At the core of all our investment processes, analysts and portfolio managers integrate a consideration of relevant ESG factors into their company, asset and sovereign evaluation and investment decision-making processes. As reflected in our investment beliefs, this process allows them to identify and assess areas of risk or opportunity which may not be understood by all market participants, and which provide them with a relative advantage.
The process to integrate and embed ESG factors is guided by formal ESG Integration Guidelines. Critically, to support the ESG integration process and make sure that all investment strategies managed by BNPP AM are run in line with the ESG Integration Principles we set out, we set up an ESG Validation Committee. Between Q4 2018 and the end of 2019, each investment team presented its proposed ESG Integration Process for review and validation.
We put below some of the common ESG Integration Principles, which apply to all the strategies that are in the scope of our sustainable investment approach.
· Sustainability is embedded in our investment philosophy.
· All investment teams will implement our Global Sustainability Strategy.
· We recognise that the level of ESG integration achievable over short to medium term horizons varies between asset classes and strategies.
· Some common principles for ESG integration will apply across all asset classes, while others are asset class or strategy-specific.
· Each investment team is fully responsible for their investment process, and all investment research, analysis and decisions resulting from the application of this process.
· Investment teams are ultimately responsible for the integration of ESG factors in their investment processes.
· ESG analysis on individual entities will concentrate on those factors deemed to be material for the respective sector by the Sustainability Centre, with input from the investment teams.
· Qualitative ESG analysis on individual entities will primarily be undertaken within the investment teams, in collaboration with the Sustainability Centre.
· We will avoid investing in a public entity without an ESG score, performing qualitative ESG analysis in the absence of a quantitative ESG rating.
· We will avoid investing in a private entity without performing ESG due diligence (which could include qualitative analysis, or receiving a completed ESG questionnaire).
· We will not invest in companies in violation of the UN Global Compact Principles, the UN Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines).
· Companies struggling to meet the standards laid down in the UN Global Compact Principles, the UN Guiding Principles on Business and Human Rights or OECD MNE Guidelines will be put on a watch list (or not invested in)
· We will implement BNPP AM’s sector policies, in collaboration with the BNP Paribas Group.
STEWARDSHIP AND ENGAGEMENT
· We will actively own our passive investments through stewardship, engagement and voting.
· We will avoid investing in a weakly rated entity without actively engaging (or planning to actively engage in the near future) particularly on the key issues identified.
· Holdings of weakly-rated public entities will need to be justified by additional qualitative analysis integrating ESG factors, working closely with the sustainability centre.
· As a last resort, we may disinvest from weakly rated entities which do not respond to engagement, and which show no sign that they will place greater emphasis on sustainability considerations in the future.
KPIS AND REPORTING
· Integrating ESG factors into our investment processes should have a measurable positive impact on the ESG characteristics of our portfolios.
· We should aim to hold portfolios with more positive ESG characteristics than their respective (invested) benchmarks. This includes holding portfolios with a lower carbon footprint than their respective (invested) benchmarks.
Note: The initial focus for this KPI is corporate issuer scores (e.g. sovereigns, derivatives and cash excluded at this stage).
All BNP Paribas AM portfolio managers have full access to ESG research and scores. This comes as a complement to their financial/fundamental analysis.