SUSTAINABILITY GREEN BONDS YOUR SOLUTION TO FIGHT CLIMATE
SUSTAINABILITY GREEN BONDS: YOUR SOLUTION TO FIGHT CLIMATE CHANGE ARNAUD-GUILHEM LAMY, FELIPE GORDILLO London, 3 October 2017 FOR PROFESSIONAL INVESTORS MARKETING COMMUNICATION
CONTENTS § Why invest in green bonds? § What is a green bond? § How green bonds help to reduce climate change § Why invest in a green bond now? § How to invest in a green bond § The teams § Investment policies and strategies § Main characteristics § Risk factors § Conclusion 26/10/2020 2
1 WHY INVEST IN GREEN BONDS? 26/10/2020 3
1. WHY INVEST IN GREEN BONDS? WHAT IS A GREEN BOND? 1. WHY INVEST IN HOW GREEN BONDS HELP TO REDUCE CLIMATE CHANGE GREEN BONDS? WHY INVEST IN GREEN BONDS NOW? 26/10/2020 4
1 WHAT IS A GREEN BOND? 1. A green bond is a bond: Nothing exotic about it ü Same type of instrument as in the broader fixed-income universe ü Issued by sovereigns, agencies and corporates Source: BNPP AM Sustainability Research Team, end July 2017 2. Green bonds generate similar returns to those of conventional bonds 3. A green bond finances projects designed to reduce or fix climate change Source: Climate Bonds Initiative, end of June 2017 26/10/2020 5
1 HOW GREEN BONDS HELP TO REDUCE CLIMATE CHANGE POLLUTION CONTROL and ECO-EFFICIENCY ENERGY Green bonds: a way to tackle climate change TRANSPORT Between now and 2030, USD 4 trillion a year will be required to support the energy transition towards a low-carbon economy*. The global fixed-income market totals USD 100 trillion of outstanding securities*. BUILDINGS LIVING NATURAL RESOURCES Green bonds are the missing link between the need for energy transition financing and supply from debt capital markets. CLIMATE CHANGE ADAPTATION Green bonds are the perfect financial vehicle to support lowcarbon and climate-resilient development. *Source: BNPP AM Sustainability Research Team, May 2017 26/10/2020 6
1 WHY INVEST IN GREEN BONDS NOW? The market is now sufficiently diversified A fast-expanding market, now sufficiently diversified to offer investors a real investment solution Sovereigns are on board now as well: French Green OAT Our green bond universe represents about USD 116 billion of outstanding bonds* Bloomberg Barclays MSCI Global green bond index Green bond issues that are off-index Now better quality with real climate impact Issuers are now well-organised and able to monitor eligible green expenditures and publish ex-post environmental impact reports Today, the widening of the market enables us to screen enough eligible issues to manage a diversified portfolio compliant with our values Within our green bond universe*, 154 issues are IN (i. e. 75%) and 50 are OUT (i. e. 25%) Source: BNPP AM Sustainability Research Team, end August 2017 *Source: BNPP AM Sustainability Research Team, September 2017 26/10/2020 7
2 HOW TO INVEST IN GREEN BONDS 26/10/2020 8
2. HOW TO INVEST IN GREEN BONDS: Very strong expertise within BNPP AM both in SRI (Sustainable and Responsible Investment) Research and How can you Portfolio Management invest in green bonds to support low-carbon development? YOUR SOLUTION: PARVEST GREEN BOND Fund main features 26/10/2020 9
2 Green bonds: strong expertise within BNPP AM EUR 490 million worth of positions held in green bonds (1) A dedicated internal Sustainability Research Team BNPP AM: a top-tier market player in SRI since 2002 Almost EUR 30 billion of AUM in this expertise(2) 7 ESG/SRI highly experienced analysts (8 years of experience on average in SRI) Internal green bond assessment methodology INTEGRATED APPROACH The Global Fixed Income Specialty Product Group Team Well-experienced and multicultural fixed-income team: 15 portfolio managers with 16 years of experience in portfolio management on average and 14 years within the firm EFFICIENT COLLABORATION Technical committee Steering committee Multisector review Active management team with a strong performance and riskmonitoring track record Strong SRI expertise: Management of 7 fixed-income SRI funds since 2003 EUR 1. 9 billion in positions in SRI investments(4) (1) Source: BNPP AM, end of June 2017 Source: BNPP AM Global FI Specialty Product Group Team, end July 2017 (2) (4) 26/10/2020 10
