Analysing investments using environmental, social and governance (ESG) criteria can help investors take into account a wide set of risks and opportunities. Scoring issuers of equities, bonds, etc. on ESG criteria can provide insights that contribute to assessing a company’s performance on material issues, and to integrating these into portfolio decisions.
At BNP Paribas Asset Management, we believe that it is essential to use our own scoring framework since there are limitations to relying on third-party models:
Such issues may cause an issuer to receive different ESG scores from different providers, obscuring their actual ESG performance. This is what we aim to address with our proprietary framework.
This is based on two critical beliefs:
To arrive at ESG scores that provide useful investment insights, we select metrics using these criteria:
Our scoring framework takes into account that ESG risks and opportunities can differ across sectors and regions.
We have divided issuers into 20 sectors and four geographical areas, creating 80 groups of geographical and sector peers. Beyond sector-specific metrics and weight, we use two measures for all issuers:
On top of refining and combining third-party data, we integrate insights from our Sustainability Centre’s research on material issues such as climate change, and our investment teams’ knowledge and interaction with issuers.
These qualitative insights are used:
The combined qualitative and quantitative ESG score ranges from 0 to 99, with issuers ranked in deciles against peers. Issuers that are excluded from investment (through our Responsible Business Conduct policy) are assigned a score of 0. ESG scores are updated monthly.
Our investment teams use ESG scores and research in a number of ways. They facilitate:
BNPP AM’s proprietary ESG scoring framework covers more than 12 000 issuers; uses a limited number of material, insightful metrics for each sector; is statistically rigorous, dynamic and forward-looking.
Thanks to such features, we believe our scores are a powerful tool to help investment teams generate long-term sustainable investment returns for investors.
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.
Investments in the aforementioned fund are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment. Source: BNP Paribas Asset Management.
UCITS OFFER NO GUARANTEED RETURNS AND PAST PERFORMANCES DO NOT GUARANTEE FUTURE ONES