Leadership essential in implementing ESG: BNP Paribas Securities Services

Editorial note: This is the third in a three-part series of articles brought to you by BNP Paribas Securities Services

The role of executive leadership is essential when it comes to implementing ESG strategy, whether being driven by regulation, risk and return considerations or stakeholder concerns.

At the same time, leaders say they are being tested in how to improve performance on ESG and prove their sustainability credentials.

Earlier this year, the KPMG 2021 CEO Outlook, a study of 1,300 CEOs across 12 countries including Australia, found that 86% of Australian CEO saying that purpose was a key part of their 'employee value proposition' and central to building brand reputation and customer relationships.

However, 42% percent of global CEOs and 36% of Australian CEOs say they struggle to tell a compelling ESG narrative to their stakeholders. Seventy percent of Australian CEOs said they are being asked for increasing ESG reporting and transparency, driven by investors and regulators.

Australian investors are responding to the same drivers and see ESG becoming integral. BNP Paribas Securities Services issued the ESG Global Survey 2021, which examined the appetite of 356 asset owners, official institutions and asset managers - in that report, 43% of Australian respondents said they anticipate ESG to become integral to much of what they do in the next two years. This figure is higher than both the global (35%) and regional (40%) averages.

Leadership seems to be a key component for the investment industry. Lack of backing from senior leadership appears to be a greater barrier among investors in Australia (39%) compared to those in APAC excluding Australia (30%) and globally excluding Australia (22%), according to the BNP Paribas report.

Q&A with Franck Dubois, head of BNP Paribas Securities Services Asia Pacific

Q: What role does leadership play in the adoption of ESG in investments?

A: Industry leadership is key to encourage and adopt ESG initiatives over and above actions by governments.

We are seeing Australia move forward with regulation. For example, APRA released a guide to help financial institutions manage the financial risks of climate change at the end of November. This came on top of existing guidelines to disclose such risks, and although both sets of guidelines are not mandatory, we expect this to change in the near future given Australia's net zero commitments.

Q: How do asset owners and fund managers create governance standards around ESG and inspire their organisations?

A: Effective analysis of investment portfolios has become even more important for asset owners and managers since the introduction of The EU's SFDR and the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill in New Zealand, which impose mandatory ESG disclosure obligations.

The challenge is that data required of asset managers, as part of SFDR is currently difficult to access, sometimes non-existent and generally very costly.

Another significant challenge is the lack of a globally recognised framework. At a governmental level, a number of goals (e.g. UN Sustainable Development Goals), principles (e.g. UN Principles for Responsible Investment, UN Global Compact) and targets (e.g. Net Zero Asset Owner Alliance, New Zealand Asset Manager Initiative) have been set. However, whilst these initiatives provide direction, they do not clearly define how to get there. And that's the crux of the problem facing asset owners and fund managers who have started to create their own internal ESG frameworks.

To help clients meet the challenges of data sourcing and management, BNP Paribas launched an open-source ESG platform, Manaos, which connects our clients to leading ESG risk and analytics fintechs.

Q: What do you hear from clients when it comes to the question of leadership?

A: In my conversations with clients, I do see an increasing commitment to ESG investments and feel there has been a definite acceleration of ESG adoption amongst senior leaders.

Initiatives like the TCFD and others have also helped to get senior leaders on board.

We also know from our most recent survey that ESG will play an increasingly major role for our clients, with the Asia Pacific region at the heart of the transition to a low carbon economy.

That's why we are aiming for 80% of our solutions to have a focus on ESG in the coming years.

Read more: BNP Paribas Securities ServicesFranck DuboisManaos