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RI Interview: BNP Paribas AM’s Ambachtsheer on TCFD, global sustainability strategy and Climate Action 100+

The former Mercer RI head made a high profile move to the French asset manager in 2018

Climate change is primarily a social, not an environmental issue. That is the view of BNP Paribas Asset Management’s Global Head of Sustainability, Jane Ambachtsheer.

“It is important to do all that we can as an industry to communicate that climate change is not solely an environmental issue, it’s also a social issue,” she tells RI. “It’s people who suffer the impacts of unmitigated climate change. And it’s the world’s most vulnerable people, be they in developed countries and emerging countries (and often those who have done least to cause climate change) that are likely to be harder hit. So mitigating climate change and thinking about the ‘Just Transition’ is important in the near term, but also in the long term. It should be a core component when thinking about climate change.”

BNP Paribas Asset Management (BNPP AM) is a signatory to the Just Transition investor pledge – promising to integrate workforce and social considerations into climate and low carbon investment practices. In support, it recently translated a report on the Just Transition into French and Spanish.

Like most major investors, climate change is high on its agenda. In the Spring, it announced its Global Sustainability Strategy. Headline commitments were a promise to fully integrate sustainable investment across its €421bn in assets, linking executive pay to this.

It came around six months Ambachtsheer moved to the French giant; she says it was “too good an opportunity to turn down”. She had spent 18 years at consulting firm Mercer, where she was a partner and oversaw its responsible investment business, which she founded in 2004.

She oversaw a series of influential reports analysing different climate change scenarios – now a major subject in the debate around climate change and financial risk. The firm’s work with US public pension funds on climate change was highlighted by the Obama Administration in 2015.

BNPP AM has gone on to hire an additional 14 people to its sustainable investment team (bringing the number to 24), including respected climate change researcher Mark Lewis as its Global Head of Sustainability Research, “one of my early moves was to recruit Mark,” says Ambachtsheer, who shared time with him as a member of the Task Force on Climate-related Financial Disclosures (TCFD).

In six months, the team has developed the Global Sustainability Strategy, building on existing work at the company. It was launched by CEO Frédéric Janbon in March with a stark warning: “We are at a crossroads: now is time for decisive action by the financial community to play its part in helping achieve the sustainable future we need.”Janbon spoke of the urgency of the climate change crisis, and not being able to wait for policy makers to act. “We have to encourage governments…low carbon inclusive growth is deeply in the interest of our clients longer term. Because not doing it will penalise them over the long term.”

Broadly, the Global Sustainability Strategy has four pillars that outline what ‘sustainable investment’ means at the firm, which is part of the world’s eighth largest bank by assets: ESG integration, stewardship, responsible business conduct expectations (which Ambachtsheer says is really exclusions) and ‘a forward looking focus’ that Ambachtsheer calls a unique element.

“It would be great if the IEA developed a 1.5 degrees scenario.”

The ‘forward looking’ pillar looks at issues shaping ‘the economy of the future’ such as the energy transition and inclusive growth.

Relating to the energy transition, a key focus is the carbon intensity of its investments to meet the firm’s target to align with the Paris Agreement by 2025, including a heightened focus on coal for both miners and power generators.

Ambachtsheer explains: “Competitors that exclude power generators tend to be focused on a revenue-based metric (how much of a company’s revenue is derived from coal). We are saying that we know what the International Energy Agency (IEA) thinks is broadly compatible with the Paris Agreement and that is a carbon intensity that falls over time from 491 gCO2/kWh per hour to 327 gCO2/kWh hour by 2025. We plan to exclude companies that are outside that threshold, except where they can demonstrate that they are making the investments and changes required to get in line within a set period of time.”

Ambachtsheer says she believes BNPP AM is the first asset manager to focus its coal exclusions on carbon intensity rather than revenues. She also admits its approach has limitations.

“The IEA Sustainable Development Scenario, which is the most widely referenced scenario, and the one pointed to in the TCFD recommendations, has only a 50% chance of staying within 2 degrees. So it’s not fully Paris-aligned. It would be great if the IEA developed a 1.5 degrees scenario. But this is the one we have right now.”

Every year BNPP AM’s expectation for the carbon intensity will increase – meaning in practice the threshold (for carbon intensity of power generation) will be lower. It also means that the organisation will likely be completely divested from coal by 2025.

“Power generation represents roughly a third of emissions globally,” says Ambachtsheer. “And 100% of carbon reductions between now and 2025 – according to the IEA scenario – must come from a shift away from coal.”

She says BNPP AM is also looking at decarbonisation pathways and scenarios for other sectors. But “it’s a coal story for the next five years,” she says.

Along with its focus on power generation, stewardship and policy engagement is a big part of its plan to tackle the climate crisis.

Ambachtsheer is still a TCFD member and notes BNPP AM is working on its TCFD report. Its deputy global head of sustainability, Helena Viñes Fiestas, is a member of the EU Technical Expert Group helping develop EU policy on sustainable finance and on the board of IIGCC – the Institutional Investor Group on Climate Change.

Ambachtsheer says BNPP AM is the lead on two unnamed Asian companies for the Climate Action 100+ initiative; it has a big presence in the region.

It also leads or co-leads on seven names in Europe and a handful in the US.

“I think it has more potential on shareholder engagement on climate than ever before. And we are already seeing wins,” she says of the initiative.

Ambachtsheer also highlights the project’s focus on political lobbying. “It’s one of the topics we’ve been very involved with in asking companies to be more consistent around their public position on climate change and their involvement in industry lobby groups not supporting the Paris agreement.”Separately to Climate Action 100+, Ambachtsheer thinks the financial sector has to get better at lobbying on climate change issues. “Finance and health are the two sectors that spend the most on lobbying. So even if we took 1% of that lobbying spend and redirected it towards lobbying on climate mitigation it would have a big impact.”

The Global Sustainability Strategy does have a major focus on climate change, but natural capital, diversity and tax transparency are also elements. A recent hire, Adam Kanzer who joined from SRI firm Domini to be US head of stewardship, helped develop of set of principles on tax transparency from Richard Branson’s B-Team .

The firm’s ESG integration guidelines stipulate that portfolio managers should not make investments without having an ESG point of view.

“ESG data is imperfectly reported and inconsistently used – our portfolio managers will have an advantage if they have a full picture. But note, low scoring companies aren’t excluded – they just require extra focus, and likely, an engagement plan.”

Investment strategies also need to have a better ESG score than the relative benchmark and a lower carbon footprint. Executive remuneration will also be linked to sustainability targets.

“We have four CIOs who are responsible for equities, fixed income, private debt and real asset, and multi asset and quant strategies,” says Ambachtsheer. ‘They all have sustainability KPIs (key performance indicators) included in their objectives so a core part of their success, and the success of their teams, hinges on successfully achieving the implementation of our sustainability strategy.”