Sustainable finance: ambitious challenges and a boom in products
“Positive impact”: this is undoubtably the term that best explains the purpose of sustainable finance, or the mechanisms for allocating capital to support a responsible economy, as well as the stakeholders involved in the transition and their projects. Promoting a sustainable economy model is now an objective that is shared in the four corners of the globe. The financial sector is playing a key role in achieving this.
Antoine Sire, BNP Paribas’ Director of Company Engagement, expresses: “Finance has always played a role in accelerating transitions. We are now seeking to acquire tools that will allow us to align management of our entire loan portfolio with Paris Agreement objectives. In practical terms, we will be financing more and more companies that are committed to the transition and fewer and fewer ones that are not. BNP Paribas Asset Management is, for example, one of two global investors that vote the most on climate-related resolutions at shareholder meetings.”
Finance has always played a role in accelerating transitions.
The European Commission’s strategic plan to finance sustainable growth echoes this and stresses the need to redirect capital towards a more sustainable economy, from both an economic and social point of view. Sustainable finance has thus become an essential tool on an international scale.
“The banks that gave rise to BNP Paribas were established to help companies take part in the industrial revolution. Since then, we have taken part in all the world’s transformations. It is crucial that we be part of the environmental transition that is ahead.”
Antoine Sire, BNP Paribas’ Director of Company Engagement
Who better than a long-standing player and leader in finance to meet this need?
To ensure that the financing granted does indeed promote the transition of the economy towards a more sustainable model, the Group has pledged to develop tools for aligning its loan portfolio with Paris Agreement objectives, including signing the Katowice Commitment in 2018 and the Collective Commitment to Climate Action in 2019 and deploying the PACTA methodology. Developed with the contribution of the world’s top banks, universities and NGOs, PACTA for Banks will help measure how well corporate loan portfolios are aligned with climate scenarios.
BNP Paribas has thus taken a strategic turn in the past few years in favour of sustainable finance. Its commitment has been recognised. It was voted the 3rd international bank in the ranking of “the world’s 100 most sustainable companies” by Corporate Knights magazine, BNP Paribas is also a pioneer and leader in several sustainable finance products and services. This is one way how the imperative of the sustainable transition feeds and motivates financial innovation.
Which sustainable finance solutions for companies?
Sustainable finance applies on the scale of companies and institutions, but also at the level of individual savers, through socially responsible investment offerings, an investment option that has taken off. There are three major types of innovative sustainable finance products dedicated to companies and their transformation:
1. Sustainability-linked bonds (SLB)
When a company wants to borrow money on the financial markets, it issues bonds. These bonds can now be subjected to sustainable, social and/or environmental criteria, i.e., the money must be directed towards investments having a positive impact and meeting ESG (environmental, social and governance) criteria. When so, they are called sustainability-linked bonds (SLB), green bonds or social bonds, depending on their specialty: sustainability in the broadest sense, environment/climate-related, or addressing social challenges.
Heavily invested in the responsible transformation of companies, BNP Paribas is now one of the world’s three leaders in the sustainable bond market. At year’s end 2020, BNP Paribas was joint leader for a total of 71.3 billion euros-worth of sustainable bonds.
*Source : Dealogic
Ground-breaking transactions that illustrate our expertise in this market:
- The 600 million euro issue of SLBs for the luxury brand Chanel, which was an all-time first in this sector. These bonds are bound by specific objectives, such as a 50% reduction in Chanel’s CO2 emissions by 2030 and its switch to 100% renewable power by 2025.
- Joint bookrunner on the first green bond of the auto leader Daimler, amounting to 1 billion euros and maturing in 10 years, in support of sustainable mobility and reflecting the transition being made by auto industry companies towards a low-carbon economy.
2. Sustainability-linked loans (SLL)
Sustainability-linked loans and green loans, like bonds, can now be bound by a positive impact objective. The lending bank or institution structures a loan offering designed exclusively to finance responsible projects. They are called sustainability-linked loans, or SLLs.
BNP Paribas recently took part in the most ambitious SLL to date in Latin America, in taking part in financing the energy transition of Cemex, a cement maker through a 3.2 billion dollar SLL targeting the reduction of Cemex’s CO2 emissions. Among the Mexican industrial giant’s objectives: boosting the proportion of renewable energies in its energy mix and protecting biodiversity in its operating areas.
3. Targeted investment funds
Investment funds are on the front lines of assisting the transformation of companies via sustainable finance products. These play up virtuous companies and make responsible investment products accessible.
BNP Paribas Asset Management has thus developed a full range of sustainable funds, which are seeing increased demand from both companies and individuals. These socially responsible investment funds include: BNP Paribas Aqua, BNP Paribas Comfort Sustainable Equity World Plus, and BNP Paribas Easy Low Carbone 100 Europe. These are investment solutions in line with the Global Sustainability Strategy (GSS) roadmap, which aims to apply ESG criteria to all investment decisions of BNP Paribas Asset Management.
This is a sustainable offering that leverages strict requirements, supplemented with a dedicated support to a particular area of the transition: the social and solidarity economy.
Sustainable finance products and services can also take other forms.
BNP Paribas, for example, also advises its corporate clients in how to improve their energy performance with its Change to green offering or with the sustainable mobility offers of Arval, the Group’s subsidiary dedicated to specialised vehicle leasing services and integrated mobility solutions. By 2025, Arval will have leased 500,000 electrical vehicles to its clients and CO2 emissions from our global fleet will have fallen by 30%.
Photo credits: Utramansk (header), Kalyakan, Andrea Izzotti, Balazs, Zhuxiaophotography, Hervé Plumet, Aquapix