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Focus ESG Derivatives: Q&A with BNP Paribas Asset Management

Release date: 07 Feb 2019 | Eurex Exchange, Eurex Clearing

Focus ESG Derivatives: Q&A with BNP Paribas Asset Management

Responsible investing has become a major theme for institutional investors worldwide. More than $23 trillion in AUM are now invested according to environmental, social and governance (ESG) principles. Following the introduction of the first three ESG Futures on leading European Benchmarks of responsible investment criteria, climate impact and low carbon focus, Eurex spoke with Olivier Rudez, Head Flexible and Absolute Return Paris at BNP Paribas Asset Management, Multi-Asset & Quantitative Solutions, a leading global asset manager.

Olivier Rudez,
Head Flexible and Absolute Return Paris,
BNP Paribas Asset Management

What does ESG mean for BNP AM?

As a leading global asset manager, BNP Paribas Asset Management is committed to becoming a sustainable investor in all aspects of its business. We believe in sustainable practices for ourselves but also for entities in which we invest. Consistent with our fiduciary responsibility to act in the best long-term interest of our clients, we are committed to incorporating Environmental, Social and Governance (ESG) standards into our investment criteria and ownership practices by 2020. This Policy is consistent with BNP Paribas Asset Management’s adherence to the UN Principles for Responsible Investment (PRI) in 2006 and BNP Paribas Group’s commitment to corporate responsibility and sustainable development.

What role does ESG investing play in your portfolio management?  Seek more alpha or ‘just’ to manage unwanted sustainability risks?

ESG factors are incorporated into many of our strategies. We believe that ESG integration should help us achieve better risk-adjusted returns if our risk management incorporates ESG risks. We also believe we can make better investment decisions, based on a richer and deeper understanding of risks and opportunities, if we systematically and explicitly integrate ESG factors in our investment analysis and investment decision-making.

Is this just a short-term hype or a lasting trend?

We consider sustainability to be a long-term driver of investment risks and returns. We believe that, by integrating ESG factors in our investment process, we gain a deeper and richer understanding of the risks we face, and will, over the longer term, make better-informed investment decisions for our clients. The energy transition, environmental constraints and social inequality amplify the importance of this perspective.    

How do you foresee the evolution of ESG in the financial industry? Will there be further/more stringent regulations to impose stricter ESG mandates?

This is already the case and there is no reason for the progress to abate. ESG reporting guidance is led by stock exchanges and industry associations. In Europe, the Technical Expert Group’s objectives are to reorient capital towards sustainable investment, include sustainability issues in mainstream risk management and foster transparency and long-termism.

How important are exclusion criteria for you?

As long-term investors, we believe that we should use stewardship (which encompasses proxy voting, company engagement and policy advocacy), to influence companies and the world for the better. We believe that engagement is generally more effective than exclusion – although divestment can be a last resort. We expect companies to meet their fundamental obligations in the areas of human and labor rights, protecting the environment and ensuring anti-corruption safeguards, wherever they operate. We engage with companies where they fall short and exclude the worst offenders.

How important is the climate aspect for you?

Climate has been a key issue for us for some time now. Since 2002, we have been committed to taking concrete measures to tackle climate change to protect the value of our customers’ investments over the long term. Since 2003, we have been a member of the Institutional Investors Group on Climate Change (IIGCC) and involved in the fight against global warming. More recently, BNP Paribas Asset Management (‘BNPP AM’) appointed Mark Lewis as Head of Climate Change Investment Research within its Sustainability Centre. Furthermore, we were one of the first asset management companies to sign the Montreal Carbon Pledge and in 2015 we joined the Portfolio Decarbonization Coalition. We now measure the carbon footprint of 185 equity funds. We are also active members of Climate Action 100+, which was launched in December 2017 at the One Planet Summit. It is a five-year initiative led by investors to systemically engage with the top greenhouse gas emitters across the global economy that have significant opportunities to drive the low carbon energy transition and help achieve the goals of the Paris Agreement. Investors demand that companies improve governance on climate change, curb emissions and strengthen climate-related financial disclosures. We are currently the lead or co-lead on seven of the world’s top greenhouse gas emitters.

What role do Eurex ESG Futures play? (compared to ESG ETFs?)

The use of Derivatives and Futures notably is an important component of our portfolio management activities and can provide significant value to our clients from both a return and risk management perspective. Having, in addition, the ability to combine this with a sustainable dimension, represents for us a major improvement among ESG investment tools at our disposal. Complementary to our own core ESG ETFs growing offer, Eurex ESG Futures can be useful to reduce cash securities turnover or, for instance, tactically reduce an Equity market exposure while maintaining invested for the long term. It should enable us to manage the granularity of our client risk exposure more precisely while reducing trading costs.

About BNP Paribas Asset Management’s sustainable investment approach

BNP Paribas Asset Management has been a major player in this field since 2002. Since 2012, BNPP AM has implemented its own responsible investment policy, applying environmental, social and governance (ESG) criteria to its collective investments. It has also implemented BNP Paribas Group sector policies that ban investments in specific companies operating in controversial sectors. BNPP AM supplements this approach by systematically exercising its shareholder voting rights and through its participation in major organisations involved in these issues, thereby actively contributing to the public debate. BNPP AM has been a member of the Institutional Investors Group on Climate Change (IIGCC) since 2003 and was a founding signatory of the Principles for Responsible Investment (PRI) in 2006.  BNPP AM was also one of the first mainstream investment managers to sign the Montreal Carbon Pledge, in May 2015, and to join the Portfolio Decarbonization Coalition (PDC). As at 31 December 2018, BNPP AM managed EUR 222 billion of assets in strategies integrating ESG normative and sector screening, of which almost 37 billion in SRI strategies.


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