Becoming a sustainable investor

YOU may be at the early stage of exploring sustainable investments in your portfolio. Or you may be a seasoned investor with a commitment to invest sustainably.

Whichever stage you are at, BNP Paribas Wealth Management (BNPP WM) has launched a web-based app called myImpact to help you gain insights into your profile as a sustainable investor.

Garth Bregman, BNPP WM head of investment services (Asia Pacific), hopes the tool can pave the way for conversations with clients. While the institution has long had sustainable offerings, demand has lagged in Asia. But that may soon change, as interest in sustainability has surged in the past year.

''One of the issues around sustainable investing is that it means many different things to different people. The (myImpact) tool sets out not just to get client preferences but also to help educate them. There may be some clients who already understand what sustainable investing or impact investing means. And there are others who are approaching it for the first time and may not be familiar with the Sustainable Development Goals (SDGs).''

The SDGs are developed by the United Nations as a framework for the world's needs. It is widely adopted by the investment community as a means to channel capital where it is needed most, and to measure impact.

myImpact also seeks to build an understanding of the continuum that lies between traditional investments at one end, and at the other end philanthropy, which does not seek a return.

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''What we've done is to build awareness that philanthropy and investments are not necessarily two different things. In fact, they are part of a broader spectrum, which ranges from getting a good financial return all the way through to some forms of impact investing where you might accept a low return in order to have a positive impact, and all the way through to giving your money away completely and not expecting a financial return, but only seeking to make an impact.''

Coming up with a client profile is only a start and does not put clients in a proverbial box. ''It doesn't mean that clients suddenly invest their portfolios in a certain way, because it's the start of a journey. It may take years for portfolios to gradually reflect clients' beliefs. As more choices of these types of investments are available in the market, it also allows clients to refine their portfolio choices over time.''

Three broad profiles of responsible investors emerge from myImpact: The Responsible Investor is seen as someone who is interested in ESG multi-sector approaches, and wants to include sustainable development criteria in his or her portfolio, without incurring additional risk.

The Conviction Investor is interested in a thematic approach, or in supporting companies which derive a portion of revenues from sectors in support of SDGs.

The Engaged Investor is interested in impact investing. That is, the investor intentionally looks to have a social and/ or environmental impact, and may be prepared to get personally involved.

There are also three profiles of philanthropists: trusting, cautious and strategic.

myImpact was rolled out first in Europe and more recently in Singapore and Hong Kong. A global rollout is planned.

As a group, BNPP has spelt out its mission to ''contribute to a responsible and sustainable economy by financing and advising its clients according to the highest ethical standards''. It aims to innovate, for instance, to be a leader in sustainable finance.

BNPP WM has developed expertise in socially responsible investments (SRI) and impact investing since 2007. To help clients assess their portfolio and investments, it has also developed a sustainable rating methodology called ''clover rating'' where assets are tagged by a rating of zero to 10.

At the level of zero, the asset has no sustainability integration. A rating of one to four indicates ''limited ESG consideration''. Levels five to 10 are classified as sustainable investments, within which the ratings of nine and 10 are seen as impact investments. A range of products including equities and bonds, funds and structured products may be rated.

BNPP WM relies on the group's asset management arm - BNP Paribas Asset Management - which has a Sustainability Centre conducting research into sectors and companies. This forms the basis for the clover ratings. BNPP WM also has its own methodology for rating structured products and alternatives.

In terms of funds, for instance, it uses a proprietary tool to analyse various criteria, such as quality of ESG approach, voting and engagement policy and degree of impact, to ascertain just how seriously a fund takes into account environmental and social issues.

Clover ratings facilitate cross-asset comparability as it establishes a common framework across asset classes. BNPP WM is also gearing up to launch myAdvisory, a portfolio advisory service. The service is able to take a client's entire portfolio, optimise it and recommend switches in line with clients' sustainability profiles.

Mr Bregman believes multiple factors are at play to elicit clients' interest and participation in sustainable investing. The pandemic, for one, has been a catalyst, as well as the avowed commitment of various nations such as China and in Europe towards net-zero emissions.

''Because of Covid, there is also effort to ensure that the infrastructure we build is greener or more sustainable. The more these impact the real financial economy, the more private investors become aware that this isn't some peripheral investment, but a core opportunity.''