BNP AM

The sustainable investor for a changing world

Lighthouse water pollution

BNP Paribas Asset Management has been working on sustainable investing for 20 years. In 2019, we crystallised our approach in our Global Sustainability Strategy. In 2021, we completed of our transition to becoming a sustainable asset manager by changing our tagline to ‘The sustainable investor for a changing world’. A strong component of our strategy has been our pledge ‘to make a substantive contribution to the low-carbon energy transition’.

We have bolstered this pledge by signing up to the Net Zero Asset Managers (NZAM) initiative. In this paper, we present our net zero commitments, covering investments, stewardship, and our operations.

Over the years, we have worked on multiple initiatives to address climate change and the energy transition.

What is covered by our 10 commitments

We will focus on listed equities and corporate bonds in the first phase in our move to net zero portfolio emissions. This translates into about half (50%) of our assets under management (AUM). This includes Article 8 and 9 funds under the Sustainable Finance Disclosure Regulation (SFDR). The commitments also apply to those funds and mandates that are managed in line with our Responsible Business Conduct (RBC) policy.

The commitments do not apply yet to mandates where clients have not signed up to our RBC policy, as well as money managed by our advisory and affiliate businesses and in sub-advised funds. They also do not apply to investments in securities issued by governments and agencies, derivatives and private assets (see boxes below).

As a leading proponent of the transition to a net zero future, we are working to continuously enhance the tools and metrics to assess exposure to climate risks and opportunities, and to track and report on our net zero commitments. We will steadily grow the proportion of our holdings that fall within the scope of our commitments to reach 100% by 2050 or earlier.


Sovereign bonds
Our net zero commitments do not apply yet to sovereign bonds, partly because we feel measures of carbon and temperature alignment are not widely agreed for this asset class and because, as asset manager, we have less direct influence on climate policy and policy outcomes.
Nevertheless, we currently assess the climate performance of sovereigns and aim to enhance these methodologies, so that we can have full confidence in including sovereign bonds in the scope of our net zero commitments in future. For instance, we use physical climate risk and climate mitigation policies as part of our ESG scoring model. To improve our assessment, we are working on estimating the carbon footprint of sovereign issuers.


Private markets
In this segment, most of our corporate, real estate and infrastructure funds are beyond the initial investment period, limiting our ability to change the emissions trajectory. However, we have already implemented climate change-related risk assessment methods in our private markets portfolios and intend to apply our commitments to future fund launches.


Investments

1 – Reduce the carbon footprint of investments (scope 1 and 2) by 30% by 2025 and by 50% by 2030 (versus 2019)

We believe the emission reductions we are targeting are consistent with the required cuts in global GHG emissions to achieve net zero emissions by 2050. This commitment includes scope 1 and 2 emissions. It will be refined or expanded once we evolve our approach to measuring scope 3 emissions.

We started measuring the carbon footprint of our SRI-labelled equity funds and mandates in 2011. In May 2015, we committed to progressively measuring and reporting the carbon footprint of our open-ended funds as signatories to the Montreal Carbon Pledge. Today, we systematically measure the carbon footprint of both equity and fixed income portfolios and our ESG Integration Guidelines include the objective for actively managed portfolios to have a lower carbon footprint than that of their benchmarks.

At the end of 2019, the aggregated carbon footprint of BNPP AM’s funds (under the scope of our commitment) was 91.72 tCO2/m€ invested. This is the baseline for the commitment1 in our net zero roadmap. We will aim to reduce this number by 30% by 2025 and by 50% by 2030.

reducing BNPP AM’s carbon footprint
Source: BNP Paribas Asset Management, October 2022

2 – Align 60% of investments with net zero by 2030 and all investments by 2040

To measure the net zero alignment of companies, we have opted for a proprietary framework largely inspired by the Paris Aligned Investment Initiative (PAII) Net Zero Investment Framework2. This triple-A (NZ:AAA) framework is based on widely recognized sources. It allows us to assess the alignment of each company to net zero. This classifies companies into three categories:

  • Achieving net zero: Companies already achieving net zero
  • Aligned to net zero: Companies with a pathway compatible with achieving carbon neutrality by 2050
  • Aligning towards net zero: Companies in the process of being aligned with a net zero pathway.

