Spurred by the advent of new Environmental, Social and Corporate Governance (ESG) products, ethical investing has garnered considerable attention from investor circles in recent years. In the vanguard of this movement is BNP Paribas Asset Management (BNPP AM). In its 20-odd years of managing Sustainable and Responsible Investments (SRI) – the firm was one of the first asset managers to create a dedicated ESG research team in 2002 – BNPP AM has demonstrated that compelling fund returns and sustainable investing can go hand in hand. Mr. Alex Ng, Chief Investment Officer, APAC, at BNPP AM explained the team’s role in stewarding clients’ capital.
BENCHMARK (BM): BNPP AM prides itself on being a responsible asset manager. What drives your ESG commitment?
Alex Ng (AN): Ever since we started our first ESG-integrated mandate in 1997, our commitment to sustainability and ESG issues has been central to the way we conduct our business. As early as 2006, we became a signatory of the Principles for Responsible Investment (PRI). Later, in 2011, we ingrained our “Responsible Investment Policy” into our fund management. From then onward, all our open-ended funds began to adhere to ESG best practices, with specialized correspondents assigned to every investment team to oversee the inclusion of sustainable thinking.
At BNPP AM, “investing means the world to us” is more than a mere slogan. This commitment to investing responsibly is founded on our belief that profit-making is not the be-all and end-all of investing. We, as responsible investors, need to take a more holistic approach to asset management. To us, this vision is not just about embracing social values and addressing universal concerns that we share with the global community; it is also about investing in a brighter future, the prospect that we could bring about long-term rewards for both our clients and the wider society. Our passion for investing and sustainability is succinctly summarized by our tagline: “Investing means the world to us.”
BM: Would you say that integrating ESG factors into your investment process is more of a risk-management consideration than a return-enhancement strategy? Can ESG engagements be a profit driver?
AN: That’s a good question. According to the studies “From the Stockholder to the Stakeholder,” from the University of Oxford, and “ESG and financial performance: aggregated evidence from more than 2000 empirical studies,” from the University of Hamburg, despite the proven positive correlation between sound sustainability practices and stock-price performance, the misconception that integrating ESG factors would hinder portfolio performance still pervades the investment world.
At BNPP AM, we believe that incorporating ESG factors as a complementary investment filter to aid conventional financial analysis via an understanding of the relevant environmental, social, and governance challenges can help asset owners make better-informed decisions. Therefore, we see ESG integration as both a risk-mitigating tool and a potential return enhancer. While avoiding exposure to companies with subpar ESG standards – particularly in corporate governance – helps us reduce the risk of significant drawdowns, we also find that companies with sound ESG practices tend to demonstrate better business performance, which, in turn, can lead to better stock-price performance over the long term.
BM: We’re seeing an increasing number of Asian money managers advocating SRI. Do you think SRI could be a lasting investment theme in Asia? What kinds of challenges are the most common for Asian ESG managers?
AN: Without a doubt, we’re witnessing a growing interest in sustainable investment in Asia. This is an encouraging trend, especially since Asian investors were, until recently, relatively lukewarm to the idea of sustainable investing. According to the Global Sustainable Investment Review 2016, although the number of assets professionally managed under responsible investment strategies represented 26.3% of the total managed assets worldwide, in Asia, SRI investments only represented 0.8% of the total managed assets, showing that there is still much room for growth in Asia’s SRI market. Among the various sustainable investment strategies on our shelf, we have observed the greatest interest in thematic strategies related to sustainability problems, such as water, climate change, resource efficiency, and food supply.
As many Asian companies are not yet familiar with the concept of sustainable investment, one of the main challenges we face is information collection. In our experience, some companies are still reluctant to disclose ESG-related information, let alone engage with investors to drive positive changes. As the demand for SRI gains steam in Asia, we hope that companies will take even greater initiative to facilitate ESG investment in the future. BM