ESG services: BNP Paribas

​BNP Paribas Asset Management launched its ‘global sustainability strategy’, aimed at promoting a low-carbon, more equitable and inclusive economic model, back in 2017. As part of its investment road map, the asset manager argued that institutional investors have an “obligation” to help achieve the United Nations’ Sustainable Development Goals and the Paris Agreement.

“We typically demonstrate strong support – around 90% – for social, environmental and climate-related shareholder proposals. We also filed shareholder proposals, as part of our work on corporate climate-related lobbying,” Jane Ambachtsheer, global head of sustainability, tells Central Banking, speaking about the stewardship component of BNP Paribas Asset Management’s sustainability strategy.

Because of the climate crisis, environmental sustainability has become a priority in the financial and banking sector. Increasingly, members of the central banking community regard it as part of their mandate in addition to environmental, social and governance (ESG) standards being part of their social responsibility. However, greenwashing – when a company markets itself as environmentally friendly while engaging in harmful practices – is a serious concern.

Central banks are, in some ways, in a ‘trickier’ position than some other investors because of the exceptionally high transparency standards required of their investments and the potential signalling associated with transitioning to net zero,  explains Johanna Lasker, head of official institutions at BNP Paribas Asset Management. 

BNP Paribas has worked hard to help central banks develop their policies and strategies around sustainable investing. For example, it worked with one large reserve holder to quantify the carbon emissions associated with its portfolio, shared with another its sustainable investment expertise, and is helping the Monetary Authority of Singapore (MAS) build an ESG fintech ecosystem.

The relative scarcity and lower liquidity of green assets is also typically a limiting factor for central bank investment. Helping to alleviate this problem, BNP Paribas Securities Services has launched and supported the issuance of ESG sovereign bonds, including Slovenia’s sustainability and Chile’s sustainability-linked bond offerings in 2022. The team continues to analyse and monitor sustainable investments post-trade, via its Manaos platform to address greenwashing.

Aligning assets

The asset manager uses Trucost as its data provider to monitor firms’ carbon emissions. To help one central bank assess the carbon footprint of its reserves portfolio, BNP Paribas shared insights from its global sustainability strategy and its methodology for calculating carbon emissions of both sovereign and corporate bonds. It also provided proprietary formulas, informed by the work of over 30 experts in BNP Paribas’ sustainability centre, an official from an Asian central bank tells Central Banking.

Market capitalisation, concentration and low liquidity continue to be challenges to ESG investment, says the central bank official. This is in addition to limited data and issues around its quality and verification. While the central bank is also working with other partners, BNP Paribas’ contribution “ranks on top of other institutions”, the official says. The central banker adds that BNP Paribas helped develop its methods for investing sustainably, and while calculating the carbon emissions and carbons emissions intensity of its portfolio continues to be a work in progress, the BNP Paribas’ expertise contributed materially.

In a second partnership with another Asian central bank, the BNP Paribas Asset Management team provided training on its proprietary ESG scoring model, explained how to work with data vendors in the ESG area, and offered details of how the BNP Paribas Asian equities investment team used ESG within its investment process.

“BNP Paribas Asset Management’s approach to sustainability is based on a number of pillars including ESG integration, stewardship (voting, engagement), responsible business conduct policy and sector-based exclusions and a forward-looking perspective (the ‘3Es’: energy transition, environmental sustainability, equality and inclusive growth),” Ambachtsheer says. “BNP Paribas Asset Management’s proprietary ESG scoring methodology benefits from the expertise of our sustainability, investment and quantitative teams. It covers more than 13,000 issuers,” she adds.

Ambachtsheer says the firm’s ESG scoring methodology framework has “an absolute tilt” to reflect carbon emissions risks, “creating a positive bias towards issuers and sectors with lower carbon emissions”.

“We apply an additional layer of data quality and control as we transform the underlying metrics we source from third-party data providers. In some cases, we enhance, or supplement, our quantitative model by integrating qualitative insights, drawing on our first-hand knowledge of issuers. While research is carried out internally, we leverage on several external data providers such as Sustainalytics, Trucost or ISS to supply raw data – and we work to develop new approaches, such as the recent co-development of SDG Fundamentals with a fintech called Matter,” Ambachtsheer adds.

The firm is “continually striving to enhance its ESG research and know-how”, according to Ambachtsheer, by striking to use the “best fit-for-purpose data” for each use case. For example, the firm recently switched its provider for physical risk for its sovereign scoring, she adds.

In her work on MAS’s Sustainable Finance Advisory Panel, Ambachtsheer sits alongside other experts to help build a credible sustainable finance ecosystem in the region. Speaking about the first meeting, Ravi Manon, managing director at MAS, said: “We discussed the various issues pertinent to the net-zero transition – climate science, sectoral pathways, the nuts and bolts of transition financing, and the importance of adaptation finance in a world that has already begun to experience climate change.”

The global markets arm of BNP Paribas, meanwhile, has conducted work with governments to issue sovereign ESG and sustainability bonds. BNP Paribas acted as sole structuring adviser on the update of Slovenia’s Sustainability Bond Framework, and, in January 2023, it jointly led the €1.25 billion ($1.3 billion) offering of Slovenia’s second 10-year sustainable bond.

Last year, BNP Paribas also served as joint structuring agent and joint bookrunner on Chile’s $2 billion sustainability-linked bond offering. Chile became the first government to link its official Nationally Determined Contribution commitment on climate change to a bond issuance. The NDC is the amount of emissions parties to the Paris Agreement pledge to cut and the plans they have for adapting to climate change, which must be updated every five years. In December 2022, BNP Paribas ranked number one in the world for global corporate and government green bond issuance, launching over $19.5 billion equivalent, according to Bloomberg data.

Further, to help address issues around greenwashing, Manaos, developed by the securities services unit of BNP Paribas, launched a platform for institutional investors to manage their post-trade investment data. Central banks “are extremely vigilant” with regard to greenwashing, Florence Lubineau, head of central banks and multilateral development banks/supranationals for Europe in corporate and institutional banking at BNP Paribas, tells Central Banking. BNP Paribas’ strategic dialogues with central banks also cover how to measure the carbon footprint of monetary portfolios, she adds.

The securities services business line and Manaos Open ESG platform offer screening tools according to ESG credential for the portfolios of central banks, for their lent positions or the securities received as collateral, Nicolas Chastan, head of asset owner strategy for securities services at BNP Paribas, says.

Part of BNP Paribas’ work is to help enable central banks to understand discrepancies in carbon metrics, even from the same issuer. The firm is in ongoing close discussions with central banks regarding their ESG exposures, either from a risk point of view, due to conflated financial shocks, or from a positive impact perspective, across the value chain, Chastan adds.

The Central Banking Awards 2023 were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Joasia Popowicz, Ben Margulies, Riley Steward, Jimmy Choi and Blake Evans-Pritchard.