Responsible investment: disarming investments

Post with image

More and more responsible investors are opting for investments that respect the environment, society and human rights, an approach that now extends to equity index funds. For Denis Panel, CEO of THEAM[1], quality asset management is synonymous with responsible investment, which has led THEAM to become the first European asset management company to adopt benchmarks that exclude controversial weapons manufacturers.

The Responsible Investment policy is an integral part of the BNP Paribas Investment Partners (BNPP IP) approach. It applies ESG[2] criteria, based on the United Nations Global Compact, to its open-ended funds and applies specific sector policies to govern investments in controversial sectors.

As of 16 January, in line with BNPP IP’s strategy and recommendations published in April 2013 by the French Asset Management Association (AFG)[3], THEAM is breaking new ground. In fact, THEAM now excludes the securities of companies that are involved in the supply or manufacture of cluster munitions and anti-personnel mines from the equity indices used for its range of open-ended index funds.

This new strategy is yet another major step forward in BNPP IP’s Responsible Investment policy, under which it has excluded manufacturers of controversial weapons from all its assets under management since 2010 – excluding index funds – as part of its policy in the defence sector.

Prior to this, THEAM endeavoured to find ways to exclude controversial stocks from all physical-based index fund portfolios. But in mid-January we decided to make this commitment permanent by opting for benchmarks that exclude controversial weapons – namely, the MSCI Global ex Controversial Weapons Indices – for our range of index funds.

This decision is a first for an asset management company in Europe, making THEAM a front-runner in our field, and paving the way for more innovation in this area. Through the commitment to include ESG criteria in our index fund investment practices, THEAM is not only aligning itself with BNPP IP’s principles, but also acting for the benefit of our clients.

We firmly believe that by including these criteria in our investments, not only is it possible to help manage exposure to long-term risks, such as social conflicts and environmental crises, but also to respect the risk/return profile of the investment.

We can take the MSCI World ex Controversial Weapons index from the range of MSCI Global ex Controversial Weapons indices as an example. Its annualised performance over the past five years totals 15.7%, perfectly on par with that of the MSCI World index.[4]

Exhibit 1: Performance of the MSCI World ex Controversial Weapons, MSCI AC Asia and MSCI AC Europe indices (Dec. 2008-Dec. 2013, in USD, Dec. 2008=100)

disarming_investmentsWe believe that when it comes to index funds, quality management can be synonymous with responsible investment. The idea is to offer our clients index funds that meet their needs and have a limited tracking error compared to traditional indices.

It is for these reasons that we have opted for the MSCI Global ex Controversial Weapons indices, after extensive analysis of the construction methodology of these MSCI indices and comparison with their standard versions. These indices exclude mid and large-cap companies that are involved in the controversial weapons sector (chemical and biological weapons, cluster bombs, anti-personnel mines and depleted uranium), and are weighted according to their float-adjusted market capitalisations. Their composition is reviewed every quarter.

Clients who were interviewed beforehand all responded positively to this development. We hope that this new commitment will encourage the creation and development of indices favouring responsible investment on a larger scale. It is our belief that these indices are the benchmarks of the future, and that they will only gain in importance as more investment solutions with a high social value are developed.

_____________________________________

[1] As part of BNP Paribas Investment Partners and benefiting from a close partnership with BNP Paribas Corporate Investment Banking, THEAM is an asset manager specialising in Protected, Indexed and Model-Driven Management offering investment solutions across a broad spectrum of underlying assets, adapted to the needs of distribution networks and institutional investors. At the end of December 2013, THEAM employed 122 professionals and boasted assets under management of close to EUR 40 billion.

[2] Environmental, Social and Governance.

[3] Recommendations published in April 2013 by the French Asset Management Association (AFG) regarding the application of a policy that excludes companies involved in the supply or manufacture of cluster munitions and anti-personnel mines from index fund portfolios.

[4] More precisely, the annualised performance of the MSCI World ex Controversial Weapons index is 15.69% against 15.68% for the MSCI World index.

Denis Panel

Chief Executive Officer and Chief Investment Officer at THEAM

Leave a reply

Your email adress will not be published. Required fields are marked*