BNP Paribas takes further steps in aligning its credit portfolio to finance a carbon neutral economy
12.05.2021 | Sustainable finance
Over the past few years, BNP Paribas has implemented policies aimed at ending the financing of the most polluting energies (coal, shale gas specialists, etc.) and has become a global leader in financing the ecological transition by fully supporting its customers committed to this transition.
The Group is gradually aligning greenhouse gas emissions from its financing activities with the path required to achieve carbon neutrality in 2050. For several years already, it has been publishing the alignment path of its credit portfolio in the power generation sector and has initiated methodological work on other economic activities. However, it is the entire global economy that is ultimately concerned, even if priority is initially given to the energy sector.
The group has joined the United Nations Net Zero Banking Alliance with 42 other international banks. It has also made an initial interim commitment to reduce its credit exposure to oil and gas exploration and production activities by 10% by 2025. BNP Paribas is thus choosing a more ambitious path than that of the International Energy Agency's Sustainable Development scenario, which is aligned with the objectives of the Paris Agreement.
This commitment, now based on credit exposures, will gradually be supplemented by other measurement and management tools, such as CO2 emissions, and other criteria. At the same time, BNP Paribas will continue to support its customers in the transition while working to align its credit portfolio with respect to the main greenhouse gas emitting sectors.
The leading European corporate bank, engaged in a profound transformation to align its activities with the objectives of the Paris Agreement.
BNP Paribas is both the leading European corporate bank and an important retail bank in several countries. Present in 68 countries on 5 continents, BNP Paribas has a strong presence in France, Germany, Benelux, Italy, Spain, Poland and the United Kingdom. The Bank therefore plays an important role in the service of the European economy and contributes, in particular, decisively to its preservation within the context of the current health crisis.
A bank aims to support the projects of its customers that make sense for the economy and society. The climate emergency will bring profound changes in the coming years as it is now being taken into account on a large scale by states, citizens and businesses. BNP Paribas has decided to gradually reallocate its resources in order to encourage its clients to accelerate their ecological transition, support them in their transformation and contribute to the emergence of new low carbon technologies.
In late 2015, the Group committed to gradually aligning its loan portfolio with the objectives of the Paris Agreement. This is a process of profound transformation. In fact, a bank's credit portfolio and the associated greenhouse gas emissions reflect the activity of its clients. In order to accelerate the ecological transition and redirect financial flows towards low carbon activities without crippling the economy, banks must change their dialogue with customers as well as their measurement tools, decision making processes and criteria, databases and IT chains, as well as the skills of their employees.
In 2015-2020, the Group first focused on exiting the most environmentally damaging fossil fuels (coal and unconventional hydrocarbon specialists) and accelerating its financing of low carbon technologies.
Since 2015, BNP Paribas has notably:
No longer provided any new financial services to specialists in unconventional hydrocarbons (shale gas, shale oil, oil from tar sands, Arctic). Between 2016 and 2020, BNP Paribas' credit exposure to specialists in these activities went from 4 billion euros to zero. Since then, when BNP Paribas made this decision (2017), it should be noted that the economic situation of shale gas companies has deteriorated significantly. Adopted for environmental reasons, the BNP Paribas decision is also relevant from a credit risk management perspective;
Completed its policy of excluding the entire coal value chain, whose first decisions date back to 2011. In 2017, BNP Paribas stopped all new financing of coal fired power plant projects. In 2019/2020, the Group put in place a policy that led it to request a plan to ensure a coal exit by 2030 (2040 for countries outside the OECD and the European Union) from all its electricity producing or mining customers. The implementation of this policy has already led the Group to cease its relations with half of its clients in this sector. Analysis of remaining customers by the end of 2021 will only keep customers in line with these criteria. The evolution of BNP Paribas' credit portfolio in the electricity generation sector is already on a trajectory that is well below a 2° C scenario;
Actively supported its customers in accelerating their energy transition by offering them a wide range of products and services:
-The Group is the world's second largest player in the green bond market in 2020 according to Bloomberg, with 10.8 billion euros as a joint bookrunner for its customers (such as Volvo Cars, which raised 500 million euros to finance the production of electric vehicles, with a 2025 sales target of 50% electric vehicles and 50% hybrid vehicles);
-BNP Paribas is very active in the rapidly expanding market for Sustainability Linked Loans (loans whose rate fluctuates in favour of customers when they meet specific environmental or social objectives) and green loans. 5 billion euros in financing was granted at the end of 2020 with only environmental criteria. More recently, BNP Paribas has contributed to a 1 billion euros credit line for Hapag-Lloyd, Germany's major shipping company, for the purchase of freighters to reduce CO2 emissions by around 15 to 25%;
-The Group's specialised subsidiaries such as Arval (vehicle fleet management) and BNP Paribas Leasing Solutions have also undertaken a profound transformation of their offerings to support the ecological transition of their clients, large corporates and SMEs.
Significantly increased its financing for renewable energies: At the end of 2020, financing for this sector totaled 17.8 billion euros, nearly 2.5 times the amount at the end of 2015, which was 7.2 billion euros. In 2020, the Group helped to finance the Fécamp wind farm in France, a 500 MW project that will provide green electricity to more than 700,000 people;
Dedicated 250 million euros to investing in startups providing major innovations in energy and ecological transition. Investments have already been made in 10 start ups and 3 funds. Among the startups helped is Sierra Energy, which makes it possible to transform all types of waste into combustion free energy;
Adopted, within its savings management businesses, steps to align with the objectives of the Paris Agreement similar to those taken for bank lending activities. In addition, the group's asset management business (BNP Paribas Asset Management) has become one of the most widely recognised global investors for voting on climate resolutions at general meetings of companies in which it is a shareholder.
