The trend of socially responsible investments is expanding and offers companies like BNP Paribas new opportunities and business models. Guy Janssens, speaker at the GFL 2018, talks about the development and grow of socially responsible investments at BNP Paribas.
Guy Janssens is in Belgium responsible for the management and the offering of the social responsible investments (SRI) like BNP Portfolio Fund of Fund SRI, discretionary and advisory SRI mandates.
Guy has started in 2000 as senior portfolio manager at MeesPierson. Being more and more convinced of the added value in using mutual funds in client portfolio’s he became in 2007 Senior Fund Specialist at BNP Paribas Fortis Private Banking. Focusing on portfolio construction he specialised himself in hedge funds and mixed allocation funds.
In 2011 Guy has changed his focus to sustainable funds and social responsible investments.
Socially Responsible Investments at BNP Paribas
How did you build up the portfolios in socially responsible investments (SRI) at BNP Paribas?
BNP Paribas has started in 2011 with sustainable mandates for private clients. SRI investments existed for many years and was mainly focussed on the institutional business (more than 90 percent of the market in Europe) Big institutional clients excluded certain sectors based on ethical reasons like weapons or tobacco. But we have also seen that professional clients invested sustainable to improve the risk return profile of the mandates. Especially long-term investors like pension funds.
This was for BNP Paribas the trigger to start with sustainable solutions for private clients. After the financial crisis in 2008, the company was looking for solutions to improve the long-term risk return profile. By combining ESG criteria with financial criteria BNP Paribas could succeed. Next to the improvement of the risk return the company saw also long-term trends investment opportunities. With climate and demographic changes we have seen that less fossil fuel, water consumption is needed. This offered a lot of new long-term investment opportunities.
BNP Paribas SRI portfolios are built by combining long-term trends like thematic investing (green energy, water, recycling, healthy food) with best in class sector solutions. The long-term trends would deliver extra growth in the portfolio and the integration of ESG criteria with a best in class approach should decrease our risks in the portfolios. The ideal mix for improving our risk return profile.
SRI as Successful Business Model
Why are SRIs so successful today?
BNP Paribas has seen a big success in our SRI mandates. Today two third of the companies’ new strategy mandates are SRI mandates. More than 50 percent of the clients have today a SRI solution. This can be 100 percent of the clients’ assets with a SRI strategy fund or a part of the client portfolio with a thematic SRI fund. There are two important reasons why we see such an increase of our SRI mandates.
First of all is the good (out) performance (last five years) of our SRI mandates versus the classic mandates.
Secondly, our clients want to have a better risk/ return in their portfolios. By integrating ESG criteria in our investment process we can reduce the risks. We have seen the last years that companies who are environmental, social and corporate governance laggards versus their peers are penalised on the stock exchange. Quality companies which are fundamentally fine and have a long-term perspective by focussing on the new trends (e. g. more transparency, less pollution, more respect or innovation) will outperform in the long-term. Thanks the increased information regarding ESG the company can make a better quality selection for each sector.
Third and not at least also very important is the changed awareness of the clients and society. Mainly the millennials and women want that decisions are not only made pure on financial reasons but also take into account social and environmental issues. We see this awareness is increasing with all our clients. This is also supported by the media and the public opinion. The world has changed and sustainability is now required!
Developed versus The Emerging World
How would you compare sustainable investing in emerging countries versus investing in developed countries?
In the development world, new regulations regarding social, environmental and corporate governance issues were established. Especially after the financial crisis regulations in corporate governance increased with the USA as the strictest followed by Europe and Japan. Also the COP21 in Paris had an impact on the environmental criteria (less CO2 emissions) in Europe. For the social issues we have seen a lot of improvement in the developed world. Respect of the human rights and the employee, gender equality, and independency of the board are today obligatory in the development world. If you can compare for each sector companies from development world with emerging markets, you will still see that the ESG profile of the developed company is much higher than in the emerging markets.
In emerging markets there are still a lot of problems regarding environmental (pollution) and social issues (human right and child labour). The good news is that companies of are best in class in emerging markets outperform the market. The MSCI Emerging SRI outperformed during the last five years the MSCI Emerging with three percent each year. This outperformance can be explained by the new sustainable attitude of the western companies who exclude “bad companies” in emerging markets. There is today still an important investment opportunity by investing in the best in class companies in emerging markets.
SRIs in Future
How do you think will the sustainable investing approach change in future?
Sustainable investing will become in the longer term mainstream. We see certainly a positive trend. More and more big institutional investors are choosing for excluding controversial sectors and integrating ESG criteria. This is also the case for BNP Paribas. As an European leader we can engage with companies and financial institutions to improve their sustainability. Our investment offering has a target of becoming 100 percent sustainable. In ten year time we could expect that the investment world would be sustainable like the Scandinavian region in Europe. As more and more important actors are investing sustainable, SRI investments should be rewarded.
Graph explaining good outperformance of SRI in EM Equities:
We see this positive trend to continue in the coming years. The major European banks and asset managers leading the sustainable trend and will encourage the other financial institutions worldwide to adapt. At the end we will have a better world for the clients, companies, and society!
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