BNP Paribas Asset Management has rebranded its Human Development Fund to the BNP Paribas Inclusive Growth Fund. The revamped fund focuses on reducing social inequalities, investing in around fifty stocks with a high social impact.
‘This theme of equality and inclusive growth is often perceived as being relatively secondary to other sustainable factors,’ notes Delphine Riou, ESG Analyst at BNP Paribas Asset Management.
However, it is one of the three key pillars of the firm’s sustainability strategy, alongside the energy transition and environmental protection. ‘We therefore consider that these themes will be the major future determinators of financial performance, with a view to a transition towards a more responsible world.’
She also stresses that the choice of this theme is based on the fact that social inequalities have tended to worsen over the last twenty years. ‘The majority of people living on our planet live in countries that have seen income inequality worsen over the last generation. Even in our developed societies, there is still a long way to go, even in developed regions like Europe. For example, 70% of people with disabilities are not in the labour force, and women still earn 15% less than men for similar jobs.’
Social overweight
In the long term, the persistence of these inequalities is a source of inefficiency for developed societies, particularly in terms of political and social balance. ‘They can create disruptions that are detrimental to the business climate. Companies clearly have a role to play through the decisions they take along the value chain,’ Delphine Riou notes.
‘We have a very broad definition of inequality,’ she adds. This is based on five main pillars: the protection of the most vulnerable people in society (working conditions, sufficient minimum wage, etc.), the promotion of social mobility, the respect of business ethics, the provision of quality goods and services accessible to the poorest (notably in mobility, access to housing, access to digital technology, or health care) and the promotion of biodiversity and the energy transition.
‘The addition of this last criterion takes into account the fact that the most vulnerable populations are also likely to be those who will be most affected by the energy transition or by the decline in biodiversity.’
This reflection, which began two years ago, has now resulted in rebranding of the BNP Paribas Human Development Fund to the Inclusive Growth Fund. The revamped fund will invest in companies that are favourably positioned with regard to the major causes of social inequality, factors that have been reinforced by the current pandemic. ‘This crisis has confirmed the important and essential role played by low-wage workers in our society.’
Scoring model
‘With this in mind, we have developed a model to score companies on criteria such as working conditions, equal pay, diversity of managerial profiles, presence of women in management positions, professional training opportunities or the provision of products and services for low-income people.’
In practice, companies scoring less than 20 out of 100 points are systematically excluded from the investment universe, resulting in a portfolio of strong convictions that will comprise between 40 and 60 stocks, with a turnover rate of between 20 and 30% per year.
The final ESG score resulting from this model will overweight social issues (60% of the score) compared to governance (20%) and environmental factors (15%).