The BNP Paribas Climate Impact Fund obtained overall an average score because the portfolio is quite disappointing. It seems that a lot of efforts are dedicated to communicate and implement ESG policies at the scale of the BNP Paribas Asset Management (BNPP AM) activities. This global policy guarantees a rather good commitment to sustainability, yet the specific challenge of climate change is not met in their strategy. Except for selecting investments that have higher sustainability scores, no selective process to target ‘climate impact’ has been implemented. The grade could have been higher, but the disappointment lies in the fact that they advertise a specific sustainable target that they are not truly reaching for, and may therefore be considered greenwashing.
As of the 30th June 2021, BNP Paribas Climate Impact Fund represented 3.2EUR billion invested in equities across 52 different holdings. The US is the main geographical area targeted, with the remaining assets invested in Europe and Asia. According to the overview website page, Climate Impact Fund aims to invest in companies that have activities in “Renewable & Alternative Energy, Energy Efficiency, Water Infrastructure & Technologies, Pollution Control, Waste Management & Technologies, Environmental Support Services, and Sustainable Food.” However, the portfolio’s data tells another story, with Information Technology (32.33%) and Industrials (30.33%) representing the main industries of the portfolio. First, I struggle to see the link between the list of sectors that they claim to focus on and the portfolio’s data. Without further detail, I am unable to verify their honest commitment to sustainability, and it let me believe that BNP Paribas is greenwashing. Second, the failure to mention the direct impact of their investment on climate, which is included in the name of the fund and is supposed to be at the center of their strategy, raises further questions about the sincerity of their effort. It is necessary to dive into the detail of their portfolio to identify whether the fund management fails in communicating their impact or, in having an impact at all. Looking at their top ten holdings, I am very disappointed. More than half of these companies have a medium ESG risk score and are ranked badly in comparison to their competitors. The fund’s tolerance for companies poorly committed to sustainability is exposing their failed commitment to the environment. Even the more sustainable investments, which have low ESG risk scores, are not well ranked among the other companies of their sector. Overall, on this part of the portfolio, they have an average ESG risk rating of 20.1, which is classified as a medium score and is unacceptable for a so-called sustainable fund. What I especially dislike, is that they pride themselves on an environmentally conscious attitude that they are far from adopting, which is typical greenwashing.
It seems that the fund has a two-layered strategy that consists of applying the BNP Paribas global ESG (environmental, social, and governance) policy, and then adding further “sustainable filters” which are supposed to be designed according to the fund's particular challenges; for our case, impact on climate change. The Sustainability Centre of BNP Paribas “drives [their] approach to sustainable investment” by collaborating with the different teams to assess their investment through the spectrum of sustainability. Indeed, they have developed their ESG scoring methodology. The score of companies is made by assessing their performance against companies in the same peer group based on a limited number of ESG criteria relating to the environment (e.g. climate change), social issues (e.g. human resources management), and corporate governance (e.g. independence and competence of managers). BNPP AM uses several research and data sources (including Sustainalytics, ISS, and Trucost) to calculate the ESG scores of companies. If the issuer's commitments and practices on one of the assessment criteria (E, S, or G) are better than those of its competitors, it is assigned a positive contribution on that criterion. Each issuer is assigned a score from 1 to 99, which corresponds to a neutral base of 50 plus the sum of the contributions on each of the three evaluation criteria (e.g. 50 +2 (E) -1 (S) +3 (G) = 54 ESG global score). The global method is interesting because they are mixing different criteria and data. The main issue lies in the fact they have tolerance for companies that obtain negative results in the category E, S, or G. I believe that investment in companies that have positive results in all three categories should be encouraged. Their rating is too flexible and hence makes it less efficient to pinpoint sustainable investment.
This method is applied to all funds under the management of BNP Paribas, but for the 'impact' fund of BNP, which is dedicated to a sustainable purpose, the management is supposed to add a second round of selection. The explanation of their method is not precise enough, especially when it comes to defining the different criteria; indeed what does “climate change” mean? How do they assess that a company has a good or a bad “climate change” scoring? There is no clear effort made to make the fund more sustainable than the others. Overall, the BNP Paribas AM ESG strategy presents an interesting rating system, even if the decision-making on potential opportunities requires a more severe approach. The main issue lies in their pseudo-class of the 'more' sustainable fund, such as the one under our study, that seems to be a marketing strategy but isn't dedicated to a real sustainable purpose.
The fund is managed by BNP Paribas Asset Management and was created in 2009. I won’t analyze in detail the BNP Paribas Asset Management global ESG strategy, but by going through documentation, it is evident that the bank is putting some effort into shifting the culture of their institution to make sustainability part of all of their businesses. Many principles are outlined such as “engage with public policy,” “promote good governance practices,” or “have a responsible business conduct.” The bank has also created a program of “ESG Champion” within the investment team that is provided with training to keep them aware of relevant ESG market developments. However, the breadth and depth of these initiatives remain to be comprehensively assessed. I couldn’t find the precise name of the people managing the fund. BNP Paribas Asset Management has been given a top rating by the UN PRI for the third consecutive year in the latest report by the world’s leading proponent of responsible investment, confirming BNPP AM’s leading position as a responsible investor and its robust application of environmental, social and governance (ESG) criteria in its asset management processes. While I couldn’t identify the direct managers of the fund, I can guarantee that the top management has made a clear effort in the past decade to shift to a more sustainable approach to investing.