The BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF (REUSE) is in support of the UN SDG #12: Responsible Consumption and Production to ensure sustainable consumption and production measures, but its holdings are actively contributing to waste and furthering unsustainable consumption against the efforts of the UN SDGs. BNP Paribas seems to care about sustainable finance, but investors should recognize that REUSE is completely crafted by greenwashing. As an index-tracked ETF with 50 selected large cap global stocks, REUSE is aligned with the unsustainable trajectory of its index fund. If BNP Paribas truly cared about the circular economy over profits, an actively managed ETF should have been created to incorporate holdings that live and breathe what the circular economy stands for.
REUSE comprises 50 large cap global stocks from a wide range of sectors. BNP Paribas’ articles on REUSE, such as “Developing the Circular Economy” emphasize that the circular economy is more than just retail and commend the ETF for its inclusivity of other sectors. A closer look at REUSE’s holdings proves this message is greenwashing because it was inevitable that REUSE included stocks from sectors other than consumer discretionary and consumer staples because the index REUSE tracks includes various sectors. In descending order, as of 7/30/2021, the sectors in REUSE’s portfolio are consumer discretionary (26.1%), information technology (20.4%), consumer staples (19.3%), industrials (18.8%), and materials (15.4%). All BNP Paribas Easy funds exclude the sectors of tobacco and controversial weapons holdings. At face value, the labels of the sectors don’t raise any red flags. All BNP Paribas Easy funds exclude the sectors of tobacco and controversial weapons holdings.
REUSE is not developing the circular economy, it’s only developing the widespread use of greenwashing within ESG ETFs. With 50 holdings, there is not much room for REUSE to hide unsustainable holdings, but unsustainable holdings are visible within its top 15, such as Ford and BMW. As of 7/30/2021, REUSE’s top holding is ASML Holding NV (2.38%). ASML Holdings is a supplier to the semiconductor industry of photolithography systems and according to the ASML sustainability description on the website, the company helps to make computer chips more efficient and greener. What REUSE’s top holding won’t say in their description is that the company holds a monopoly on lithography machines within an industry that has a major problem with their carbon footprint. A Bloomberg Green article indicated ASML Holdings’ lack of control over their scope 3 carbon emissions stem from the use of their products by consumers, which does not sound circular.
REUSE is an index-tracking ETF, meaning it’s passively managed. REUSE seeks to replicate the performance of its parent index, the ECPI Circular Economy Leaders Equity Index, with a minimum tracking error of 1% of its performance. REUSE invests in shares issued by companies included within the ECPI Circular Economy Leaders Equity Index, meaning investors are physically exposed to the stocks REUSE holds. The ECPI Circular Economy Leaders Equity Index scans its companies in accordance with the ECPI’s proprietary ranking methodology based on the ESG health of the company, only selecting companies with a positive rating. The proprietary ranking methodology is not harsh enough in reality, proven by the existence of unsustainable holdings within REUSE.
Since the ECPI Circular Economy Leaders Equity Index has a circular nature to it, only companies with a positive rating are selected for further screening to determine if the company operates with a circular model for final selection. The ECPI’s criteria of a circular model is for a company to fit into at least one of the following five themes: product life extension, circular supplies, resource recovery, sharing of platforms, and product as a service. If the ECPI’s criteria were to be more harsh, less unsustainable companies would slip through the cracks into the ECPI Circular Economy Leaders Equity Index.
REUSE is a product of BNP Paribas Asset Management’s BNP Paribas Easy, BNP Paribas’ offering of ETFs and index funds. Like its competitors, BNP Paribas portrays the bank as a leader in sustainable finance. Though BNP Paribas has many amazing sustainable initiatives and people behind those initiatives, the bank’s questionable investments extend beyond ETFs.
In January 2021, Bloomberg reported that during the past 11 years, $5.5 B was financed in the trade for oil exports from the Ecuadorian Amazon between BNP Paribas, Credit Suisse, and ING, according to research by climate activist groups Amazon Watch and Stand.earth. The climate activist groups stated that the banks had a double standard by promoting corporate sustainability while financing the Ecuadorian Amazon oil trade. According to the Wall Street Journal, BNP Paribas pledged to immediately exclude the area from the bank’s trading activities of seaborne exports of oil. I think it's safe to say BNP Paribas cares more about its image as a sustainable bank than making sustainable financial decisions. A proper response would have been for BNP Paribas to pledge to end financing seaborne exports of oil in more than just the Ecuadorian Amazon and announce plans to counteract the damage of directly financing climate change and negatively impacting the Ecuadorian Amazon’s biodiversity and its indigenous people.