2 A DEDICATED INTERNAL SUSTAINABILITY RESEARCH TEAM CREATED IN 2002 Head of Sustainability Research Constantly seeking to enhance its ESG/SRI expertise Helena VINES-FIESTAS ESG Support & Promotion Sector Specialist for Healthcare Spanish, 14 years of Sustainability experience Valerie ARNOUX ESG Investment Specialist French, 15 years of asset management experience Corporate Governance ESG / SRI Analysts Michael HERSKOVICH Thibaud CLISSON Felipe GORDILLO Head of Corporate Governance Sector Specialist for Energy, Utilities & Industrials Sector Specialist for ICT, Real Estate, Sovereign and Green bonds French, 8 years of SRI experience Franco-Colombian, 10 years of SRI experience Orsolya D’Alboy Delphine RIOU Robert-Alexandre POUJADE Corporate Governance Analyst Sector specialist for Healthcare, Consumer Discretionary Sector Specialist for Consumer Staples, Financials & Materials French, 6 years of SRI experience French, 1 year of SRI experience French, 9 years of SRI experience Franco-Hungarian, 9 years of SRI experience Source: BNP Paribas Asset Management , Sustainability Research Team– 01/03/2017 26/10/2020 11
2 EXTRA-FINANCIAL ANALYSIS INTERNAL GREEN BOND ASSESSMENT METHODOLOGY INITIAL GREEN BOND UNIVERSE 1 year after issuance EX POST At the time of issuance EX ANTE Bloomberg Barclays MSCI GLOBAL GREEN BOND INDEX + GREEN BOND ISSUES that are off-index 1 - Issuer’s 2 - Taxonomy ESG scoring Financing projects in line with our definition of eligible activities only Decile 10 OUT 3 - Green bonds implementation • Forecasting green projects allocation • Management of the potential environmental &social risks • Clear governance structure for project selection and evaluation ENGAGEMENT WITH THE ISSUER 4 - Ex post reporting If the issuer does not provide a report: OUT BNPP AM ELIGIBLE GLOBAL GREEN BOND UNIVERSE TRANSMITTED TO OUR PORTFOLIO MANAGERS EUR 490 million of green bonds managed by BNPP AM as of end of June 2017* *Source: BNPP AM, end of June 2017 26/10/2020 12
THE GLOBAL FIXED INCOME SPECIALTY PRODUCT GROUP TEAM Experienced portfolio managers: specialists in sub-markets and products 2 Stable, specialised and business driven Patrick Barbe – Chief Investment Officer Market heads Duration, Curve, Countries Yanick Loirat Claude Guérin (Countries) Investment specialists Specific portfolio Insurance & Flexible Credit Arnaud. Guilhem Lamy (Financials & Vito Cavaliere SRI) Eric Plantier (corporate) Romain Massey Kaizhou Wang Dedicated quantitative specialist You Leang Tran Portfolio managers Simone Augst, Fadi Berbari, Peter Benshop, Patrick Caillieux, Tao Li, Hélène Nottin, Sergejs Prala, Gerd Renning, Antonio Serpico Combines different talents specialising in different submarkets and products which benefits performance § § Market Heads coordinate the specialist portfolio managers for efficient research and idea generation Systematic implementation of trade ideas across portfolios where permissible Specialist, accountable and incentivised managers 15 Portfolio Managers with 16 years of experience on average, 14 years of which within the firm Strategy, Credit, SRI, Financial Engineering Source: BNPP Asset Management , Global FI Specialty Product Group Team – end of July 2017 26/10/2020 13
2 FINANCIAL ANALYSIS ACTIVE FIXED INCOME PORTFOLIO MANAGEMENT BNPP AM ELIGIBLE GLOBAL GREEN BOND UNIVERSE TRANSMITTED TO OUR PORTFOLIO MANAGERS Selection of the best issues from a financial point of view: Ø Deliver the best performance in compliance with the strategy of the fund defined in the prospectus Dealing with the interest rate curve Credit risk control With support of the BNPP AM Credit Research Team Risk control With support of the BNPP AM Risk Team THE PARVEST GREEN BOND FUND: Actively managed portfolio 26/10/2020 14
