investors and stakeholders can help to achieve our common environmental and social aims, particularly when engaging with companies and regulatory bodies.

„ We are also committed to engaging with our clients to promote greater acceptance and implementation of sustainable investing.

4.     ESG integration helps us achieve better risk-adjusted returns 

As mentioned in our sustainable investment philosophy: 

„ Sustainability is a long-term driver of investment risks, and returns (although these risks also manifest in the short-term).

„ Sustainability is imperfectly understood, under-researched and inefficiently priced – different players have different goals, approaches, accesses to information, levels of understanding, integration into investment processes etc. Information and disclosure levels are imperfect, incomplete and inconsistent.

„ We will make better investment decisions, based on a richer and deeper understanding of risks and opportunities, if we systematically and explicitly integrate ESG factors into our investment analysis and investment decision-making.

„ Risk management needs to incorporate ESG risks.

5.     A sustainable economic future relies on sustainable investment practices

„ We can deliver the same or better financial returns in the long term than traditional investments by investing sustainably, while generating positive environmental, social and governance outcomes.

„ The way we invest, and engage with companies and regulators, can help shape the world around us.  Effectively managing ESG risks will help promote greater market stability, and more sustainable long-term growth.

„ A 4°C warmer world will be uninvestable – we need to align our investments and use engagement to support successful implementation of the Paris agreement.

„ We should carefully monitor ESG performance, and try to measure the impact of our investments. 

6.     Walking the talk is critical to achieving excellence

 

Lastly, we believe that walking the talk is critical to achieving excellence:

„ As a sustainable asset manager, we should match or exceed in our corporate practices, and in disclosure, the standards we expect from the entities in which we invest.

„ Fostering a sustainable culture internally drives sustainable investment by our staff. 

 

As part of the GSS, we define five pillars of sustainable investment:

1.     ESG Integration: Our ESG Integration Guidelines and Policy apply to all of our investment processes (and therefore funds, mandates, and thematic funds). However, they are ‘non-applicable’ for index funds and exchange-traded funds (ETFs).

2.     Stewardship: Shareholder-engagement and public policy advocacy activities are undertaken on behalf of all of our assets under management. 

3.     Responsible Business Conduct policies and sector-based exclusions: To date, we have applied these policies to all our funds, but related exclusions are not currently applied to all client mandates. During 2020, this will become the default approach for new mandates, and we will approach existing clients to seek their approval to apply the policy to existing mandates. 

4.     Forward-looking perspective – the ‘3Es’: As set out in Part II of our GSS, we will measure our exposure to key issues across our full assets under management, and undertake related research in support of all investment processes.

5.     ‘Sustainable +’ solutions: these include our Enhanced ESG, thematic and impact investing strategies, enabling investors to allocate to sustainable investment opportunities.

Together, these approaches strengthen the way we invest, including how we generate investment ideas, construct optimal portfolios, control for risk, and use our influence with companies and markets. Further information on each of these components can be found in the GSS.

https://www.bnpparibas-am.com/en/sustainability/as-an-investor/

 

 

 

 

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

 

Screening and ESG integration, guided by our sustainable investment approach and ESG integration Guidelines (as explained in LEI 01.2) are mandatory for all our equity open-ended funds. 100% of investment processes in our ESG Validation scope has been reviewed as of end of December 2019.

Screening, ESG integration and thematic approach: In addition to implementing the four pillar of sustainable investment, our Sustainable + funds go a step further, by implementing more explicit ESG tilts and/or adopting a thematic or impact approach. Thematic funds invest in companies that provide products and services providing concrete solutions to specific environmental and/ or social challenges, seeking to benefit from the future growth anticipated in these areas while contributing capital towards the transition towards a lowcarbon, inclusive economy.

 

 


LEI 02. Type of ESG information used in investment decision

02.1. 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 

          Academics, NGOs, investor initiatives and/or multi-stakeholder initiatives
        

Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

Historically, BNP Paribas 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 BNP Paribas AM's total brokers' fees to ESG/SRI brokers. Since 2004, this 5% level has always been surpassed.

 

02.4. Additional information. [Optional]


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether 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.

03.2. Additional information. [Optional]

Engagement with investee companies is a key pillar of our sustainable investment approach. We have been actively engaging with the companies we invest in, encouraging them to adopt best practices and commit to a greater transparency of their strategy to mitigate ESG risk. Engagement with investees is an integral part of our portfolio managers' investment process and follows the guidelines defined in our Stewardship policy.

When engaging with companies, we focus on material ESG areas:

·         Governance and the quality of management are our key priorities when participating in AGMs and voting resolutions.

·         We also pay attention to the '3 Es': Energy transition, Environmental sustainability, Equality and inclusive growth.

·         Finally, beyond excluding the worst offenders, we monitor and engage with companies that face serious controversies related to Human and Labour rights, the Environment and Corruption.

We commit to making the results of engagement available in front office tools per relevant company, as we believe we can leverage on engagement to supplement our qualitative and quantitative ESG data.

We also publish the results of our Proxy voting activity in an annual public report.

