Sunday Sitdown: BNP Paribas AM’s head of stewardship on the net zero race
NZI caught up with net zero heavyweight Michael Herskovich to discuss the issues that keep investors awake at night
As global head of stewardship at asset management giant BNP Paribas AM, Michael Herskovich is a key influencer in the fierce net zero debates between asset owners and the companies they invest in.
In charge of the elaboration and implementation of BNPP AM's stewardship policy, which includes voting and engagement, Herskovich is also in charge of the development and implementation of the firm's global sustainability strategy and a key driver for the firm’s ESG research and integration.
In addition, the Paris-based lawyer has also been a member of the board of the International Corporate Governance Network (ICGN) since 2020.
Net Zero Investor caught up with the industry heavyweight to discuss the current state of the net zero space, and the issues that keep Herskovich awake at night.
Let's kick off by zooming in on sustainability standards and reporting, such a hot topic at the moment. What would you say is the biggest challenge currently for asset owners and managers?
The biggest challenge is that we are in a moment where sustainability standardization is on its way, but it is not yet stabilized. In Europe, regulation has started for investors to standardize terminology for sustainable investment products, but will likely evolve and requires still clarification. At the same time the implementation of the regulations for companies will gradually apply only next year. It is a challenge for investors to integrate and reports on ESG matters prior to the introduction of standardized data from issuers.
So what should be the next step for asset owners, managers and investors when it comes to sustainability standards?
I hope we will have an international agreement on sustainability standards and avoid geographic fragmentation. Current conditions require us to dedicate important resources to data collection and quality checking. The next step when standardization occurs will be for investors to integrate ESG in the same way that financial data is integrated. Investors will also be able to better use their influence through engagement to push companies to progress if they are able to make reliable comparisons of standardized ESG data.
Some investors and managers increasingly demand more detailed ESG data, so they can understand and monitor sustainability efforts better. Do you recognise that trend?
Yes, we are seeing more demands from clients to better understand portfolio positioning on sustainability matters. We publish the carbon footprint, ESG scores and voting records of our portfolios, and have published the biodiversity footprint of our investments, for example.
We are also receiving more requests from clients who have developed their own ESG frameworks, as some asset owners also publish their own sustainability reports and are seeking information from their managers to monitor and report on their sustainability efforts.
Let's briefly zoom in on impact investing. How may attention would you say do industry players pay to this?
Impact investing has been an important focus for industry players and part of our strategy. But the lack of industry standards for impact measurement is a challenge and markets first need to agree on a common definition of what qualifies as impact investing: It is usually agreed that it requires intentionality and measurability: a desire to contribute to measurable social and environmental benefits. But the concept of additionality and whether positive external outcomes result from investors’ involvement is a more challenging characteristics to assess. However we consider that it is needed to be able to define impact investing.
Then something else, earlier this year the boss of Aviva Investors has warned companies not to sacrifice long-term sustainability goals in response to near-term challenges posed by energy shocks, supply chain disruption, elevated inflation and the risk of recession. Do you share that sentiment?
Our focus is on achieving long-term sustainable investment returns for our client and our belief is that sustainability is a long-term driver of investment risks and returns. Current market conditions should even be a driver to accelerate the transition into a low-carbon, sustainable and inclusive growth economy model. Companies whose strategies adopt a long-term horizon with sustainability goals and are not short-term oriented are going be the most successful over time.
Also, he said the industry's focus should be on the transition to a low carbon economy and reversing nature loss. Are those key priorities for you too?
Yes partially as we consider the world’s key sustainability challenges are energy transition, environmental sustainability and equality & inclusive growth, what we called the “3Es”. Addressing these issues is critical to financial market stability: We have committed to aligning our investment with net zero emissions by 2050, as outlined in our NetZero roadmap. Two years ago, we published our biodiversity roadmap and recently launched Nature Action 100 together with others investors to engage collectively with companies and policymakers to tackle nature loss and biodiversity decline. We will be working to publish a similar road on the third E, Equality & Inclusive Growth this year.
Anything else you would like to say or share with our readers?
Transition requires a collective effort by governments, companies, investors and society in general. All individuals have an important role to play in driving sustainability goals. As customers, investors and employees, we have all influence in our daily lives, and can be sustainable in a changing world.