Stewardship: an underrated gamechanger

Divestment is often touted as the most effective way for investors to steer the market away from highly-emitting activities. But one lesser-known tool can prove even more potent. Its name? Stewardship.

• Simply put by the Financial Reporting Council , stewardship is the “responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society”. The concept rose to prominence in 2010, when the UK unveiled its first Stewardship Code, encouraging institutional investors to actively monitor corporate governance in their portfolio companies. Since then, stewardship’s efficiency has been widely proven: “firms are stepping up their environmental and social performance because investors are asking for it”, writes a team of researchers in the Journal of Financial Economics.
• Beyond interacting with investee companies on sustainability issues and engaging with regulators to help shape the rules that govern corporate behaviour, the cornerstone of stewardship remains voting. By voting at annual general meetings, investors wield considerable influence over company strategies, governance, and ESG ambitions.
• On average, BNP Paribas exercises its vote at around 2,000?meetings per year. We also do not hesitate to reject management proposals when they fail to meet our social or environmental standards, with 33% opposed – particularly concerning board elections, financial operations, and executive compensation. “When you vote against a proposal, you’re sending a strong message for the company to change its approach and to adopt our policy and our guidelines”, says Michael Herskovich , Global Head of Stewardship at BNP Paribas Asset Management , who discusses our stewardship policy and guidelines in more detail in the interview below.

• These guidelines are the backbone of our voting strategy, providing a clear set of rules on topics such as independence, gender diversity, and climate change. For instance, we expect a minimum of 30% female board membership in companies across Europe, North America, New Zealand, Australia, and South Africa, and 15% in other markets. In practice, this means we will veto the appointment of male directors to a board that doesn’t meet these thresholds. And it works: today, our investee company boards are 28% female, versus 23% for listed companies.
• Joining forces to form investor coalitions can also significantly increase voting influence and leverage, due to the sheer weight of the capital invested. “Despite their recent emergence, investor alliances have already proven effective at compelling the highest emitting companies to commit to reducing their carbon emissions”, writes Amelia Miazad , professor of law at University of California, Davis - School of Law . Case in point: Climate Action 100+, of which BNP Paribas is a long-time member, unites 700 investors worldwide, with a commanding $68 trillion in assets. Its goal: to focus on 170 companies with some of the highest GHG emissions globally. And it works: in 2022, 91% of these companies had aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, as opposed to 72% the previous year.
• Coalitions also play a pivotal role in advocating for corporate transparency. The Carbon Disclosure Project’s Non-Disclosure Campaign coalition, which includes BNP Paribas, engages with companies that have failed to respond to requests to disclose through its climate change, forests, and water security questionnaire. Data from the 2022 campaign shows that companies were 2.3 times more inclined to disclose following the campaign’s intervention. Notably, companies in the transportation and power generation sectors were 4.6 and 4.4 times more likely to do so, demonstrating the power of stewardship!?

?

New frontiers?

Traditional banking has often overlooked microfinance institutions for sustainability-linked loans. Until now!

• BNP Paribas and the JuST Institute have just unveiled the Inclusive & Sustainability-Linked Financing (ISLF), designed to support players in inclusive finance.
• The ISLF slashes interest rates for microfinance institutions, pairs them with technical assistance, and provides support for their green transformation through the JuST Institute. Already, these pioneering loans have been granted to three microfinance players: l’ Adie in France, PerMicro in Italy, and Banco da Família in Brazil.

?

Explorers

• BNP Paribas experts spotlight a gamechanger in climate finance – transition bonds. These bonds, the proceeds of which are funnelled towards greening highly-emitting sectors, have become key tools in Asia's large-scale decarbonisation efforts.
• Speaking of bonds: this year, BNP Paribas is once more the world leader in green bonds, says 彭博资讯 . Additionally, we’ve gone from 8th in 2020 to 34th worldwide in fossil fuel bond issuances, a direct consequence of our decision to move away from fossil fuels and towards renewable energies.

?

Milestones

The energy renovation of private homes is a key front in the ecological transition. Helping accelerate it is crucial.

• Partnering with the European Investment Bank (EIB) , BNP Paribas Personal Finance has pledged to lend €627 million over three years to private individuals in France for their home energy efficiency upgrades. The arrangement, on which BNP Paribas CIB acted as strategic advisor, will support energy-efficient and renewable energy housing equipment such as high-performance boilers, insulated windows, and solar panels.? ?

From the observation post

When it comes to climate, Gen Z wants directness and substance – not posturing and empty promises.

• Our CSR Director Laurence Pessez sat down with Ecolucide , a young media dedicated to a pragmatic sustainability, to answer their questions on the role of BNP Paribas in the green transition. The result? A refreshing, unfiltered dialogue!