Rigorous research is a critical component of climate investment

The journey toward net zero is under way, but financing the massive economic and societal changes needed will require better information and more advanced methodologies for understanding and sharing it. This was the main takeaway of the Fourth Annual Global Research Alliance for Sustainable Finance and Investment (GRASFI) conference in Beijing in early September, sponsored by BNP Paribas Asset Management.

GRASFI comprises 29 global universities which have joined forces to promote multi-disciplinary academic research into sustainable finance and investment. It aims to strengthen dialogue between banks, academics and policymakers and empower them to make science-based decisions when taking action about climate change.

“Research is a stepping stone to the future – it helps us solve complex issues, including how to measure climate investments,” said Steven Billiet, APAC CEO and Head of Global Client Group, BNP Paribas Asset Management, in his keynote opening speech at this year’s conference in Beijing – GRASFI’s first in both an emerging economy and in Asia. “We have supported GRASFI from the start because we want to be a future-maker and have a positive influence on the world around us,” he explained.

Paying for change

Climate investment is a key driver for governments and business to align their activities with the Paris Agreement’s goal to achieve net-zero by 2050. With nearly 130 asset managers committed to net zero, and $35 trillion in professionally managed assets now labelled as green, momentum to decarbonise portfolios is building around the world, including Asia and especially in China, ahead of COP26, with the new Biden Administration.

However, many investors are still cautious and remain wary of greenwashing due to the absence of clear policies and comparable standards is resulting in inconsistent corporate ESG reporting: “Investors still find it hard to access good ESG information – they need quantified, standardised methodologies,” Billiet said. “Not having these in place limits comparability between investments and causes misunderstandings.”

This is where partnership with academic researchers is beneficial. “There are complex risks for investors in climate change and biodiversity loss: thorough research is needed to understand the scope of the problem, quantify the risks, and develop new products tailored to meet demand,” he explained.

Communication is key

Solving this complexity depends on good communication: both corporations and investors need to disclose the climate-related risks inherent in their business. “Everyone must tell their stakeholders what steps they are taking,” said Billiet. “Robust science-based frameworks promote stronger dialogue between banks, academics and policymakers.”

Investor engagement is a powerful tool For investors, engagement is a powerful tool. BNP Paribas Asset Management uses its rights as a shareholder to pursue its ESG goals: “As an active shareholder we take regular stock of how we vote on climate change and board diversity,” said Billiet. “We opposed 34% of resolutions this year and proposed 700 resolutions.” The asset management arm of the Bank also reports on this activity, highlighting companies whose disclosures fall short. “We are in regular dialogue with these companies,” adds Billiet. “We work closely with them to promote best practice.”   Existing frameworks have set the asset management industry on a common path, and the global financial industry has been an important catalyst for change. “BNP Paribas Asset Management is a committed sustainable investor – we were the first to integrate sustainability across the full range of activities: ESG is part of all investment decision-making,” he pointed out. “We have committed to a firm-wide approach for all investments and asset classes.”

Regulators are playing a key role too: they want to change corporate behaviour by putting companies under pressure to set achievable targets and be more transparent. “We are reaching a major turning point in how companies are run: climate change and sustainability will be at the top of companies’ agendas for years to come,” Billiet said. “Ultimately companies not willing to transition will be divested.”

We are reaching a major turning point in how companies are run: climate change and sustainability will be at the top of companies’ agendas for years to come. Ultimately companies not willing to transition will be divested.

Steven Billiet, APAC CEO and Head of Global Client Group, BNP Paribas Asset Management

Recent policy changes in China show a promising development: “China’s regulators are developing mandatory disclosure for all financial services. Using the EU green taxonomy as their template, they have already updated their catalogue for green finance so that it excludes coal.” This is particularly significant as China accounts for about a third of world emissions, so any transition without China will be pointless.

Natural and social capital

Sustainability involves more than climate change: it must address biodiversity and natural capital. On 30 September, the Taskforce on Nature-related Financial Disclosure (TNFD) announced the appointment of 30 senior executives from financial institutions, corporates and service providers as Taskforce Members to drive work on the TNFD framework.

The TNFD and COP15, the lesser-known COP for the Convention on Biodiversity are pushing biodiversity and natural capital to the top of the agenda, at the same level as climate change.