Sixty percent of our investments should fall into these categories by 2030 and 100% by 2040. This will put us on track to achieve full net zero portfolio alignment by 2050.

breakdown of in-scope corporate assets
Source: BNP Paribas Asset Management, based on TPI, SBTi, CA 100+ and CDP data, as at June 2022

3 – Exit coal-related investment – by 2030 for EU and OECD countries and by 2040 for the rest of the world

Using our existing Responsible Business Conduct (RBC) policy, we are restricting investments in coal to

  • Manage stranded asset risk
  • Improve the climate profile of our holdings
  • Avoid investing in the most climate-damaging activities.

We have progressively strengthened our coal policy since its inception.

Under this commitment, we exclude mining companies that do not have a strategy to exit thermal coal activities and power generators that will still use coal by 2030 in European Union and OECD countries, and by 2040 for the rest of the world.

For now, we will continue to use the IEA SDS scenario. We do not plan to adopt the IEA Net Zero energy scenario for power producers and segment our power generation carbon intensity benchmark regionally. Our priority is to align investments in other high carbon intensive sectors not yet addressed and align portfolios beyond power production.

4 – Increase investments in climate and environmentally themed solutions substantially

While the shift to a net zero carbon economy creates risks, it also generates significant opportunities in existing technologies such as wind and solar or new technologies such as clean tech. Trillions of dollars of investment will be needed, be they for climate adaptation or mitigation technologies3.

Today, BNPP AM is one of the leaders in sustainable thematic investment, with more than EUR 21.4 billion in sustainable thematic funds that focus on environmental, climate and social themes.

Beyond our existing strategies investing in climate and environmentally themed opportunities, we will continue to innovate and provide solutions for clients in line with our net zero commitment in multiple asset classes (equities, fixed income, passive investing, private markets, etc.).

5 – Partnering with our clients on their net zero journey

In our interconnected financial system, we must work together if we want to have a net zero economy by 2050. Accordingly, we will collaborate with clients and encourage them to join us in our efforts to reach this common goal.

This engagement will take several forms, such as:

  • Communicate regularly on our net zero strategy with periodic updates on developments and progress
  • Provide clients with educational and training tools on net zero
  • Publish thought leadership on climate change and net zero topics
  • Develop climate & environmentally themed investment solutions including metrics enabling clients to assess the net zero alignment of their portfolios
  • Work with institutional clients to provide them with tailor-made investment solutions.

Stewardship

6 – Vote for climate action

We expect companies to report on their GHG emissions. We want the world’s largest emitters to set a goal of net zero emissions by 2050 or sooner, backed by clear transition plans. We will support shareholder proposals as well as submit shareholder proposals of our own to accelerate corporate action in both areas.

We have incorporated climate change considerations into our proxy voting guidelines. Accordingly, we will use our votes to encourage companies to:

  • Properly report on all greenhouse gas emissions related to their activities (scopes 1 and 2 for all companies, scope 3 where appropriate)
  • Communicate or constructively engage with regard to their business strategy on climate adaptation or their climate lobbying strategy.
  • Set an ambition to achieve net zero emissions by 2050 or sooner.

For companies that do not meet our expectations, we will oppose resolutions on discharge of the board and management, board re-elections, and financial statements. We may consider how a company performs compared to peers in terms of climate strategy.

We will seek to apply our policies consistently in all markets.

Support for climate related shareholder proposals
Opposition to management proposals for social and environmental reasons
Source: Sustainability Report 2021 and BNPP AM data as of end-June 2022

7 – Engage companies on net zero

As a member of the Climate Action 100+ effort to engage with the main corporate GHG emitters, we are taking a role in dialogues with electric utilities, oil & gas companies and airlines in Europe, North America and Asia – three industries that are critical for bringing about the energy transition.

We are emphasising corporate climate lobbying in our engagements, and in particular activities that present significant risks to investors and our economies. We have helped launch the Global Standard on Responsible Climate Lobbying to evaluate corporate climate lobbying reports.

To promote sustainability, with a focus on deforestation and water, we have worked on the launch of Nature Action 1004 with other institutional investors. This is centred on reversing nature loss by engaging companies and policymakers.

We are also part of several other climate-related collaborative initiatives

8 – Advocate for climate policy

Beyond proxy voting and corporate engagement, it is critical for investors to engage in public policy advocacy to ensure everything is done to move society as quickly as possible to net zero.

