Sustainable finance, or just plain greenwashing?

January 9, 2020

It’s plastered everywhere and purportedly built into everything. It’s sustainability, the buzzword that has taken hold in every corner of society and sector of business. Within asset management, too, sustainable finance is gaining in significance. More and more high-net-worth clients are becoming interested in investments that can be made in good conscience because they are economically, ecologically and societally sustainable. Banks have recognised this demand and developed investment strategies to meet it. But is every product marked “sustainable finance” worthy of the label?

Awash in a sea of green

Many banks now offer green products, advising their clients on sustainable finance and impact investing.

The sheer supply may seem enormous at first, but the investment universe shrinks as investment strategies become more stringent. And while many different sustainable funds currently exist, there is still plenty of room to expand. ETFs in particular have some catching up to do. And the choices narrow greatly when one looks beyond equities as underlying assets. In addition, sustainable investment opportunities are distinctly underrepresented in bonds. However, this asset class is growing rapidly, as green bonds in particular are gaining in popularity.

it is important for investors to begin by clearly establishing what their convictions, principles and objectives are with respect to sustainability”

George Falkner, Head External Wealth Manager & Multi Family Offices at BNP Paribas (Suisse) SA

Until now, demand for sustainable investment products has primarily been driven by institutional investors. “But asset managers themselves are having to be increasingly transparent and clearly explain how they implement sustainability criteria. So this topic will play an even more important role for many investors in the coming years,” remarked George Falkner, Head External Wealth Manager & Multi Family Offices at BNP Paribas (Suisse) SA.

“However, it is important to carefully review and critically assess each green product on offer – and for investors to begin by clearly establishing what their convictions, principles and objectives are with respect to sustainability,” he added.

To help investors find and understand opportunities for sustainable investment, BNP Paribas has developed an ESG rating system (environmental, social and governance criteria).

 Four different areas of analysis have been identified on which companies can be rated on a spectrum. Investors can use these sustainability ratings to narrow their search for the right products and define a sustainability strategy based on their convictions and preferred criteria.

Accountability pays – for companies and investors too

Studies on this topic have shown that companies which systematically implement a policy on sustainability have more attractive risk and cost profiles. They tend to be more innovative, bring better products to market, and achieve better returns.

Positive impact business: the future of banking

It therefore makes a lot of sense for companies to consider and incorporate ESG criteria into their business transactions, while investors would do well to focus on the ones that have realised this. Sustainability has been a part of the fundamental approach at BNP Paribas for many years.

“We remain convinced that financial markets are at a turning point, and that sustainability is continually gaining in importance for many other banks as well,” asserted Jan Karban, Head External Wealth Manager & Multi Family Offices Deutschschweiz at BNP Paribas (Suisse) SA. “Positive banking is the foundation of our Bank’s business model. And in keeping with this, all BNP Paribas divisions and departments are required to contribute to the long-term success of the Bank, and hence to that of its clients.”

In 2018, BNP Paribas appeared for the fourth year in a row on the list of the world’s 100 most sustainable companies released on the occasion of the World Economic Forum in Davos. And in 2019, Euromoney named BNP Paribas World’s Best Bank for Corporate Responsibility.