BNP Paribas Asset Management launched a long/short equity strategy focusing on company responses to significant environmental challenges.
The BNP Paribas Environmental Absolute Return Thematic fund — known as EARTH — will hold 25 to 45 positions in companies across developed and emerging markets, excluding frontier-market firms, with market capitalizations typically above $1 billion.
Companies across the energy, materials, agriculture and industrials sectors will be mapped to one or more of eight environment-related United Nations sustainable development goals.
The manager will take long positions in the most promising and innovative companies and pair these exposures and short positions in companies with unsustainable or "technologically inferior business models vulnerable to transition risk," a news release said.
The short positions are designed to both hedge the long exposures and act as an alpha source. Short exposures will also "have a positive impact by increasing the cost of capital for companies failing to address environmental challenges," the release said.
The manager also will incorporate its environmental, social and governance principles into the EARTH fund investment process. Executives will produce a quarterly sustainability report covering emissions, waste and water footprints for the strategy.
Edward Lees and Ulrik Fugmann, senior portfolio managers, will run the strategy.
"We believe that companies positioned to help address the significant environmental challenges we face will outperform those that either take no action or indeed contribute to these issues," Mr. Lees said in the release. "The latter will increasingly be at risk of having stranded assets and will be forced to take write-downs."
While BNP Paribas has a number of thematic strategies already and integrates ESG principles into the funds, this is the first long/short offering, a spokesman said.
He said an engagement process will be in place for both short and long positions. While shorting companies helps to increase the cost of capital, engaging with them can encourage a pivot in their business models toward more sustainable activities, the spokesman added.
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July 15, 2020 at 10:23PM
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BNP Paribas AM launches environmental long/short strategy - Pensions & Investments
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