More and more, investors are focusing on the importance of strong pro-climate public policy and the role that both investors and companies are playing in influencing that policy.

The biggest challenge in achieving net zero portfolio alignment is to get the global economy on a net zero path. Until this is realised, the investable universe for net zero investors will shrink. This underlines the importance of taking a forward-looking perspective and long-term engagement, also in public policy.

An example of our advocacy is our effort as a signatory of the Global Investor Statement to Governments on the Climate Crisis to encourage countries to bolster their contributions under the Paris Agreement and ensure an orderly transition to net zero.

Our operations

9 – Reduce our operational footprint

As a sustainable asset manager, our corporate practices and disclosures should match, or exceed, the standards that we expect from the entities in which we invest. This will reduce our negative impact on society and build a culture that is consistent with our investment philosophy.

We encourage employees to incorporate sustainability principles into their day-to-day activities, whether that is in investments, sales or operational roles.

To reduce our footprint, we have a three-pronged strategy called Mission Zero:

  • Cut emissions by improving our operations
  • Buy green energy where possible
  • Offset any remaining residual emissions.

To address the emissions intensity of our footprint, a number of our offices are powered by green or low emissions energy. Moving to flexible working and new ways of working will require less office space, reducing our footprint. Where we move offices, we will prefer green certified office space.

On our digital operations, we are engaging with suppliers on our environmental goals and adjusting contracts; we are converting old data centres into state-of-the-art facilities; we are striving to reuse and recycle IT equipment; we are educating staff on limiting the impact of digital activity.

On waste reduction, we are implementing a multi-year action including switching out of single-use plastic, running paperless competitions and establishing recycling streams for specialised waste.

We are working to ensure that employees have the latest knowledge on sustainability issues. We offer training programmes such as the CFA Certificate in ESG Investing and a course on sustainability and finance developed by BNP Paribas and the Cambridge Institute for Sustainable Leadership.

We have integrated sustainability goals with performance assessments, financial rewards and professional development. We have added to ESG targets to investment decisions. We will look at how these can be incorporated further in our remuneration philosophy.

Worldwide office buildings
Source: Sustainability Report 2021

10 – Report on progress

We will produce TCFD-aligned reporting, by both contributing to the BNP Paribas Group TCFD report and including a TCFD-aligned section in our annual Sustainability Report.

Similar to our expectation that the entities we invest in report transparently and extensively as a necessary step towards a sustainable financial system, we are committed to reporting regularly on our sustainability and climate-related activities and practices.

In the coming years, we will continue to work on improving our reporting for clients and regulators, notably on our climate and net zero capabilities.

Conclusion

This document presents the inaugural commitments by BNP Paribas Asset Management as part of our signing-up to the Net Zero Asset Managers (NZAM) initiative. These commitments build on the work done over prior years:

We aim to increase the amount of our assets under management included in our net zero commitments and strengthen our targets to ensure we reach net zero by 2050 or earlier. We look forward to working with clients, the companies in which we invest, peers and governments on achieving mission critical: a net zero economy by mid-century.

You can read more about these topics in our complete Committed to climate: Roadmap to net zero as well as our latest Sustainability Report

References

1 Note this reflects our exposures as of year-end 2019 with no re-baselining performed. If our firm-wide assets, region or sector allocation shifts dramatically over time (e.g. as a result of a merger or acquisition), we may apply a re-baselining methodology. If we do so, we will be transparent about the rationale and methods used.

2 https://www.iigcc.org/download/net-zero-investment-framework-implementation-guide/?wpdmdl=4425&refresh=61c444d8e6d101640252632
3 The Energy Transitions Commission estimates that to develop these technologies and others such as bioenergy to decarbonise aviation, heavy goods transport and agriculture, investment of USD 1 trillion to USD 2 trillion a year is needed. Adoption of low carbon technologies is forecast to grow exponentially over the next decades requiring an estimated USD 275 trillion of investment by 2050, according to McKinsey (2021).

4 An initiative focused on reversing nature loss by 2030

Disclaimer

  • Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. Past performance is not a guide to future performance. Investing in emerging markets, or specialised or restricted sectors, is likely to be subject to a higher-than-average volatility due to a high degree of concentration, to greater uncertainty because less information and/or less liquidity is available or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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