The Benchmark Sustainable Wealth Forum is a knowledge exchange where industry leaders and winners of the Benchmark awards are featured. The Forum covers the financial eco-system and discovers the inside out of the providers’ practices that lead to a more sustainable industry through responsible and ethical investing in protecting the investors across multiple generations. The inaugural series covers the Winners at the Benchmark Wealth Management Awards and the Benchmark Fund of the Year Awards 2020. The topics covered in the Asset Management Series include Investment Propositions, Sustainability, and ESG approaches, Investor Protection and Global Opportunities and Risks.
- Reasons for Energy Transition
- Risk Parameters
- ESG strategies
- ESG Standardization
- Going Forward
- Full Video
Key Learnings from a Profitable Business Model
This week, Elsa Pau sat down with Paul Milon, Head of Stewardship for the Asia Pacific at BNP Paribas Asset Management. The French international banking group has won several Best-in-Class awards in ESG investment, and what stood out the most was its Energy Transition Strategy.
ENERGY TRANSITION STRATEGY
Launching its Energy Transition Strategy in September 2019, BNP Paribas focuses on renewable energies, e.g., solar and wind energy, and energy efficiency, e.g., electric vehicles. In the face of an ever-increasing world population and its energy demand, BNP has principles that it abides by energy investment.
“… [we] invest in pure players that really bring solutions dedicated to that transition, or some larger companies that have been transitioning and growing their business that is dedicated to this energy transition and different segments of the energy transition."
“We make sure that we have at least 20% exposure to the energy transition theme so that we don't get exposure to a company that maybe has 5% of the business in energy transition and the rest in traditional energy systems," Milon explained.
With its astounding 188.4% return in 2020, BNP's Energy Transition Strategy sent out a clear and encouraging message to the market. When it comes to ESG and impact considerations, returns do not necessarily have to be compromised.
One of the biggest criticisms about ESG ratings these days is the lack of transparency. A mix of over 100 indicators means each metric has less than 1% weight, leading to difficulty gaining insights regarding a fund's fundamental ESG integration.
“We built our own proprietary ESG scoring framework, selecting for each sector only the most material, environmental, social and corporate governance considerations."
“On average, we have around 37 (metrics) per sector, which means that on average, the weight would be 2.5% for each metric. And within that, we also try to focus on metrics where we have good data availability, good data quality, and comparability. We don't want to select a metric that is only available for the largest 100 companies but not for mid and small caps. Then it creates a kind of bias in terms of information available," Milon elaborated.
With Asian utilities responsible for approximately 23% of global greenhouse gas emissions, it could be a problem for asset managers. If they steer away from funds that are not aligned with the Paris Agreement, that more or less means they walk away from everything and do not take part in the solution.
“So, in our coal policy … we set some threshold and decarbonization pathways , we set some expectation as well that you should commit no new coal," Milon added.
“But together with that, we also say that for companies that are not there yet today, that are too high in their carbon intensity, but they are taking reasonable steps towards aligning themselves, we have the option to exempt them. So, we put them on [a] kind of monitoring list which we review every year … there were two cases of companies [which] we thought last year [were] credible, that they were going to exit some coal power generation and coal mining. But we didn't see any progress or not enough, so we ended up excluding them," Milon continued.
BNP Paribas has been working hard on maintaining a healthy balance on investment approaches, portfolio performances, and sustainability investments to ensure this initiative is truly “sustainable" in the long run.
This episode is hosted by Elsa Pau, CEO of WealthAsia Group; with her co-hosts,
Agnes Tai, Director of Great Glory Investment Corporation,
Michael Au, Managing director of District Capital.