In the second part of an interview, Helena Viñes Fiestas, head of sustainability research at BNP Paribas AM and Neven Graillat (pictured), head of sustainable investment solutions at BNP Paribas Global Markets, talk about the bank's strategy to grow its offering to respond to demand from clients with a new risk profile, and how research and data are helping to bring standards to the market.

Data around ESG has improved significantly and there has been "a huge progress recently", yet on climate change, for instance, the industry is still in its infancy because outside a handful of companies in each sector most of the time investors end up assessing transparency and the quality of management/governance, according to Viñes.

"We look at the seven more carbon intensive sectors of the economy and when we look at the 20 largest utility companies in the world, nine out of the 20 have actually disclosed company-wide quantitative targets for their future emissions," says Viñes. "Of those nine, six go until 2030 and only two to 2050. We then look at how they intend to achieve that target and match that ambition. Interestingly, the two that disclose their targets until 2050 are European and only three out of the 20 are in line with the guidelines of the international energy agency."

According to Viñes, the number one driver of this improvement around quality and meaningful data has been policy. "Companies tend to set targets in line with regulatory requirements," says Viñes. "When there is clear and consistent policy, companies react and it is always an indication of how transparent companies operate. Data around climate change around 6300 companies only 45% of those disclose carbon emissions, and we are not even getting into the quality of those disclosures."

Overall, there has been progress but the problem we face is that that information is not meaningful enough, is not standardised (same metrics), is not comparable and unless we had that it will be difficult to assess performance, according to Viñes. "If we take climate change as the number one risk this is probably one of the areas where companies have improved the most over the last few years partly because of regulation and in part because shareholders are pushing companies to be more transparent in this area."

From a structured products perspective, the bank's strategy is to match the offering with its clients' investment agenda and that "requires regular dialog with clients and the different teams at the bank", according to Graillat. "A few years ago, manufacturers were somehow pushing the agenda whereas now the agenda is pushing us to meet the market demand," says Graillat. "Most private banks in the world are looking into sustainable investing, and there is also more than US$2tr that is going to be transferred to the next generation of high net worth individuals over the next 20 years."

The next generation of high-net worth individuals (HNWI) and family office investors are very focused on sustainability, and crowdfunding, startups, social entrepreneurship, etc. are areas that will drive demand for sustainable products, according to Graillat. "Any product provider willing to serve these clients will have to build a comprehensive offering," he says.

On the retail side, demand in Europe continues to grow steadily while other markets such as North America (Canada) and other markets in Asia demand is also growing, according to Graillat.

"We think the institutional segment will continue to drive most of the activity but the retail market is catching up," he says. "This segment is more complex and there are a number of consideration around the investment term, assets classes... but we are making progress and fine tuning our offering. We have seen investment activity around ESG growing over recent years and we want to be well positioned to build our market share in this segment."

The bank remains "very much focused" on developing its range of products but "we don't want to tie ourselves to a specific firm or index provider", according to Graillat. "We will seek partnerships or collaborations for products based on our needs from a manufacturing perspective. We are working also with FTSE to develop a divest/invest range -which is based on the concept of divesting from companies involved in fossil fuel which don't have an identifiable strategy toward climate change, while investing in those that are moving towards a green economy."

As a structuring hub the bank is well placed to develop "good ideas and leverage the offering" by using third party indices, data, etc., according to Graillat.

"We are working on expanding our index-linked green bond offering with new delta one solutions but also geared and with capital protection so that we can respond to demand from investors with different goals and profiles," says Graillat. Assets under management on our ESG structured products are now over €4bn and we want to continue growing that number."

When it comes to addressing the illiquid loan market, 'blended finance' has a great role to play (the strategic use of partnerships between development finance and private funds to mobilize private capital flows to emerging and frontier markets, resulting in positive results for both investors and communities), according to Graillat.

"This gives us the opportunity to engage with asset managers, insurance companies and pension funds to invest in those countries and we think we can promote this with our structured products," says Graillat. "This is similar to what we are doing with the World Bank around their green bond offering but aimed at private/institutional investors to invest in emerging markets. It's kind of a public/private partnership approach."

BNP Paribas has developed a structured note with Swiss asset manager responsAbility that will be used in a micro-finance project. The Global Climate Partnership fund is the bank's first micro-finance structured note - a less liquid loan based product.

Related stories:
Long term investors are changing the benchmarks of reference, BNP Paribas

Green bond segment is no longer operated on a product push basis, BNP Paribas

ESG is not about being different but about creating strategies that are financially material, SG

ESG fine tuning to push product innovation and investor choice