Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
BNP Paribas brings ESG portfolio-tester to Australasia
In a release, BNP Paribas said the newly launched service would allow Australasian fund managers and asset owners to “incorporate customisable and flexible ESG criteria into their portfolio monitoring”.
The Paris-headquartered custodian said the tool roll-out in the two Antipodean markets comes as ESG “market developments are progressing rapidly”. Both the Australian and NZ governments have recently published roadmaps for sustainable finance goals including formal naming rules for products falling under various related banners.
Over the last few months, too, the Australian corporate regulator has also notched up three big legal wins against Active Super, Mercer and Vanguard – the latter two copping respective fines of A$11.3 million and A$12.9 million – for greenwashing investment products. Active Super has yet to face a penalty hearing.
Daniel Cheever, BNP Paribas head of securities services Australia and NZ, said that keeping portfolios within “ESG guidelines is critical to help avoid compliance oversights”.
Based on a range of internal and third-party data sources, the tool enables investors to measure portfolio positions against specific exclusion or inclusion screens, ESG scores, carbon intensity and global standards such as the UN sustainable development goals.
The new Australasian-released compliance tool is separate from the BNP Paribas-built Manaos ESG data management and reporting service, which the group launched in Europe in 2020.
Manaos taps into more than 20 data or service providers to harness information on over 12,000 ESG quantities.
According to a recent Morningstar survey, about two-thirds of global asset owners agreed that “ESG has become more material in the last five years”. The third annual Morningstar Voice of the Asset Owner survey polled more than 500 institutions across the world along with in-depth interview with 13 “leading” firms.
“While asset owners continue to use ESG data, ratings, and indexes to implement their strategies, they increasingly recognize data as the most critical component,” the report says.
“Although most asset owners believe that ESG data, ratings, and indexes have improved over the past five years, they also acknowledge that room for improvement remains.”
But the trend has faced backlash of late, most notably in the US where the key markets regulator, the Securities Exchange Commission (SEC), has “quietly disbanded” a special ESG unit, a Harvard Law School forum confirmed last week.
The Harvard note says the SEC had shuttered its enforcement ESG Task Force, citing “job done”; as the reason.
“While there is credibility to the SEC’s narrative regarding the disbanding of the ESG Task Force, it is also true that the Commission and its staff have in recent months been publicly deemphasizing the role of ESG in actions they are taking,” the legal faculty analysis says.
Regardless, the Harvard note says investors should “continue to consider their ESG-related risks and applicable disclosures for accuracy, ensure applicable compliance policies are adopted (as appropriate) and followed with relevant testing conducted”.
