Sustaining its lead
While other banks spent 2020 playing catch-up with their commitments on environmental, social and governance issues, one bank pushed on to even more ambitious goals. For its leadership over many years, BNP Paribas is IFR’s Bank of the Year for Sustainable Finance.
When the year began, it seemed that the big theme of 2020 would be sustainable finance. A decision in mid-January by BlackRock, the world’s biggest asset manager, to actively divest from companies that derived more than a quarter of their revenues from burning coal was seen as a watershed moment, prompting a slew of announcements from other financial institutions.
But while such commitments are important, credit has to go to the financial trailblazers that changed the conversation and put pressure on the likes of BlackRock to make a move. BNP Paribas, under the leadership of CEO Jean-Laurent Bonnafe, has truly led the way on sustainable finance: next year will mark 10 years since its first policies to restrict the financing to fossil fuel industries.
It is notable that many of the policies announced by banks in 2020 have already been policy at BNPP for years. It stopped financing shale gas and tar sands in 2017, for example, while at the same time tightening its coal policies – as a result it hasn’t financed a single new coal-fired power project anywhere in the world since then. It no longer advises on the purchase or sale of such assets.
“Sustainability has to be a part of the way the company is run, because nobody can win in a world that loses,” said Antoine Sire, head of engagement at the bank. “What we are doing, we are doing because we want to be able to explain our bank to our children – but also because we believe that our future lies in our capacity to understand that non-financial credit criteria must be there.”
While others were playing catch-up this year, BNPP was going a step further – particularly on fossil fuels. The bank had already toughened its rules on coal financing in 2019, but decided to up its game again by committing in May to stop any financing for legacy coal-powered power plants in the European Union and OECD countries by 2030. A worldwide halt will happen by 2040.
The policy won’t be without cost to the bank. While the share of coal in electricity generation among its power producer clients is low compared with its peers – actually, less than half the average – it is still substantial at 18% of the bank’s portfolio. Around 150 corporate clients will be directly affected by the ban, making for difficult conversations, especially in big coal-burning countries.
“It was the ultimate step, and definitely the right thing to do,” said Laurence Pessez, CSR director at the bank. “And it's not an easy decision because we finance electricity producers in lots of areas, including Germany, South-East Asia, the US, and in regions where people are still striving to have access to energy and electricity. We face a lot of pushback from clients.”
Of course, the dominant news of 2020 was the pandemic, and BNPP also established itself as a leader in the response to that challenge. In Italy, one of the worst-affected countries at the beginning of the crisis, it granted a debt moratorium to 40,000 businesses and also began to use its vast balance sheet – one of the biggest in the world – to help clients.
The size of the support it gave to European corporates can be easily seen in syndicated loan league tables. It was by far the biggest lender to corporates in the first four months of the year, lending twice the amount of its second-placed rival Santander, helping ensure that companies had access to vital liquidity even as many of the big banks – especially those from the US – pulled back.
And it wasn’t just in Europe. Globally, it topped the sustainability-linked loans league table.
On the bond side, it printed pandemic-assistance bonds for the IBRD, AIIB, CAF – as well as the €17bn issue from the European Union, the largest social bond ever seen. In the green space, it also ranked as one of the most prolific players globally, underwriting deals for Indonesia, Prudential, BBVA, Daimler, Volvo and Bank of China.
“BNP Paribas was extremely proactive,” said Sire. “We helped to support the issuance of US$72bn of Covid-19 response bonds.”
But in a world where new and more controversial issuers are moving into the green bond market, perhaps more telling are the deals that BNP Paribas chose not to do. The bank has become more demanding about which deals can be labelled green, and in a number of cases has declined the label on deals, even while many of its rivals are happy to use the term.
“We want to ensure that we're aligned on what we want to do, and what we do not want to do,” said Constance Chalchat, head of change management at BNPP’s corporate and investment bank. “And therefore, we implemented a weekly meeting to review sustainable deals, as well as sustainable engagement for clients. And this is really important.”
BNPP has shown thought leadership and has been collaborating across the board with peers and regulators to develop markets – for example as co-chair of the Task Force for Nature-Related Financial Disclosure. Its work has led ShareAction, a pressure group, to rank it number one in Europe for climate action.
The bank is already looking to the future, particularly in the area of renewable energy, where it aims to be a leading bank globally. In 2020, it hit its target – an impressive two years ahead of schedule – to double its financing for renewable energy projects from 2014 levels. During the year, it financed major new projects in Poland, France and Argentina to name a few.
It is also looking to take a lead in addressing the rate at which biodiversity is being lost, putting it ahead of many of its peers in terms of thinking about the next big issue. During the past year, the bank was sustainability coordinator on the first ever biodiversity-linked loan on behalf of Finnish pulp and paper producer UPM, a €750m revolver facility.
BNPP has thrown its expertise and resources behind the establishment of a taskforce to look deeper into the issue, a move that it hopes will force banks and their clients to assess their biodiversity impact, set targets and report accordingly, by 2024. The pandemic has been a timely reminder of the risks posed by the interaction between humans and the wider environment.
“Biodiversity is going to be the major subject on our radar in 2021, but we didn't want to wait for the IUCN Congress,” said Pessez, referring to the IUCN World Conservation Congress that was due to take place in 2020, but which will now happen in September 2021. The bank already has tight policies on palm oil, paper, pulp and many other biodiversity issues.
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