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Responsible business conduct – a major pillar of sustainable investing

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BNP Paribas Asset Management
 

What should investors expect from a responsibly run company? How should companies behave when it comes to issues such as human and labour rights, protecting the environment or anti-corruption safeguards?

At BNP Paribas Asset Management, responsible business conduct refers to what we as an asset manager expect of companies. This means, for example: using environmentally friendly technologies; engaging with stakeholders; providing clear and complete information; and ensuring product quality and reliability.

Our views are laid down in business sector policies. The policies set out mandatory environmental, social and governance (ESG) criteria that have to be met for BNPP AM to invest.

Additional ESG evaluation criteria are used for further analysis as well as dialogue with companies. Engagement allows BNPP AM to act as a good steward encouraging companies and other issuers of securities to improve.

Integrating responsible business conduct criteria in investment decisions

How does it work? Issuers of securities are screened periodically, using data from the issuers and rom external experts. There are industry sector that we simply exclude. These either are banned in some jurisdictions, or violate international norms, or they cause unacceptable harm. Excluded from investment: Tobacco, controversial weapons and asbestos.

In other sectors, BNPP AM uses minimum criteria to ascertain that business is conducted without an adverse impact on the environment or society. Below we discuss these sectors.

PALM OIL

BNP Paribas Asset Management believes that the Roundtable on Sustainable Palm Oil has made, and is making, a major contribution to the adoption of sustainability practices. As a participant in the Soft Commodities Compact, BNP Paribas Group is committed to aligning banking industry practices with the objective of achieving net zero deforestation in the sector.

BNP Paribas Asset Management will invest in this sector when palm oil is produced sustainably.

WOOD PULP

BNP Paribas Asset Management is focusing on sustainability areas including respect of local people rights and job development; job health and safety; and environmental management. We encourage companies – and their suppliers – to have a clear and stringent environmental management procedure for existing plantations.

We will, under certain conditions, invest in the sector since we believe that wood pulp can be produced sustainably and responsibly.

NUCLEAR POWER GENERATION

We invest only in companies that operate in countries with a proper legal framework, use appropriate technologies and have adequate health, safety and accident prevention measures.

Our guidelines apply to owners, operators and companies in the nuclear fuel cycle (i.e. uranium enrichment, fuel production, used fuel recycling, storage and disposal of nuclear waste).

AGRICULTURE

Environmental and social issues range from water pollution and child labour to food security and animal welfare. Climate change could endanger the livelihood of millions. Improper development could harm local communities and ecosystems.

BNPP AM supports the development of sustainable agricultural practices.

COAL

Implementing a tight exclusion policy on (i) the mining of thermal coal and (ii) the generation of electricity from coal is a major step in aligning portfolios to the goals of the Paris Agreement.

BNPP AM excludes companies that earn over 10% of their revenues from thermal coal mining and/or are responsible for 1% or more of global thermal coal production.

We exclude power generators with a carbon intensity above the Paris-compliant trajectory as set out in the Sustainable Development Scenario of the International Energy Agency.

CONTROVERSIAL WEAPONS

We do not invest in companies involved in controversial weapons, goods used for capital punishment and torture, and violating embargos on arms and internal repression tools.

ASBESTOS

BNP Paribas Asset Management does not invest in companies that own or operate asbestos mines and asbestos fibre production facilities.

MINING

Mineral resources are essential inputs to most sectors of the economy; they represents a key share of national revenue in some countries; this is rising demand from world population growth and infrastructure development and maintenance. However, these points should be balanced against concerns including land use, human rights and benefit-sharing issues.

BNPP AM does not invest in companies that, among other things, use child or forced labour, cannot provide a health and safety record and cannot report on water, waste, GHG emissions or land reclamation.

UNCONVENTIONAL OIL AND GAS

We will not invest in companies for which unconventional oil and gas represents a significant part of total reserves or total revenues and companies that own or operate pipelines or LNG export terminals supplied with a significant volume of unconventional oil and gas.

TOBACCO

The UN Global Compact excludes tobacco producers and/or manufacturers. In line with BNP Paribas Group’s halt to financing and investing in tobacco companies, BNPP AM has divested from tobacco manufacturers in all funds except for ETFs that replicate mainstream benchmarks.

FURTHER READING: Responsible Business Conduct Policy – March 2019 and Global Sustainability Strategy – April 2019


 

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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