Sustainability is rapidly replacing liquidity, credit and market risk as the number one concern for superannuation trustees, says BNP Paribas Securities Services.
Speaking to InvestorDaily, BNP Paribas Securities Service managing director David Braga said sustainability and ESG is becomign a "new pillar" of risk analytics within institutional investing.
"Historically we [BNP Paribas] focused on governance, [namely] proxy voting and how to support that for the [super] funds. But environmental and social are coming to the forefront," Mr Braga said.
He pointed to Sydney University's recent efforts to reduce the carbon footprint of its investment portfolio, which followed the Australian National University's decision to divest from fossil fuels.
"As a back-office provider and a custodian and fund administrator, one of the things we offer all of our clients is the ability to do a lot of complex risk analytic work," Mr Braga said.
BNP Paribas Securities Services is a 'non-advice' part of the global French bank, and aims to provide its super trustee clients with tools to implement the decisions they want to take, he said.
The custodian looks at three main 'headings', Mr Braga said: 'controversies', 'carbon footprint', and 'business involvement'.
The 'controversies' associated with an asset include the use of child labour and human rights violations, he said.
"There are 29 different controversies that we can measure and take data against for underlying assets," Mr Braga said.
"Another big heading is carbon footprint, and we’ve got 24 different indicators against that which range from policy positions all the way through to the core products and the financial outcomes of those assets and what’s driving them."
'Business involvement' issues relate to the amount of revenue within a company that is driven by things like armaments and gambling, Mr Braga said.
"The challenge for the trustees is subjectivity of the topic – what are they willing to invest in and hold compared to what are they going to divest from and what’s the level of acceptability?" he said.
"Is the the threshold for gambling zero or is it 5 per cent or 10 per cent? Do you accept an asset until it gets to a certain level?
"We’re non-advice, [so we're] not going to provide answers to that, but we can at least provide the data to show the how the portfolio’s positioned.
"We want to help [super trustees] understand what’s driving that outcome and to make their own decisions about what’s right for their membership and be able to follow through on that," Mr Braga said.
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