PORTFOLIO MANAGEMENT PRINCIPLES SUSTAINABILITY RESEARCH TEAM 2 FINANCIAL ANALYSIS INVESTMENT PHILOSOPHY AND STYLE EXTRA-FINANCIAL ANALYSIS 1 • • Internal Green Bond assessment methodology BNPP AM eligible global green bond universe FUNDAMENTAL ANALYSIS 2 • Analysis of the macroeconomic environment ü Long-term interest-rate trends ü Inflation and credit trends ACTIVE PORTFOLIO MANAGEMENT • 3 4 • Bond relative value study: Long-term views ü Daily investment opportunities Research: ü Capital flows analysis ü Regulatory constraints monitoring RISK MANAGEMENT 26/10/2020 15
2 FINANCIAL ANALYSIS INVESTMENT PROCESS RISK MANAGEMENT SRI OVERLAY TACTICAL ELIGILE GB UNIVERSE APPROACH FORECAST • Macroeconomic scenario • Three-month interest rate forecasts & risk budget allocation STRATEGIC ALLOCATION • Allocation of rates and credit risk budgets • Stress-testing extreme market scenarios TOP-DOWN APPROACH ISSUER SELECTION • Comparison and discussion • Model portfolio with selected issuers PORTFOLIO CONSTRUCTION • Micro-inefficiency opportunities • Market timing • Tactical trading BOTTOM-UP APPROACH The SRI overlay strengthens the issuer selection process by avoiding sovereign and companies with poor ESG practices (Environmental, Social, Governance) FUNDAMENTAL, ACTIVE, WITH RISK UNDER CONTROL 26/10/2020 16
2 FINANCIAL ANALYSIS FRONT OFFICE RISK MANAGEMENT § Risk management based on the clients’ choice of portfolio constraints and limits, as an integral part of the process § Appropriate solutions with dedicated applications such as Proges or external resources like UBS Delta, enabling us to continually simulate, measure and control risks and to meet the best market standards 1 SIMULATION 2 IMPLEMENTATION § Risk budget & return objectives established by portfolio manager § Risk allocation and implementation undertaken by portfolio manager § Performed by quant specialists § § (Va. R, using UBS Delta) Pre-trade controls (Proges, Sentinel & Thinkfolio) § Electronic trading platform via dealing desk (BNPP Dealing Services) § Real time exposure monitoring (Thinkfolio) Portfolio geared to client guidelines 4 PERFORMANCE ATTRIBUTION § Undertaken by Risk Management using Barclays Point 3 RISK MONITORING § Undertaken by portfolio manager on an ongoing basis (Proges, Thinkfolio & UBS Delta) 26/10/2020 17
2 Parvest Green Bond: fund’s main feature Fund structure Sub fund of the PARVEST UCITS V SICAV registered under the Luxembourg law Benchmark Bloomberg Barclays MSCI Global Green Bond Index Euro Hedged Target objective To increase asset value over the medium term Investment universe Eligible global green bonds as established by our in-house ESG/SRI Research Team • Mini 83. 5% of total assets invested in global green bonds • Aggregate: corporate and government issuances, agencies, covered bonds, ABS • Global but emphasis on European market (because of current issuances) • Diversification: investment universe is larger than that of the benchmark Bonds rating Minimum B- (S&P) Use of derivatives Futures, options, swaps Currency denomination EUR (bonds not issued in euro are systematically hedged into euro using FX derivatives) Hedging policy Portfolio is hedged in EUR Performance objective +75 bp (vs. Bloomberg Barclays MSCI Global Green Bond Index Euro Hedged) gross of fees These internal guidelines are mentioned for your information only and are subject to change. Prospectus and KIID guidelines are leading Source: BNPP AM, September 2017 26/10/2020 18
2 Parvest Green Bond: fund’s main featur Duration leeway -3/+2 years relative to benchmark duration SRRI scoring (1 to 7) 3 on a scale of 1 to 7, the higher the risk, the longer the recommended investment horizon. Target tracking error 1. 5% (annualised over the investment horizon) Recommended investment horizon 5 years ISIN codes I-CAP: LU 1620157534 C-CAP: LU 1620156999 C-DIS: LU 1620157021 P-CAP: LU 1620157294 P-DIS: LU 1620157377 Fees (OCR) I share: 0. 38% C share: 0. 85% P share: 0. 60% Management company BNP PARIBAS ASSET MANAGEMENT LUXEMBOURG Delegated management company BNP PARIBAS ASSET MANAGEMENT FRANCE Portfolio Manager Arnaud-Guilhem LAMY These internal guidelines are mentioned for your information only and are subject to change. Prospectus and KIID guidelines are leading Source: BNPP AM, September 2017 26/10/2020 19
