Two years ago BNP Paribas Wealth Management set itself the goal of passing the €2 billion euro mark for responsible investing on behalf of its clients. By June this year, these investments had reached over €3 billion euro, showing consistent annual growth for four years in a row.
In 2007, at a time when client demand was still dormant, the Private Banking arm of BNP Paribas took the pioneering step of launching a Sustainable and Responsible Investment (SRI) range of products. Nowadays, the international business and finance climate, the well-established pedigree of SRI products, and the fact that investment specialists are generally more in tune with social trends, have led to the emergence of new requirements from investors and encouraged the business line to place greater priority on a socially responsible approach to the investments it recommends.
Over the years, BNP Paribas Wealth Management (WM) has built up a broad, diversified SRI and Impact Investing* range, coupled with a business development strategy and a specific methodology for putting forward investment products and services designed to meet the new needs and expectations of clients today.
Last year, BNP Paribas Wealth Management’s efforts in this field were recognised at the 2013 Global Private Banking Awards organised by The Banker magazine in conjunction with Professional Wealth Management magazine, where WM was named Best Private Bank for Socially Responsible Investing.
*Impact Investing is an investment strategy which seeks to bring solutions to key development issues while generating a financial return.
Steady increase in SRI at BNP Paribas Wealth Management
Only a short while ago, promoting Sustainable and Responsible Investment still called for considerable efforts on the part of private banking staff to identify potential SRI clients and provide them with all the necessary support to understand this new approach, but today there is a spontaneous demand for SRI products.
Besides, in contrast with institutional investors, private individuals do not generally have the time to closely examine the highly specific criteria underpinning SRI. Extra-financial rating agencies assessing SRI funds draw on as many as a hundred criteria when analysing a single company. What individual investors are more interested in however is to obtain a real indication of the impact their investment makes, ideally relating directly to their own interests as a consumer, entrepreneur, and so on, including clear proof that their investment is being used for instance to promote fair trade or foster employee well-being.
This is how the team in charge of selecting SRI funds at BNP Paribas Wealth Management chooses funds whose strategy demonstrates commitment to precise Environmental, Social and Governance (ESG) criteria. Our investors are offered investments in areas as diverse as microfinance, social entrepreneurship, water treatment and energy efficiency.
A winning combination of financial performance and social usefulness
It is difficult to draw systematic conclusions about the performance of SRI, especially given the diversity of possible strategies – multi-sector or by theme, multi-asset-class or equity-oriented investment, etc – but it is now generally recognised that using ESG criteria for asset management does not imply any financial under-performance.*
Investing in an SRI fund can imply good financial performance. This type of fund may in the long term out-perform indexes of choice as holdings are selected according to a very rigorous process.
For example, the SRI Mandate which is one option under BNP Paribas Wealth Management’s discretionary management service comprises a rigorous selection of funds chosen both for their financial and extra-financial soundness**, showing returns that are in line with traditional investment strategies, even slightly out-performing traditional investment vehicles over the last three years (figures to mid-July 2014).
Investments respecting Environmental, Social and Governance criteria, also paying special attention to the sustainability of these companies’ business models, will enable SRI funds to perform well over the long term. This also depends of course on highly-skilled fund management that is able to improve the risk/reward ratio.
* Performance financière de l’investissement socialement responsable (ISR): une méta-analyse, (Financial Performance of Socially Responsible Investment (SRI): A meta-analysis), C. Revelli and J-L Viviani, 2012, http://fcs.revues.org/1222. The paper provides research on 61 studies on the subject since 1972.
** See ‘SRIness Rating’, BNP Paribas Wealth Management’s own proprietary fund rating methodology, detailed below.
Responsible products and services for all clients
Since BNP Paribas Wealth Management first became involved in Sustainable and Responsible Investment, we have always taken what is known as a ‘positive’ approach. This means WM actively seeks out and supports players in the economy who make an effort to meet the needs of people today without compromising the ability of future generations to meet their own needs.*
Having adopted this demanding course of action, WM has developed a specific business development strategy designed to approach clients who are likely to wish to align their wealth management strategy with their personal values. Whether the client has a still-dormant desire to make a positive social and environmental impact, is just beginning to think about it or already fully convinced, the wide, diversified range of products and services in BNP Paribas Wealth Management’s SRI and Impact Investing range is able to provide suitable options.
As there are no international standards in this field, WM has created its own fund rating system. The methodology assesses the degree to which a given fund manager uses ESG criteria when selecting assets. Each fund is given an overall rating – the SRIness rating – indicating its extra-financial calibre. The rating is shown using the ‘clubs’ symbol, from 1 to 5.
Using this methodology, the SRI and Impact Investing team offers a socially responsible portfolio analysis service, with recommendations targeted on specific topics, specific investor profiles, or overall portfolio management strategies which align with socially responsible criteria.
For some areas of investment, such as social entrepreneurship, WM offers a range of products, depending on the investor profile, which meet practical social and environmental criteria. Through a special partnership with the asset manager PhiTrust Partenaires, BNP Paribas Wealth Management clients can help to finance Ecodair, an organisation which today employs 61 workers with mental disabilities who recondition computer equipment; Tagattitude, a mobile money platform for developing countries which has so far resulted in close to 300,000 people starting to use banking services; and social housing building firm Chênelet, which has provided stable employment to over 80 people following in-company training.**
BNP Paribas Wealth Management also distributes a WM-created structured product which enables clients to take advantage of the growth potential of 30 European stocks which have been chosen especially for their impeccable environmental, social and good governance practices in collaboration with the extra-financial ratings agency Vigéo. In addition, BNP Paribas Wealth Management itself makes a matching investment equivalent to the capital the client invests in organisations and projects which meet social and environmental criteria, under the auspices of Forum Ethibel, a Belgian independent advisory and research organisation for Corporate Social Responsibility and Socially Responsible Investing. Among the eligible organisations are also NGOs in the economic development and healthcare sectors – such as the Red Cross – retirement homes and social centres for young people from disadvantaged backgrounds.
* Definition of Sustainable Development, 1992 Brundtland Report
** PhiTrust Partenaires Annual Report 2013
Example of a teaching video on SRI available on the BNP Paribas Wealth Management website – made as part of the ‘Meet the Experts’ campaign:
About BNP Paribas Wealth Management (www.wealthmanagement.bnpparibas.com)
BNP Paribas Wealth Management is the world’s 5th largest private bank, present in some 30 countries. Over 6,300 professionals, based in every major financial centre, provide a private investor clientele with solutions for optimising and managing their assets. The bank has €295 billion worth of assets under management (as at end June 2014).