The impact of BNP Paribas AM’s revised investment policy

In November 2024, BNP Paribas AM became the first major asset manager in the world to end its purchases of bonds issued on the primary market by certain companies in the oil & gas sector. Reclaim Finance welcomes this new measure, which highlights the critical role bonds play in financing companies developing new fossil fuel projects. We analyze the potential impact of this announcement, and highlight a number of shortcomings, including the fact that the policy does not address the case of passively managed funds, and only covers the upstream part of the oil and gas value chain. Reclaim Finance calls on other major European asset managers such as Amundi and LGIM not to be left behind, and to at least follow the lead of BNP Paribas AM.

Since December 2024, BNP Paribas AM has excluded investments in new bonds issued on the primary market by companies active in oil and gas exploration and production (1).

Companies in the fossil fuel sector are largely financed by issuing bonds (2), as a complement to bank loans. These bonds require banks to intermediate their issuance, but investors ultimately purchase them in exchange for interest payments. Refusing to invest in new bonds issued by companies developing new oil and gas field projects enables an investor to be consistent with the objective of aligning its portfolio with a 1.5°C trajectory. In fact, it enables them to control their impact on climate change to a far greater extent than they can with equities (3).

This explains why more and more investors are committing to exclude investments in new bonds issued by fossil fuel developers, whether or not they refuse to invest in their shares. BNP Paribas AM’s decision, which follows on from BNP Paribas CIB’s one to stop issuing oil and gas producers’ bonds, is in line with this dynamic. It increases the credibility of the asset manager’s strategy of aligning investments with a net zero emissions trajectory (4).

The policy updated in November 2024 specifies that this rule applies exclusively to the primary market. It is on the primary market that newly issued bonds are first sold to investors (5), as opposed to the secondary market where financial securities already issued are traded between investors. By targeting the primary market, BNP Paribas AM is focusing on the channel through which oil and gas companies are supplied with fresh money.

However, BNP Paribas AM can still invest in new oil and gas companies’ bonds as soon as they come onto the secondary markets, which would still help to create demand for these bonds and would therefore support these companies.

The risk is virtually non-existent for actively managed funds, but is greater for passively managed funds (6). Indeed, some of the bond funds managed by BNP Paribas AM are index funds, i.e. funds that aim to replicate the performance of a specific bond index (e.g. the Bloomberg Barclays Global Aggregate Bond Index) by holding a portfolio that reflects the composition of this index as closely as possible. However, when new bonds are added to the index, replicating funds may invest in newly-issued bonds to maintain their alignment with the index. This reveals a potential gap in BNP Paribas AM’s policy. If BNP Paribas AM still markets funds that aim to replicate corporate bond indices, including those in the oil and gas sector, then the manager might want to buy the new bonds issued by these fossil fuel companies when they come to the secondary market. Support for fossil fuel companies would therefore still exist.

The loophole is real, although its impact is currently limited in the case of BNP Paribas AM. Unlike other asset managers such as Amundi or LGIM, who are keen on passive investing, passive management represents only around 7% of BNP Paribas AM’s total assets under management. The acquisition of AXA IM, which also has little exposure to index funds, should not change this relative exposure. However, in view of the asset manager’s planned growth, compliance with the spirit of the policy means that solutions must be found to effectively end investments in new bonds issued by fossil fuel companies. BNP Paribas AM’s recent launch of active ETFs (7), which enable it to exclude companies despite their presence in the tracked index, is an example in the right direction.

Another alternative would be to change the indices tracked and only market funds that replicate cleaner indices. However, such measures have not yet been taken for all BNP Paribas AM passive funds.

The new measure adopted by BNP Paribas AM also has another major flaw: the exclusion only concerns companies active in the upstream part of the oil and gas value chain. The asset manager still allows itself to invest in bonds issued on the primary market by companies developing new midstream oil and gas projects (transport and storage), including new LNG export terminals. Refusing to fund these companies is critical to avoiding support for an industry whose expansion plans are at odds with IEA projections: LNG producers plan to triple their production capacity worldwide from 480 million tonnes per annum (Mtpa) to 1,480 Mtpa (8), while the NZE scenario projects a 73% reduction in fossil gas production by 2050 (9).

While the measures announced by BNP Paribas AM do not definitively put an end to its support for oil & gas expansion across the entire value chain, they do represent a major turning point in the asset manager’s relationship with the oil & gas sector. This decision, a landmark in the asset management industry, underscores the responsibility of investors to manage bond investments in the context of a climate emergency. Reclaim Finance now calls on other major asset managers to at least follow the path taken by BNP Paribas AM, without ignoring the specific issues linked to their passive management.