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Investors put new weight behind ESG mandates

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The majority of ESG allocations are going into actively managed equities strategies, and climate funds are currently a big focus for investors as they work to align their investment portfolios to net-zero emissions goals, managers said. Aligning to net-zero at the portfolio level means investing only in companies that also have a net-zero goal or a plan to adopt a net-zero goal.

“Climate change has always been the pre-eminent issue with ESG investing,” said Berenice Lasfargues, New York-based sustainability integration lead at BNP Paribas Asset Management. “Within climate change, recently there is an increased focus on how to decarbonize portfolios through specific net-zero allocations. That is being supported by improvements in company ESG disclosures specifically related to carbon, which are mandated in certain jurisdictions.”

BNP Paribas Asset Management plans to launch a net-zero road map later this summer to help investors that are new to decarbonization navigate the process. The road map is based on the ESG metrics research Ms. Lasfargues and others are doing at BNP AM’s Sustainability Center, which launched in 2018. The Sustainability Center anchors BNP’s firmwide sustainability approach, which was overhauled in 2019 to accelerate its commitments to sustainable investment and create a model that could be used to meet investor mandates.

The approach includes four components: ESG integration, stewardship, exclusions and a forward-looking perspective. Each of the components has its own metrics so progress can be measured and reported to investors. All components are implemented firmwide and across all assets under management.

“When we began our sustainability overhaul, we asked our portfolio managers to go through an initial ESG validation process, basically asking them ‘How do you plan to integrate ESG?’” Ms. Lasfargues said. “We understood that ESG integration approaches can vary by strategy and asset classes; however we were also able to drive some top-down consistency with our firmwide public ESG integration guidelines.”

BNP Paribas Asset Management reported $518 billion in global assets managed under ESG principles as of Dec. 31, up 28.2% from the year before, according to P&I data. That included $95 billion in ESG mandates, up 28.9% from the end of 2020. BNP’s overall AUM was $611.7 billion as of Dec. 31, up 3.8%.

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