This article first appeared in The Edge Malaysia Weekly on February 20, 2023 - February 26, 2023

As one of the largest sustainable asset managers in the world, BNP Paribas Asset Management has to ensure it not only walks the talk but also convinces its investors and portfolio companies that sustainability makes financial sense. ESG spoke to the firm’s global head of sustainability Jane Ambachtsheer when she was in town late last year.

The interview has been edited for brevity.

ESG: BNP Paribas Asset Management has its own climate targets. How do you plan to meet these?

Ambachtsheer: Our current emphasis is on transitioning our focus on climate into our net-zero targets [to achieve net-zero portfolio emissions by 2050].

Our targets have three categories: investment, stewardship and our own operations. On the investment side, we’ve been working on reducing our carbon footprint for years. In 2019, we implemented a target for investment teams to beat a benchmark on carbon and ESG [environmental, social and governance] performance.

Another part is about [introducing] new green or climate-related investment themes. We have a significant line-up of active and passive funds focused on the energy transition, climate impact and low-carbon benchmarks.

Some companies are in higher-carbon industries that may not have a significant carbon footprint reduction but are making the commitment to [move towards] net zero.

In that case, we’re looking at how credible their commitment is. Is there board-level support? Do they have near-term targets? How are they reflecting [these targets] in their capital and operating expenditure?

We [also make sure we] support our clients. We have a large number of asset owners around the world who have signed on to net-zero commitments and need us and other [fund] managers to help them.

[As for] stewardship, that’s a big part of what we focus on. We have a climate-aligned voting policy. We do a lot of company engagement. We’re part of the Climate Action 100+ coalition and have partnered with several clients in the region to share our engagement notes.

Part of stewardship is public policy advocacy. The reason I’m in the region [now] is because I was appointed to the Monetary Authority of Singapore’s (MAS) new sustainable finance advisory group. There are 10 of us from around the world who are part of this group to discuss with MAS the role of net-zero commitments and transition finance.

This kind of discussion is important because, if we’re going to achieve net zero, governments have to put in place changes in the real economy that price externalities and create an economic pathway for companies to achieve net zero.

Finally, there are operations. We’re already reporting on what we’re doing around climate and have committed to Task Force on Climate-related Financial Disclosures (TCFD)-aligned reporting. Secondly, we reduce our own operational [carbon] footprint and waste.

Do you struggle to collect data from Asian companies?

We have local investment teams on the ground in many countries that engage with companies to get more information. We have a proprietary ESG scoring framework, and we buy data from third-party providers. We can also update the data and feed our own information into the system to generate our ESG scores.

The way we do all this is by using regional peer groups to come up with comparability. We’re not measuring Asian or emerging-market companies against European companies because they may be at different [levels] of development from an ESG perspective.

But we’re also really encouraged by regulatory developments in Asia, where we’re seeing the introduction of mandatory disclosures and a lot of work on regional taxonomies. I do think that access to data and information is improving and it’s something we’re continuing to work on.

What would you like to see in Malaysia?

Interoperability between different taxonomies and reporting frameworks is very important. As global investors, we’re looking globally and we want to be able to access the best, high-quality data that is consistent across markets.

Does sustainability or ESG investing completely exclude certain companies?

Green and thematic funds would typically have an investment thesis and focus on companies that have a certain threshold of their revenues associated with things like the energy transition. ESG, for me, is a broader term, and it’s really about trying to make sure you’re investing with your eyes open, so you understand the different risks and opportunities associated with the company.

Having an ESG approach doesn’t necessarily mean you’re going to exclude big parts of the economy. It’s that you’re going to work with companies, look for better performers and push companies to improve and reduce their risks, both in terms of consumer pushback against negative practices and stranded assets as we transition towards a net-zero economy. Certain assets will do better than others and certain businesses will need to transform. You don’t want to end up exposed to companies that are going to be less relevant in 10 years.

You integrate ESG into your investment process instead of just launching specific ESG funds. Why?

Our objective is to deliver long-term sustainable returns for our clients and we’re convinced that the best way to do that is to invest in a way that takes into account the massive pressures that we see in the economy. The focus on climate, the loss of nature and rising inequality — these issues are not just social or environmental. They’re economic. They do impact how economies, companies or countries perform. As investors, I think it’s our responsibility and opportunity to use our insights to make better investment decisions.

How do you engage with companies?

We work very closely with other asset managers, our clients and asset owners who may not have the resources to engage with companies but want to be part of the discussion. We are very active participants in the Asian Investor Group on Climate Change [for instance].

I think we’re stronger together. It’s much more efficient for companies when they have a group of investors encouraging them to take the same direction and make the same changes, as opposed to 10 different people asking for different things. We don’t want to distract companies from creating value.

That’s the whole point of the Climate Action 100+ coalition. We’re focusing on three things. We ask companies to have a net zero-aligned business plan, to have a climate-competent board and to provide investors with reporting aligned with the TCFD.

What is your voting policy?

We’re very active in using our vote. We tend to vote against management about a third of the time… Our voting policy is public and very detailed.

On climate, we updated our policy to include a few new things. One is to be clearer that we’re expecting companies to report on their carbon emission. We may vote against their management reports if we don’t see that disclosure. Often, we engage with companies around voting season to ask if they are planning to disclose it.

Another area where we updated our policy this year was for the say-on-climate proposals. (These are management-backed resolutions that ask shareholders to approve a company’s climate plan. It is non-binding in most cases.) I don’t think we’ve seen that in Malaysia yet, but we’re increasingly seeing it in other markets.

In 2021, we voted in support of about 75% of the climate proposals. This year, we voted against around 75% of them. In our voting policy, we articulated what we need to see in such a proposal to support it.

From 2021 to 2022, we saw an increase in the number of say-on-climate proposals and a lot of them were not as credible as they were the year before. That’s another way we use voting to send a signal to companies.

Diversity is another area where I believe there should be a lot of engagement. We expect women to hold 15% of board seats in most Asian markets and 30% in Western markets. Where we don’t see those numbers, we will vote against the election or re-election of male directors.

How can we build capacity in local asset management firms?

We have developed a learning pathway offering different training programmes that our own staff can participate in. There are a lot of good resources available globally and for Malaysian investors.

We’ve launched a CFA [-approved] BNP Paribas ESG Fundamentals course, which is a free industry training opportunity to get introduced to the basics of ESG. On the more advanced end, the CFA Institute has a full ESG training programme… CFA also recently introduced a climate programme with over 100 hours of study to help [participants] become more knowledgeable. These are examples of studies people can do online that provide them with global certifications while helping to increase local expertise.

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