Change your investment perspective by considering their carbon footprint
18.09.2019 | Group, CSR
BNP Paribas measures the direct carbon impact of its activities as well as the emissions, within BNP Paribas Asset Management (AM), caused by its management activities for its clients. For Thibaud Clisson (TC), ESG senior analyst, and Bertrand Alfandari (BA), head of ETF(1) marketing and index solutions at BNP Paribas AM, it is key that investors – professionals and individuals – accelerate the shift or change their outlook concerning their investments within the framework of a low carbon approach.
What is carbon footprint and more specifically what is that of the portfolio?
TC : The carbon footprint of an activity is the measure of its associated greenhouse gas (GHG) emissions. The carbon footprint of a portfolio is therefore the measure of indirect GHG emissions associated with the investment choice. It is linked to the emissions of companies that make up the analysed portfolio.
What is the difference between direct and indirect emissions?
TC : Direct emissions are those directly generated by the installations owned or controlled by the company. They are known as “Scope 1”.
Indirect emissions are those from:
- The purchases of electricity, heat or steam necessary to produce the product or service; these are “Scope 2”;
- Emissions that are not linked directly to the production of the product or service, but to other stages of its life cycle, such as the extraction of raw materials, supplies, transport to the production plant, its possible recycling, the use of the product by its clients, etc., these are “Scope 3”.
How is carbon footprint measured?
TC : At BNP Paribas, to calculate a fund’s carbon footprint, we take the direct and indirect emissions of each of the companies included in it, weigh them by enterprise value (the sum of the capital market value and net debt), then by the weight of each security within the fund. This enables us to determine the portion of the company’s emissions that can be allocated to us, taking into account the percentage we hold in each company. By adding together the carbon intensities of each company in the portfolio, we determine the portfolio’s carbon footprint.
Photo : Thibaud Clisson
Where do you get all this information?
TC : The data providers may be firms specialising in climate analysis (such as Carbone 4) or international non-profit organisations, such as CDP (formerly the Carbon Disclosure Project). CDP has the biggest database on the environmental performance of cities and companies in the world. Since 2003, it has issued companies with a questionnaire in order to collect information on their greenhouse (GHG) emissions. Certain specialist subsidiaries of ratings companies or suppliers of financial indices - such as Trucost, part of Standard & Poor’s – may also provide this type of information.
What about at BNP Paribas Asset Management?
TC : BNP Paribas Asset Management has been committed to this issue for a long time. In 2008, BNP Paribas AM launched the first low carbon intensity ETF, the BNP Paribas Easy Low Carbon 100 Europe UCITS ETF. Since 2015, BNP Paribas AM has measured the carbon footprint of its equity funds according to scopes 1 and 2. Since 2019, BNP Paribas AM has calculated the carbon footprint of its equity and bond funds.
BA : For our index activities, the last 12 months have been marked by the launch of a fossil-free bond ETF (the BNP Paribas Euro Corporate Bonds SRI Fossil Free UCITS ETF) and by a tightening of the methodology used by the Low Carbon 100 Europe ETF. This has resulted in the permanent removal of fossil fuels.
How do you communicate with investors?
BA : We provide them with the carbon footprint of our index funds and ETFs upon request. We are also planning to include the carbon footprint of our ETFs on our BNP Paribas Easy websites and in the monthly reports of the various index funds and ETFs. This data will thus become an additional selection criterion for our clients, whether they are institutions, distributors or individuals.
Photo : Bertrand Alfandari
Are they sensitive to it? Do you see a change in behaviour?
BA : Over the last three years, the assets under management of the BNP Paribas Easy Low Carbon 100 Europe UCITS ETF has increased fivefold, and is now more than €600M*. This demonstrates investors’ passion for the low carbon theme, and certain investors’ awareness of the challenges relating to climate change.
Article 173 of the law on energy transition of 17 August 2015 defines the duties of disclosure of institutional investors as regards environmental and social parameters: they are now obliged to publish the incorporation of these criteria in their investment operations, they must indicate the green portion of their portfolios and the contribution of their investments to combating climate change and facilitating energy transition.
They must therefore provide information on the management of the climate risk and the carbon-based portion of their portfolios.
calculate a fund’s carbon footprint and offer carbon-free funds is a real advantage. This should become a necessity for all asset managers in the near future.
From this viewpoint, BNP Paribas AM’s capacity to calculate a fund’s carbon footprint and offer carbon-free funds is a real advantage. This should become a necessity for all asset managers in the near future.
Do you still see some reluctance regarding carbon-free investments?
BA: The main reservation stems from the fact that it is not easy for institutional investors to deprive themselves of stocks in oil companies, whose profitability and dividends remain high. In addition, a carbon-free portfolio suffers by construction from a sector bias compared with a comparable traditional index, which certain investors may find difficult to accept, particularly institutional investors.
That said, over ten years, the Low Carbon 100 Europe® NTR index has outperformed by 20.75% the Stoxx Europe 600® NR index, a traditional index on European equities to which it may be compared. A fund consistent with the 2°C scenario of the Paris Agreement may therefore be both meaningful and a performance driver!*
Furthermore, the Norwegian sovereign fund, with assets under management of USD 1,000 billion, announced in March that it was exiting the oil and gas exploration and production sector. If other large institutional investors are inspired by this and the trend continues, we may think that oil stocks will suffer as a result, and that this will not only have no impact on carbon-free UCITS but will even facilitate their performance through a knock-on effect. The last remnants of reluctance among institutional investors could even disappear on their own!
* Source: BNP Paribas AM at 28 June 2019
1 ETF: Exchange Traded Fund (index fund listed on a stock exchange)
Photo header : ©Asvolas
Investments in the funds are subject to market fluctuations and the risks inherent in investing in securities. The value of investments and the income they generate may rise as well as fall, and investors may not fully recover their investments. The described fund has a risk of loss of capital. For a more comprehensive definition and description of the risks, please see the prospectus and the KIID for the fund. Before subscribing, you must read the most recent version of the prospectus and free KIID available on our website easy.bnpparibas.fr. Past performance is no guarantee of future performance.