“We aim to meet the UN Global Compact (UNGC) principles in all our investments, but we have also developed our own policies and indicators, including some that are sector-specific,” Viñes Fiestas explains. “These cover more sensitive areas than the UNGC does, such as unconventional oil and gas, mining and the farming of palm oil. Our policies have become mandatory and we exclude companies that do not comply with the policies from all our funds and other ownership activities.”
The next level of analysis involves Viñes Fiestas and her team reading corporate annual and sustainability reports themselves for more detailed information. This might include looking for the true costs of CO2 emissions, and of water and energy usage, as well as gathering more information about a company’s research pipeline, market environment, intellectual property and policies.
Viñes Fiestas says they developed proprietary indicators because “we believe we can provide the best service to clients by using active management around sustainability. Our research partners do great work, but we need more detailed information to analyze fully the company’s ESG policies and its performance against those.
“For example, in pharmaceuticals, we need to know what the company’s policy is on access to medicine for the most vulnerable and needy people, and what it entails,” she says. “The research provider will not look in detail at the intersection between the company’s portfolio and business model and its accessible medicine policy.
“There may be good logistical reasons, such as medical infrastructure, why the company doesn’t focus on pricing to improve accessibility. It may focus on partnerships or licensing to make up for that, but you can’t get far in that analysis unless you know the company in more detail.”
She adds that other details they look for include where the company invests, where and how it conducts clinical trials and how it reports them, the effect of its activities on public health, and how productive its research and development is. If this information is not available in the reports, the next step is to meet the management.
Carbon emission targets
Viñes Fiestas has had significant involvement in several cross-sector organizations aimed at improving understanding and disclosure of ESG issues. She is part of the policy advisory group for the UN-backed Principles for Responsible Investment (PRI), sits on the board of the Institutional Investors Group on Climate Change (IIGCC) and on the advisory board for the Organisation for Economic Co-operation and Development (OECD) guidelines on agricultural supply chains, is a member of the expert committee of the Access to Medicine Index, and acts as technical adviser to the Transition Pathway Initiative on carbon emissions. She says these roles help her to apply pressure directly to companies, and that they help to inform BNPP AM’s understanding and methodology.
While transparency on ESG issues is improving across sectors, there is still much work to do. “Today, 90% of investors’ engagement with companies is about transparency,” she says. “That hinders our ability to talk about other issues, such as performance.
“For example, investors need to know where a company is now on its Paris Agreement carbon emission targets – but also, most importantly, where it wants to get to and how. We need to decide whether the company’s future targets are sufficient and whether the plan to reach them is feasible. To do this, we need more transparency from companies on carbon emissions.”
To illustrate the problem, she explains that, of the top 20 utilities that they analyze, only nine provide targets for future emissions, only six for 2030 and only two for 2050. In the mining sector, only two companies provide any future target, and in oil and gas, only four do so.
“Our role is to compare, but it is hard to compare on performance when such small numbers of companies publish targets,” she continues. “It means we can only compare on the basis of what they do today. This is important for risk management, though. As long-term investors, we need to be able to assess how those companies will cope in the future. So I put pressure on the ones that do not publish.”
The issue of transparency goes beyond carbon emissions, she says. “Other areas we look at include quality of management and policy – we need more transparency in those too. If you have nothing to hide, and you have done the work, it is in your interests to be transparent. Those that do not disclose cannot be assessed and therefore risk being excluded from our funds.”