 


(A) Implementation: Screening

LEI 04. Types of screening applied

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

Type of screening

Screened by

Description

1) All funds ought to comply with our Responsible Business Conduct policy, which:

- Excludes companies in severe breach of the UN Global Compact Principles and OECD Guidelines for Multinational Enterprises (OECD MNEs Guidelines). These are based on the international conventions in the areas of human rights, labour standards, environmental stewardship and anti-corruption. These exclusions can therefore be based on corporate governance practices (e.g. corruption), as well as environmental and social practices and performance (human rights, labour standards, environmental stewardship).

- We have a series of sector policies that set out the conditions for investing in particular sectors, products and activities (e.g. agriculture, palm oil, nuclear).

- We have another set of policies that commit us to exclude particular sectors or activities (tobacco, coal, controversial weapons or asbestos), as we deem them to be in violation of international norms, or to cause unacceptable harm to society and/or the environment, without counterbalancing benefits. These are generally sectors where engagement makes little sense.

 

You can refer to question LEI 04.02 for more details.

2) All SRI labeled funds must also exclude companies active in alcohol, tobacco, gambling, pornography, armament sector (if revenue >10% of the activity).

 

Screened by

Description

1) All funds:

Using our proprietary ESG scoring methodology, we avoid investing in a weakly rated entity (lowest decile) without actively engaging particularly on the key issues identified, and we may disinvest from weakly rated entities which do not respond to engagement.

2) Sustainable + funds with a Best-in-Class approach: We do not invest in companies belonging to the three lowest ESG scoring decile.

Screened by

Description

Since 2012, we have applied the UN Global Compact Principles as a filter to all our open-ended funds. As a result, we exclude those companies in systematic breach from all open-ended funds across BNPP AM. Through our Responsible Business Conduct (RBC) policy we also exclude companies in breach of the OECD Guidelines for Multinational Enterprises. Compliance officers are in charge of ensuring the exclusion lists are respected by portfolio managers. The exclusion list is programmed into our compliance systems, which can block pre-trade and post-trade activity.

We use the UN Guiding principles on Business and Human Rights when analysing how companies are monitoring social risks, in particular in their supply chains, or how companies are enforcing good practices on business ethics. We use the UN Guiding Principles as an analytical framework not as a screening tool.

 

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

We are aware that Responsible Business Conduct (RBC) practices impact the value and reputation of entities in which we invest. We expect companies to meet their fundamental obligations in the areas of human and labour rights, protecting the environment and ensuring anti-corruption safeguards, wherever they operate, in line with the UN Global Compact Principles and OECD Guidelines for Multinational Enterprises (OECD MNEs Guidelines). These are shared frameworks, recognised worldwide and applicable to all industry sectors, based on the international conventions in the areas of human rights, labour standards, environmental stewardship and anti-corruption. We aim to engage with companies where they fall short, and exclude the worst offenders.

We have a series of sector policies that set out the conditions for investing in particular sectors, and guide our screening requirements and stewardship activities. These criteria are based on relevant international conventions and regulations (including the supplemented criteria provided by the OECD for sensitive sectors such as responsible agricultural supply chains or conflict minerals), BNP Paribas Group CSR Policies, and voluntary industry standards. In each sector, we highlight mandatory sector RBC requirements which have to be met by issuers in order for BNP Paribas Asset Management to invest. We do this because if the activities in question are not conducted properly, then they could cause serious social or environmental damage (such as palm oil). In addition to the compulsory standards, we have also developed additional criteria that we encourage companies to comply with. The latter provides a good framework for further analysis and dialogue with companies.

We have another set of policies that commit us to exclude particular sectors or activities (tobacco, coal, controversial weapons or asbestos), as we deem them to be in violation of international norms, or to cause unacceptable harm to society and/or the environment, without counterbalancing benefits. These are generally sectors where engagement makes little sense.

Implementation:

We are committed to ensuring the consistent implementation of our Responsible Business Conduct policy to all open-ended funds managed or delegated by BNP Paribas Asset Management entities, but related exclusions are not currently applied to all client mandates. This is now the default approach for new mandates, and we will approach existing clients to seek their approval to apply the policy to existing mandates.

Affiliated entities over which BNP Paribas Asset Management or the BNP Paribas Group do not have operational control are invited to adopt this strategy and implement the components of our Responsible Business Conduct Policy. Where we use affiliates or external investment managers for our open-ended funds, we expect them to incorporate Responsible Business Conduct policies in line with our sustainable investment philosophy.

In applying our Responsible Business Conduct Policy, we take into account specific circumstances as they relate to the environmental, social and governance practices of individual issuers. BNP Paribas Asset Management bases its judgment on data gathered from issuers and third-party research providers, and does its best to gather relevant information. However, it is dependent on the quality, accuracy and timeliness of the information collected.

We strive to implement this Policy in the best interest of our clients and operate at arms' length from the BNP Paribas Group and its subsidiaries or affiliate companies.

Our Responsible Business Conduct Policy is publicly available on BNP Paribas Asset Management's website and is reviewed regularly in order to reflect the evolution of ESG standards and market practices.

