Asset manager of the year: Amundi Asset Management

Amundi Asset Management capitalised on its leadership in the adoption of environmental, social and governance (ESG) investment criteria to grow its central bank business in 2019. The firm now has more than 20 clients in the sector, and €30 billion ($33.4 billion) under management, a €3 billion net increase during the past 12 months.

Part of the French asset manager’s success in ESG derives from technology solutions aimed at aligning reserves portfolios with ESG (while preserving returns), the launch of investment vehicles to promote green finance, and support of research and initiatives championed by the Network for Greening the Financial System (NGFS).

For example, Amundi worked with a European central bank in its efforts during the past year to reduce exposure to companies in breach of ESG principles. It represented the latest step in the firm’s 15-year-long relationship with the institution, in which innovation has played an important role. In 2016, Amundi provided quantitative research to improve its hedging of emerging market debt risks through the use of credit default swap indexes.

Also, in 2019, the asset manager supported the European central bank with pros and cons analysis, definitions for exclusion lists and estimated the tracking error that a switch to ESG would entail. The central bank does not have a formal requirement to adopt ESG into its reserve management strategies, but wanted to be ready in case it needs to become fully ESG-compliant in the future.

“That is why we entered in discussions with Amundi, trying to find out on which areas we could integrate ESG without any cost to our performance,” says a senior portfolio manager at the European central bank.

Amundi supports the transition to more sustainable financing in banking institutions … This is extremely relevant to central banks insofar as climate change presents risks to the stability of the financial sector at large

Jean-Jacques Barbéris, Amundi

“The big question for us was what would be the cost of implementing ESG strategies to our corporate bond portfolio. We started from the perspective that if we can’t buy from the issuers with low credit ratings, or from controversial businesses involved in oil or nuclear power, then we would miss a lot of yield.”

Lacking a formal ESG mandate, the international reserves department still needed to prioritise delivering a positive return. Amundi came up with the idea of applying its ESG filter to the central bank’s $100 million passive corporate bond portfolio. It divided it in six different industrial ratings indicating their ESG compliance, and it excluded the firms on the two lowest levels.

To do this, Amundi uses an ESG engine that collects, selects and analyses ESG data from various providers. “We don’t have the resources to select or analyse which provider gives you the best information for any given topic,” says the portfolio manager. “That’s why we like to work with Amundi’s proprietary ESG rating.”

After implementing the filter, the central bank excluded the worst performer of every industry. “Producers of controversial weapons, nuclear power, coal, firms involved in cases of corruption … you get rid of [them],” says the central bank portfolio manager. Crucially, while the central bank eliminated its exposure to these firms, it maintained close-to-benchmark performance.

The real advantage of this mandate is that Amundi showed the European central bank where the portfolio’s performance contribution originates – and the impact of ESG on the overall performance.

“This allows us to better assess it and decide if we want to go further into ESG investments in the corporate bond space,” says the portfolio manager. Following the strategy’s success, the European central bank is assessing with Amundi new ESG implementations on other external portfolios.

Research and promotion

Amundi has also supported the research efforts of the NGFS. “We have frequent contact with them, in particular when we organise workshops with the industry or when we try to have some feedback on some of our ideas,” says Morgan Després, deputy head of the financial stability department at the Banque de France and head of the NGFS’s secretariat. “They have always promoted our recommendations. For instance, as soon as we issued our comprehensive report in April, they presented it to their central bank client base.”

One of the NGFS’s main purposes is to fix climate risk’s mispricing by market participants. This is partly caused by an overestimation of returns that some industries will be able to yield.

The group of central banks and supervisory authorities is trying to address this problem with the adoption of new practices in traditional central banking areas, such as reserve management and macro-prudential policies. “By doing so, we think we can foster a repricing of risks, reassessment of returns and reallocation of capital,” says Després.

Green investment vehicles

In 2017, in collaboration with the International Finance Corporation, Amundi started developing an investment vehicle in Africa. The Green Cornerstone Bond Fund aims to channel private funding for climate-related projects. In the $2 billion initiative, the IFC contributed $325 million, with Amundi raising the rest from institutional investors globally.

On the asset site, cash is invested by African commercial banks to promote green projects. On the liability side, a tranche containing assets with lower credit ratings was taken by the IFC, with tranches bought by institutional investors.

“Amundi supports the transition to more sustainable financing in banking institutions, through our innovative green products, research and the integration of ESG in all facets of our activity and the work we do with our clients,” says Jean-Jacques Barbéris, Amundi’s head of institutional and corporate client coverage. “This is extremely relevant to central banks insofar as climate change presents risks to the stability of the financial sector at large.”

This transition is especially important in emerging markets, where exposure to physical risks, such as extreme weather events, and transition risks derived from new regulations and new consumer habits is said to be extremely high.

Amundi is clearly trying to think in terms of new investment vehicles so that private capital can crowd in and finance projects elsewhere. It is something that, as we see it, is clearly very valuable in emerging economies

Morgan Després, Banque de France and NGFS

“Amundi is clearly trying to think in terms of new investment vehicles so that private capital can crowd in and finance projects elsewhere,” says the NGFS’s Després. “It is something that, as we see it, is clearly very valuable in emerging economies.”

In July 2019, the asset management company launched the Green Credit Continuum with the European Investment Bank. This is a €1 billion programme aimed at fostering the development of the green debt market, ensuring European companies’ green projects have better market financing to speed up their energy transition.

In Asia, Amundi launched a $500 million climate bond portfolio with the Asian Infrastructure Investment Bank in September 2019. The portfolio is investing in labelled green bonds, while helping issuing companies to develop climate-resilient business models. The portfolio aims to secure returns by identifying, analysing and selecting future climate ‘champions.

“As central banks increasingly integrate these instruments and considerations in their portfolios, they will benefit from the work we are doing to deepen these markets, in terms of size, but also in terms of setting standards and disseminating best practices,” says Barbéris.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Rachael King, Victor Mendez-Barreira, Alice Shen and William Towning