fofsummit2019
Interview

Sustainable investment options bring new HNW clients to BNP Paribas

By Richard Hartung

While sustainable investments may have been an afterthought for wealth managers in the past, the increased client interest, investment opportunities or outperformance can give a competitive advantage to financial institutions that offer the right products.

  • More high net worth (HNW) clients are asking for sustainable investments
  • Sustainable investment  contributes in retaining clients during wealth transfer to next generation
  • Sustainable investments outperform comparable alternatives, in particular in emerging markets where companies are now building their sustainability strategies

Along with corporations focusing more on environmental, social and governance (ESG) factors, individuals are also looking for investments that provide a strong return and do good. While sustainable investing in Europe and North America may have received more attention in the past, investors in Asia are now also looking for sustainable opportunities. Kanol Pal, Senior Advisor Responsible Investments at BNP Paribas Wealth Management, explains how the bank has offers sustainable investments and is using them to bring in new customers.

Investors Want Sustainable Investments

There is strong and growing interest in sustainable investing from clients in Asia, Pal observed. Private investors, stakeholders, non-government organisations (NGOs) and the media are all building the ecosystem, which has resulted in more people asking about how to make sustainable investments. And when BNP Paribas explains the approach to people who are not aware of the concept, they quickly become interested. From a handful of investors two years ago, the number of their high net worth (HNW) clients making sustainable investments has grown to dozens.    

            As one example, Pal said HNW clients who are involved in real estate become very engaged when talk turns to green buildings and the team can follow up to offer sustainable investments in properties. Entrepreneurs who are running businesses and already practice sustainability through initiatives such as waste reduction are another group that becomes quite interested once they understand the concept.  

            Although millennials are among the most interested in sustainability, Pal said, they are often not in control of managing their family’s wealth. In a wealth transfer situation such as a father transferring wealth to a son or daughter, one of the first questions the next generation asks is often whether the bank offers sustainable investments.

Specialised Teams Identify Opportunities

One advantage BNP Paribas has, Pal said, is that the Group has a long history of focusing on sustainability. Indeed, the third pillar of the bank’s strategy is to make a positive impact on society. 

While critics of ESG complain about how data used for analysis is backward-looking, BNP Paribas Wealth Management takes a different approach and uses forward-looking ESG analysis. In addition to using input from data providers, the bank has a team of seven analysts who develop forward-looking analysis for ESG ratings for investments. That analysis, with a rating methodology from zero to five, covers all classes of investments, including equities and bonds. The analysts also screen investments using a list to avoid categories such as shale oil, coal mining or tobacco, and those in the exclusion list of UN Global Compact

            That process enables BNP Paribas Wealth Management to develop the right socially responsible investment (SRI) products for its clients, Pal said, and “having the right products helps us acquire new clients.” BNP Paribas Wealth Management structured the first sustainability bond in ASEAN, for instance, for a joint venture between tire company Michelin and an Indonesia conglomerate to finance a rubber plantation. “When we started to market it last year,” Pal said, “we managed to acquire new clients.”

Some clients who are active in philanthropy or impact investing also prefer investing in sustainable products, Pal explained, since the investments deliver a high financial return as well as social and environmental benefits. Impact investing enables them to keep philanthropic funds rolling over, so that they can do good for far longer.

A more recent trend, Pal observed, is a significantly greater supply of sustainable investments from asset managers eager meet growing demand. Leading institutional investors in Japan and Korea, for instance, have given sustainable mandates for the first time. The green bond market is also growing with support from institutions such as the Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA), and Hong Kong will soon issue the first sovereign green bond. 

Sustainable Investments offer Competitive Returns

One factor that makes sustainable investments so attractive, Pal said, is the competitive  financial return. “When we compare the MSCI World Index and the MSCI ESG Indexes, there is outperformance in ESG. When we do that in emerging markets, there is much stronger outperformance of the MSCI Emerging Markets ESG Indexes.” There are many types of products, he noted, including thematic funds, smart energy funds and a mobility fund, which have their own benchmarks. “We select those that have outperformance. We feel confident in proposing them to clients. We bring them financial returns.”

The reason for the outperformance in emerging markets, Pal explained, is that companies are now building up their sustainability strategy and the market recognises those initiatives. Big companies in Europe, on the other hand, have had CSR in place for some time.

Along with financial metrics, Pal said BNP Paribas is aligned to the UN Sustainable Development Goals (SDG). That said, the bank analyses financial performance first for all ESG funds. “Financial return is important,” Pal emphasised. “There are many types of ESG funds. Some outperform, some do not perform. We also map our products to the SDG, so what they do is helping promote SDG goals.”

            To increase clients’ and employees’ awareness on sustainability, Pal said the bank trains relationship managers and investment consultants about sustainable investments. The bank offers an online sustainability course from Cambridge University, organises events such as its flagship BNP Paribas Sustainable Future Forum, arranges private events for clients, and even sends some clients or entrepreneurs to classes at Cambridge.    

            While sustainable investments may have been an afterthought for wealth managers in the past, the increased client interest, investment opportunities or outperformance can give a competitive advantage to financial institutions that offer the right products.



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