Steering a sustainable growth path for Asia’s asset owners and investors
The stark and rapid shifts in economies and societies demand that long-term investors rethink how they analyse and select assets, and then manage their portfolios. This is easier said than done, especially against a backdrop of volatile markets and ever-sharper scrutiny by regulators and other stakeholders on whether processes and strategies adhere to agreed sustainability standards.
From BNP Paribas’ (BNPP’s) perspective, a “one bank” approach is the answer. It fosters innovative strategies, services and support to help Asia-based asset owners in more relevant ways, supported by a commitment to contribute to more sustainable and equitable growth.
Ramping up responsibly
At a group level, the bank’s ‘green’ goals are anchored in three core pillars: aligning portfolios with a firm carbon neutrality commitment; engaging with clients in their transition towards a sustainable and low carbon economy; and strengthening its internal sustainability culture and expertise.
To put this into practice, BNPP has made a number of commitments over the past 12 to 18 months that are also accelerating its journey towards its net-zero transition and decarbonisation status.
For example, by the end of September 2022, financing for low-carbon energy production had hit €28.2 billion (US$30.9 billion), including €24.8 billion for renewable energies – nearly 20% higher than financing for fossil fuel production.
This leverages BNPP’s expertise within its Low-Carbon Transition Group, with multiple targets in the bank’s sights for 2030: reaching €40 billion in outstanding financing for the production of low-carbon energies; reducing outstanding financing for oil extraction and production to less than €1 billion; and cutting outstanding financing for gas extraction and production by more than 30%.
Making ESG investing mainstream
To help solidify its role in the investment landscape as a leader in the green revolution, BNP Paribas Asset Management (BNPP AM) has made environmental, social and governance (ESG) integration a priority.
As of December 2022, for example, 89% of its open-ended funds were classified as either Article 8 or Article 9 under the EU Sustainable Finance Disclosure Regulation (SFDR).
Reflecting the firm’s unique ESG integration methodology and “3Es” strategy (energy transition, environmental sustainability and equality), it has developed a solid range of sustainable products and solutions, including in thematic funds and exchange-traded funds, said Crystal Geng, Asia ESG research lead at BNPP AM.
“Following the latest PRI Assessment Report, we scored 95% compared with a median score of 65% of the median of our peers in all categories, including in the Investment & Stewardship module. In addition, ShareAction ranked BNPP AM second against 77 asset managers’ approaches to responsible investment, with the highest combined score across social issues, biodiversity and climate themes,” she explained.
The firm’s strict exclusion and robust stewardship policies contribute to this. They also enabled BNPP AM to rank second, by ShareAction, for its proxy voting strategy on environmental and social issues, voting in favour of 98% of ESG resolutions.
A proprietary ESG rating and scoring system is another key part of the investment process. According to Geng, it now covers about 14,000 issuers working in partnership with a number of start-ups for better access to data, analysis and measurement tools.
Further, in line with its group-wide approach, BNPP AM launched a biodiversity Roadmap and published the first results of its research on the biodiversity footprint of its portfolios, plus launched its Net Zero Roadmap with 10 commitments targeting net zero portfolio emissions by 2050.
Navigating the ESG minefield
Reinforcing BNPP AM’s achievements, for the bank to become the partner of choice in the transition to sustainable finance, its ambition is to make investment and ESG analysis simpler, cheaper and faster for clients, to help them direct investment to a low-carbon economy.
Such a goal relies on being innovative. “We know that lack of access to top-quality ESG data is the main barrier to ESG integration. In response to the data challenge faced by asset managers and asset owners, we launched an ESG data, monitoring and reporting marketplace, Manaos,” said Franck Dubois, head of Asia Pacific for the Securities Services business of BNP Paribas (Securities Services).
In short, this enables institutional investors to store their fund data on a single platform to obtain a comprehensive and transparent view of their investments. “They can, in turn, estimate the ESG impact of their portfolios through a panel of innovative companies readily available on the Manaos applications catalogue,” added Dubois.
At the same time, to tackle the ongoing challenge of assessing a fund’s true ESG credentials, Securities Services – in several markets – now offers clients an automated post-trade compliance tool that monitors ESG criteria at asset and portfolio level. This involves screening portfolios against criteria to ensure investment rules – either restricting or including specific companies, countries, economic sectors or assets – are adhered to.
Keeping pace with change
More broadly, the bank has bolstered its offering to asset owners via its asset servicing and custody solutions.
Perhaps most notably, the Securities Services business line outperformed the market in 2022, achieving an 11% year-on-year increase versus 2021, to €2.6 billion, and becoming the number-two clearer globally. In addition, transaction volumes were up 5.1% year-on-year across the region.
“As the only European major global custodian, we’re dedicated to providing quality service, products and solutions to our clients. Our extensive global-local network presence and long-term partnership with clients contribute to our strong growth in APAC,” explained Dubois.
As part of its strategic vision, Securities Services is also growing its alternatives business. This proved successful in 2022, securing new clients and retaining 100% of its hedge fund clients.
“We are leveraging on our leading position in Europe to accelerate the build-out of private capital solutions across Asia Pacific, to support managers to access the rapidly growing private capital strategies,” added Luc Renard, the bank’s head of Securities Services for Southeast Asia. This includes access for clients to full digital reporting and analytics capabilities via Caplink Private.
Other new initiatives involve a Shariah-compliant cash-management solution. “We’re proud to be the first and only global custodian to offer a certified Shariah-compliant global custody solution. In order to complement this unique offering, we also developed an end-to-end Shariah compliant cash management solution that allows clients to leverage on the bank’s strengths to generate additional returns on their Shariah-compliant cash deposits – which is crucial for clients in Asian markets, particularly Malaysia and Indonesia,” said Renard.
Cross-border custody has also been a key area of growth. For example, AUM in traditional funds were up 15% in Singapore in 2022, of which 78% was sourced outside the territory.
“We safe keep 90% of clients’ assets in our proprietary custody network of 27 countries for utmost asset safety,” added Dubois.
Going forward, China and India are key growth areas for the Securities Services business of BNP Paribas. In China, the firm is preparing to expand based on the expected approval this year of a local custody licence to complement the legal set up where it already directly supports all access schemes. In India, Securities Services has seen recent successes for its integrated banking solution for foreign direct investors and foreign portfolio investors.