ESG Financing House: BNP Paribas
On the top step BNP Paribas showed the way in ESG financing with landmarks in key sustainable finance themes, including transition, development finance and nature/biodiversity, and reinforced it with strong advisory and research capacity. For its global leadership in ESG debt and deep commitment to market development, BNP Paribas is IFR’s ESG Financing House of the Year.
BNP Paribas' clean sweep of many ESG bond and loan league tables once again in 2024, including top rankings globally for ESG bonds, green bonds and sustainability-linked bonds for the fourth year in a row, reflects its “leadership and consistency”, according to Frederic Zorzi, global head of primary markets.
“We have been in the sustainable market for over a decade – we've been very consistent in terms of the team, in terms of what we are pushing, in terms of innovation, in terms of expertise and we have also been very consistent in terms of results.”
Zorzi also emphasised that BNPP’s ESG finance market share is “way above” its share for conventional bonds.
The bank also tops the Anthropocene Fixed Income Institute’s prominent league table measuring banks’ ratios of green to fossil fuel underwriting income, nearly two percentage points ahead of its nearest competitor.
That measure is “the one that is really important when you want to look at how the bank is really delivering for society in terms of transition”, said Agnes Gourc, head of sustainable capital markets.
Underscoring its leadership, BNPP racked up an array of notable transactions in 2024. These highlighted key sustainable finance themes of the year: development finance (the first public multinational development bank hybrid, for African Development Bank); the first sustainable development goals bond in Swiss francs (for Inter-American Development Bank), nature (the first public corporate blue bond, for Saur) and social issues (the first sovereign gender bond, for Iceland; the first sovereign social bond in yen, for Slovenia).
It was also prominent in transition finance. Besides arranging European marketing of the first sovereign transition bond, for Japan, it brought the first green nuclear hybrid (EDF) and a green bond with new transition uses of proceeds (Air Liquide).
Moreover, BNPP is poised to carry this leadership into 2025. After arranging roundtables with the European Commission on the EU’s Green Bond Standard that came into force in late December, it already holds deal mandates.
Market development
Yet the bank insists its focus is less on trophy deals than on market development. “The key question in this market is not ‘what is the next new thing?’ It's actually, ‘how do we make sure it's a market that really keeps developing, that really keeps being centre stage, both for issuers and for investors?'” said Gourc.
“It needs credibility and people to trust that it's delivering what it has said to do, but has lost a bit of that recently. We see ourselves as helping to provide that credibility."
“We are trying to shape the market in a rigorous way, which is our trademark,” said Constance Chalchat, chief sustainability officer for CIB and global markets.
Sometimes this involves dissuading unsuitable borrowers from green offerings. “We are there to build the market, not to just build our market share,” Chalchat said.
As part of this effort, BNPP contributed to a host of 2024’s significant initiatives in sustainable finance. They include guidance on “green enabling” transactions – where it was a taskforce co-coordinator – and rules governing bonds backed by sustainability-linked loans from the International Capital Market Association and Transition Loan Principles that the Loan Market Association and Asia-Pacific Loan Market Association are developing.
It also worked on the UK's Transition Finance Market Review’s guidelines for credible transition finance.
The bank is a member of the executive committee overseeing ICMA’s sustainable finance principles. Gourc is vice-chair and is the only banker leading this vital effort.
In addition, BNPP’s head of sustainable capital markets for Asia-Pacific, Chaoni Huang, is secretary-general of the Hong Kong Green Finance Association.
“We do spend a lot of resources on helping the market infrastructure and keeping it developing,” Gourc said.
The bank’s strong push in transition finance exemplifies this. It is coordinator of ICMA’s relaunched working group on the topic.
“Our goal is really to accelerate transition. It’s about developing the market with rigour and integrity, to establish foundations that are extremely solid [and] to promote [a] transition label, which is robust and valid across the world,” Chalchat said.
Besides its deals for Air Liquide and EDF and its work for Japan, BNPP’s notable transition deals in 2024 included Italian gas utility Snam’s “multi-ESG” green bond/SLB package and German steel producer Salzgitter’s green loan for low-carbon steelmaking.
Integrity and impact
Chalchat also cites the bank’s recent efforts in nature and blue finance as demonstrating integrity.
Having already contributed to the Taskforce on Nature-related Financial Disclosures and the International Finance Corp’s biodiversity finance reference guide, as well as its subsequent impact reporting supplement, BNPP was a joint lead on water company Saur’s first public blue bond. Other nature-related deals included a green bond for Brazilian pulp producer LD Celulose with biodiversity allocation and a sustainability-linked loan for Belgian high-voltage grid operator Elia with biodiversity key performance indicators.
BNPP is also working on a US$200m coral reef bond in Indonesia, part of the World Bank’s outcome bond series, and developed a US$35m blue finance impact loan facility with NGO Blue Alliance’s “marine protected areas” initiative.
It partners with Naturalis Biodiversity Center, a Dutch research institution, and publishes its own research on indices and biodiversity loss.
“We really want to bring our market and environmental engineering knowledge – every single lever we have, from science to frameworks to different types of financing – to a very robust and solid foundation to do biodiversity finance,” she said.
As the outcome bond project highlights, development finance has been an increasingly important theme for BNPP. “For us, [it] is absolutely crucial. We cannot live in a [two-speed] world,” Chalchat said.
While it has yet to close an outcome bond or sovereign debt-for-development swap, the bank was structuring adviser on the first public supranational hybrid – African Development Bank’s US$750m sustainable perpetual in January 2024. It is working with other MDBs on initiatives, as well as organising a MDB roundtable and meetings with philanthropies and institutions.
“We want to make sure that we fully leverage on the MDB reform to channel capital towards things that are impactful and have solid outcomes, and to develop resilient markets which fully leverage private capital,” Chalchat said.
Accordingly, it emphasises developing bond formats “to be able to distribute to as many investors as possible”, as well as focusing on projects that bring economic resilience to local communities.
By derisking transactions and increasing their number, development finance “will change things if we do it right”, said Gourc.
“This is not something that is going to increase the P&L of the bank, but it is part of the DNA of the bank,” Zorzi said.
Hand holding
BNPP’s ESG advisory effort reinforces its leadership. It covers areas such as ESG reporting, ratings and communication strategy, as well as dialogue with investors on topics such as impact reporting and blue finance through surveys, roundtables, webinars and “speed dating” events, and covers debt and equity issuers, including pre-IPO companies.
“It's an ESG hand-holding service to our clients to ensure that we're providing up-to-date best-in-class advice all the time,” said David Reynolds, a managing director.
Artificial intelligence plays an increasingly important role, with the bank now operating a “360-degree” advisory AI and a dedicated AI for ESG assessment.
Significant mandates during 2024 (some of which did not begin as formal requests, but grew out of deep dialogue on ESG issues) included advising a Belgian chemicals company, a Dutch healthcare technology firm and a German automotive issuer on ESG ratings, as well as regulation and investor targeting in some cases.
Ratings are “one important component of investors’ overall assessment so we work a lot with companies to try and improve their ESG ratings. Not only do they get a better outcome there, but improving disclosure helps them improve their overall ESG profile”, Reynolds said.
To see the digital version of this report, please click here.
To purchase printed copies or a PDF of this report, please email leonie.welss@lseg.com