 


LEI 05. Processes to ensure screening is based on robust analysis

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

          - Participation of the Portfolio Managers to ESG sector reviews with ESG analysts
- One-to-one interviews with companies by ESG analysts
        

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

We are able to assess ESG issues on both quantitative and qualitative aspects. The qualitative overlay takes into account a forward looking analysis based on the firm-wide strategy and ambition.

The ESG analysis of issuers is carried out by grouping companies into peer groups based on geographic, sectorial and sample size considerations. 

By creating a strong analytical framework around ESG research, the ESG team is able to make an independent judgement on companies' commitments to sustainable development, and assess the extent to which their results are consistent with those commitments.

Our proprietary scoring methodology combines a quantitative scoring methodology, which is currently being enhanced, and a qualitative assessment. It then enables an ESG ranking of issuers. This information is disseminated firm-wide: the results are presented formally to fund managers and financial analysts.

The ESG analyst monitors and follows the sector's ESG evolution and the companies' ESG behaviour throughout the year. When a company faces a relevant change and/or controversy, it will be monitored and a meeting may be set up with the company. Depending on the outcome of the meeting, the analyst may raise or lower the company's score and rating, and may or may not recommend to continue allowing portfolio managers to include it in portfolios.

As explained in section 04.2, Responsible Business Conduct and sector policies exclusions are reviewed quarterly - information from our external provider on UN Global Compact breaches is reviewed internally by our ESG research & Stewardship teams. They are then presented to the Sustainability Committee chaired by our CEO for final approval four times a year.

 


LEI 06. Processes to ensure fund criteria are not breached

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

          Updated exclusions and watchlist are sent to investment teams monthly.
        

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

Based on the UN Global Compact Principles, our sector policies and Sustainable + products that are Best in Class or thematic, the exclusion list and the buy list are programmed into our Compliance systems, which can block pre-trade and post-trade activity.

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

06.3. Additional information. [Optional]


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

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

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

All thematic funds follow a three-step process:

1) Controversies screening

All companies are thoroughly analysed to ensure they have not been involved in controversies due to poor practices. Companies that pass this first screen are compliant with the UN Global Compact, OECD MNEs Guidelines and BNPP AM sector policies.

2) ESG scoring

All companies are evaluated according to an ESG scoring process to assess their performance in terms of their Environmental, Social and Governance practices. In line with our ESG Integration Guidelines, portfolios avoid investing in companies belonging to the bottom ESG decile (10% of the total universe) without actively engaging (or planning to actively engage in the near future) particularly on the key issues identified, and such holdings need to be justified by additional qualitative analysis integrating ESG factors, working closely with the sustainability centre.

3) Contribute towards identified solutions

The environmental and social themes targeted vary depending on the fund, and will be clearly articulated in the fund’s investment philosophy and process documents. This will relate to the activities and business models that are investible for each sustainable strategy, and specify the detail about the activities included. For example, in the context of energy efficiency we may focus on sub-themes, such as: building energy efficiency, industrial and power. For each, we can further specify a list of technologies that are included and the conditions they need to meet. Companies must have coherent activities and a minimum exposure to the identified themes (e.g 20%). The documentation may also cover the potential controversies that may arise in any given sector, and how these may be managed/mitigated.


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

With the implementation of our Global Sustainability Strategy, all our actively managed investment strategies, covering all asset classes and geographies, now include the integration of material E, S and G criteria in their process. Our ESG integration process has been overseen by an ESG Validation Committee and is guided by formal ESG Integration Guidelines, including KPIs ensuring our portfolios display favourable ESG characteristics.

 


LEI 09. Processes to ensure integration is based on robust analysis

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

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

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

09.6. Additional information. [Optional]

In 2016, we developed an IT solution to store our ESG research and companies' ESG profiles. ESG scores are available in Aladdin, the firm’s front to back solution.

In 2018 and 2019, we appointed ESG champions within each investment team to help promote ESG integration within each investment team and to liaise with the Sustainability Centre. Trainings sessions are organised centrally, both for the ESG Champions as well as across investment teams, as we work to enhance the firm's overall capabilities on sustainability issues. 

 

 


LEI 10. Aspects of analysis ESG information is integrated into

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

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

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.3. Describe how you integrate ESG information into portfolio weighting.

Sustainable + funds with a Best-In-Class approach cannot invest in companies with a negative recommendation (corresponding to decile 8, 9 and 10), have a weight constraint on companies with neutral recommendation (corresponding to decile 4, 5, 6 and 7) and can be overweight on companies with positive recommendation (corresponding to decile 1, 2 and 3). This weight constraint has been put in place to guide these funds towards best-in-class companies.

Moreover, our full range of investment strategies now adopts a sustainable investment approach, involving the systematic integration of E, S and G considerations into investment processes. Our ESG integration process is guided by formal ESG Integration Guidelines, including KPIs ensuring our portfolios display better ESG characteristics, including targeting a higher weighted average ESG score and a lower carbon intensity than their benchmarks. These KPIs entail the overweight of holdings with a better than average ESG score and a lower carbon footprint.

 

10.6. Additional information. [OPTIONAL]


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