Objective

BNP Paribas Asset Management (BNPP AM) conducted an assessment to understand its natural capital dependencies, focusing on the materials sector’s impact on water resources. This assessment aimed to manage water-related risks and opportunities and integrate findings into BNPP AM’s Environmental, Social, and Governance (ESG) scores. Key objectives included mapping natural capital drivers, analysing water management practices among European companies in sectors such as chemicals, metals, and construction materials, and encouraging companies to disclose water use details to enhance transparency.

Scope A and Scope B

The assessment included two scopes. Scope A involved examining 42 European companies from various materials sub-sectors, while Scope B targeted seven mining companies. BNPP AM engaged with 13 companies in Scope A and four in Scope B through one-to-one dialogues, focusing on water management practices. The analysis covered aspects like water withdrawals, risk management, transparency, and water quality.

Data and assessment criteria

A combination of primary and secondary data sources informed the assessment. Data sources included corporate reports, conversations with companies, ESG data providers, and information from organisations such as the UN CEO Water Mandate and WWF. Assessment criteria covered areas such as water withdrawals, transparency, community engagement, and contributions to Sustainable Development Goal (SDG) 6. This multi-criteria approach allowed BNPP AM to qualitatively assess each company’s performance in water management.

Findings and highlights

BNPP AM observed varying levels of water management practices across the companies. In Scope A, companies generally lacked comprehensive integration of water management into strategic decision-making. BNPP AM noted that only a few companies had mapped their exposure to water stress, and transparency on flood risk and water withdrawal costs was low. Within the mining sector (Scope B), inconsistencies in water consumption reporting and a lack of harmonised accounting standards complicated comparisons across companies.

Statistics showed that among the 139 global materials companies assessed, only eight had committed to the WASH pledge, focusing on access to water, sanitation, and hygiene. UPM received a 20% bonus to its ESG score due to strong water management practices, including a 40% reduction in effluent load and a commitment to 100% nutrient recycling by 2030.

Recommendations and suggested actions

BNPP AM suggested that companies improve their water management disclosures, particularly by including water use in specific processes, recycling rates, and local impacts. Companies are also encouraged to map water risks at the basin level to enhance awareness of water stress impacts. BNPP AM plans to expand these assessments to include additional natural capital dependencies, such as climate change and biodiversity, to further support responsible investing.

Conclusion and next steps

BNPP AM intends to continue disclosing assessment outcomes to stakeholders, including institutional clients and civil society, and plans to re-evaluate the materials sector’s natural capital impacts, covering climate, waste, and biodiversity. The organisation aims to standardise water-related accounting methods across companies to improve comparability and support sustainable finance. This initiative aligns with BNPP AM’s broader goal to integrate ESG factors deeply into investment practices, promoting responsible stewardship among portfolio companies.