By the end of June, all of BNP Paribas Asset Management’s emerging market fixed income Ucits funds are expected to fully integrate ESG into the investment process, according to Jean Charles Sambor, London-based deputy head for emerging market fixed income.
By the end of the year, other emerging market fixed income mandates, including institutional segregated mandates, will also be fully compliant, he told FSA during a recent visit in Hong Kong.
The move is in line with the firm’s plan of integrating ESG factors into all of its funds by 2020. As of April, around €270bn ($304.11bn) of its €1.4trn AUM is currently integrating ESG in the traditional investment process.
Sambor noted that integrating ESG factors in emerging market fixed income strategies is difficult, adding that it took his team around three years to develop the process.
“It’s difficult because you don’t want a process that is only backward-looking and just work with a no-buy list. Emerging market countries also tend to be more opaque and not to have as good governance as their developed market counterparts, although it is improving very quickly.”
Sambor explained that his team combines both ESG scores provided by external data providers as well as forward-looking analysis made by his team and the firm’s sustainability centre, which now has 25 staff, which includes four in Hong Kong.
“The forward-looking analysis is needed because sometimes you have a lag in some of the data provided by external data providers, which sometimes could take a year or two for the ESG scores to reflect what had happened. The goal is to assess whether you will have an ESG deterioration or improvement.”
The fund manager claims that the process has helped the team identify red flags. For example, its EM fixed income strategies had very little exposure to Venezuela when the country had huge defaults last year.
“We saw that Venezuela was defaulting not because of low oil prices, but governance was deteriorating very quickly.
“We also [started to trim our exposure] to Brazil when it decided to withdraw itself from the Paris agreement last year, which for us is a sign that ESG is likely to deteriorate in the country.”