Since 2015, BNP Paribas has gradually equipped itself with the resources necessary to implement successfully the alignment of its entire credit portfolio with the objectives of the Paris Agreement. A further step in this process was taken in December 2018.
In December 2018, BNP Paribas signed an agreement with four other European banks to implement a common methodology for aligning their credit portfolios with the objectives of the Paris Agreement.
Named PACTA (Paris Agreement Capital Transition Assessment) for Banks, this methodology has since been tested by 17 major international banks. Many others have announced they are working on it in recent months. It provides banks with an open source tool to apply the methodology to their own credit portfolios. It enables each economic sector to measure the alignment of the loan portfolio with the chosen climate scenario.
- This methodology currently covers economic sectors accounting for 75% of greenhouse gas emissions measured by the IEA (Electricity, fossil fuels, transport, cement, steel). BNP Paribas is currently implementing it as part of the ESG Action Plan, a programme led by General Management, involving most business lines and functions and aiming to introduce benchmarks as well as environmental and social goals into all of the Bank's decisions.
In April 2021, BNP Paribas joined the United Nations Net Zero Banking Alliance with 42 other banks. This alliance is part of an unprecedented movement that brings together a total of 130 financial institutions. By joining, these banks commit to concrete and precise actions :
Align the greenhouse gas emissions arising from their credit and proprietary investment activities with the path required to achieve carbon neutrality in 2050 (temperature increase limited to 1.5° C);
Build on credible transition scenarios published by recognised bodies (IPCC, IEA);Focus on the most greenhouse gas emitting sectors and playing a key role in the transition to a carbon neutral economy;
Set intermediate targets, no later than 2030;
Publish annually their progress and related action plans.
Today, BNP Paribas is adopting an interim commitment to reduce support for the oil extraction sector and preparing for further steps.
BNP Paribas, the world's 8th largest bank by size, has made commitments on unconventional hydrocarbons and coal that place it at the best level of international banks. It is now the first of the 15 leading global banking players to make a quantitative commitment in the oil and gas exploration and production sector.
At the end of 2020, the Oil & Gas sector represented only 2% of BNP Paribas' loan portfolio, or 35.1 billion euros out of a total of 1.783 trillion euros.
This amount does not correspond to loans granted for the year 2020, but to the stock of loans granted to the sector for several years. It should be noted that in 2016, the Oil & Gas sector represented 2.3% of the Group's financing and an amount of 32.9 billion euros. It thus remained broadly stable over the period, although 2020 required exceptional support from banks during the health crisis. In addition, BNP Paribas, like other banks, supported the oil and gas industry by granting liquidity lines during the COVID 19 crisis, but to a lesser extent than its support for the overall economy. Between the end of 2019 and the end of 2020, outstanding loans in this sector rose by 4.1%, or a further 1.4 billion euros, compared to 6.5%, or 109 billion euros in increase for BNP Paribas' loans to the economy as a whole.
In the oil and gas corporate bond market, the Group's intermediation role remained relatively limited in 2020, with a market share of 3.7% (8th largest worldwide arranger).
BNP Paribas is continuing its sector analyses. This phase starts with the energy sector, one of the most sensitive to climate change.
The oil and gas production sector includes both specialised companies, for whom a transition is not always possible, and groups that are making a significant shift to diversify their energy activities, invest heavily in renewable energies and contribute to achieving collective carbon neutrality by 2050.
Consequently, for a bank that wants to be an accelerator of the ecological transition without destabilising the economy or the essential activities, it is necessary to support the energy sector in the transition by:
Reducing the Group's credit exposure to oil and gas exploration and production activities worldwide;
Reorienting financing from the oil and gas sector towards players that are investing decisively, particularly in renewable energies, to change their business model and increase the supply of low carbon energy. This reorientation is necessary for the planet, but BNP Paribas is convinced that only the oil and gas companies that will profoundly transform will be able to achieve sustainability in the medium term. As lenders, banks have an interest in ensuring that their customers are sustainable.
Increasing resources dedicated to financing low carbon energy and, more broadly, facilitating access to financial markets for low carbon and renewable energy producers.
As part of its portfolio management work, BNP Paribas is preparing, over time, to make commitments taking into account the reduction in greenhouse gas emissions carried out by each oil and gas company across its activities, and to refine its eligibility criteria for financing.
As first steps, the Group has decided to:
Make an initial commitment to reduce its credit exposure to oil and gas exploration and production activities by 10% by 2025, calculated according to the PACTA methodology, bringing transparency and comparability, and integrating our customers' business mix in the context of the energy transition. This commitment puts BNP Paribas ahead of the International Energy Agency's SDS scenario, which describes the path the industry must follow to be in line with the Paris Agreement. It will be monitored annually;
Strengthen its dialogue with clients to identify best practises, better understand their trajectories and facilitate the implementation of an alignment method that takes into account each company's own greenhouse gas emission reduction targets.
To work towards a massive mobilisation of its resources and resources to accelerate the development of low carbon energies
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