2 Indices Bloomberg Barclays MSCI Global Green Bond Index: current characteristics Bloomberg Barclays MSCI GLOBAL Green Bond Index Hedged into EUR (as of 31/08/2017) Bloomberg Barclays GLOBAL Aggregate 500 MM Hedged into EUR (as of 31/08/2017) Duration 7. 19 6. 97 Yield (duration wgt) 1. 33 1. 47 Number issues 176 13 929 EUR 120 billion EUR 40 trillion Market value Source: Bloomberg, Barclays, MSCI 31/08/2017 26/10/2020 20
GLOBAL UNIVERSE: Global Green Bond Index 2 vs. Global Aggregate Index past performance comparison Source: Bloomberg, BNPP AM, 25/08/2017 26/10/2020 21
Parvest Green Bond: Portfolio exposure as of 08/09/2017 These internal guidelines are mentioned for your information only and are subject to change. Prospectus and KIID guidelines are leading. Past performances or achievement is not indicative of current or future performance Source: BNP Paribas Asset Management / Thinkfolio as of 08/09/2017 26/10/2020 22
2 Parvest Green Bond: portfolio vs. benchmark PARVEST GREEN BOND Bloomberg Barclays MSCI GLOBAL Aggregate GLOBAL Green 500 MM Index Hedged into EUR Bond Index Hedged into EUR (as of 08/09/2017)** Duration Number issues Yield (duration weighted) 6. 25 61 7. 18 7. 04 180 14, 029 1. 19 1. 30 1. 44 *Source: BNPP AM/ Proges/UBS Delta, 08/09/2017 **Source: Bloomberg, Barclays, MSCI 08/09/2017 26/10/2020 23
Risk Factors Capital risk: The investments are subject to market fluctuations and to the risks inherent to investments in securities. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Interest rate risk: The value of an investment may be affected by interest rate fluctuations. Interest rates may be influenced by several elements or events, such as monetary policy, the discount rate, inflation, etc. Credit risk: This is the risk that may derive from the rating downgrade of a bond issuer to which the sub-funds are exposed, which may therefore cause the value of the investments to go down. Subfunds investing in high-yield bonds present a higher-than-average risk due to the greater fluctuation of their currency or the quality of the issuer. Liquidity risk: There is a risk that investments made in sub-funds may become illiquid due to an over-restricted market (often reflected by a very broad bid-ask spread or by substantial price movements), or if their “rating” declines or their economic situation deteriorates. Derivatives risks: Risks include the lack of secondary market liquidity, valuation risks, the lack of standardization and regulation, the risk of leverage, the risk of the counterparty. Counterparty risk: this risk relates to the quality of the counterparty with whom the funds do business or enter into various transactions. This risk reflects the counterparty’s ability to honor its commitments (payment, delivery, repayment, etc. ). 26/10/2020 24
CONCLUSION Green bonds: A way to cope with climate change Climate change is one of the greatest challenges of our time: Green bonds are one of the best ways to support activities with low greenhouse gas emissions and support low-carbon and climate-resilient development. Green bonds: Now a sufficiently diversified market The green bond market is a fast-expanding market, now sufficiently diversified to propose a real investment solution Green bonds: Very strong expertise within BNPP AM both in terms of SRI research and portfolio management ) 15 years’ experience in SRI and almost EUR 30 billion in AUM in this field of expertise(1 A dedicated internal Sustainability Research Team since 2002, constantly seeking to enhance our ESG/SRI expertise (2) BNPP AM already manages EUR 500 million of green bonds Parvest Green Bond (1) Source: (2) BNPP AM, end July 2017 Source: BNPP AM, end of June 2017 26/10/2020 25
Appendix Source: Bank of International Settlements / BIS Quarterly report, September 2017 26/10/2020 26
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