Through their ability to deploy capital to support sustainable initiatives that support short-mid- and long-term economic development, financial institutions are critical players in making the world more sustainable. In addition, they provide institutional and retail clients with access and education on sustainable financial products so they too can contribute to the causes they value while earning a financial return.
We spoke with BNP Paribas’ Laurence Pessez and BNP Paribas Fortis’ Guy Janssens to get a closer look at how one major bank and asset manager is using its global presence and local expertise to advance the cause of sustainability with customers in home markets in the Eurozone and within financial circles around the world.
Head of Sustainable and Responsible Investments
BNP Paribas Fortis
Global Head of Corporate Social Responsibility
BNP Paribas Group
RobecoSAM (RS): Your Group CEO, Jean Laurent Bonnafe, recently commented that as an international bank, your role “is to help drive energy transition and contribute to the de-carbonisation of the economy.” How does this play out in more precise and practical terms?
Laurence Pessez (LP): The issues associated with climate change have significant implications for economies around the world and they will continue to impact our clients as well as the value of our assets.
BNP Paribas has for many years considered climate change a priority and has undertaken multiple initiatives, including helping our clients pursue energy efficiency, financing renewable energy projects, investing in climate change-related scientific research and collaborating with external stakeholders to develop low-carbon solutions.
Using the global warming target of 2˚C set at the COP 21 Paris Agreement as a reference, BNP Paribas has launched new commitments in order to contribute to the transition to a low-carbon energy system.
“We want to be at the forefront in developing innovative financing and investment solutions for a more energy-efficient, low-carbon economy.”
RS: Can you highlight a few of these commitments?
For starters we’ve increased financing for renewable energy solutions, reduced our exposure to fossil fuel energy sources like thermal coal and have incorporated internal carbon prices into our financing decisions. We also want to be at the forefront in developing innovative financing and investment solutions for a more energy-efficient, low-carbon economy.
Towards this aim we are involved in partnerships and initiatives to engage regulators, policy makers, business leaders and the scientific community to support energy transition. Just recently, in December 2017, we participated in the One Planet Summit in Paris where nearly 90 French companies signed the French Business Climate Pledge that committed EUR 320 million towards reducing GHG emissions, internal carbon pricing, and implementing the recommendations of the Financial Stability Board’s Task Force on climate-related disclosures (TFCD).
“Our goal of increasing renewable energy financing is a backed by a KPI of doubling our financing for renewable projects to EUR 15 billion by 2020.”
RS: International development initiatives are sometimes criticised for being more talk than action. What is BNP Paribas doing to ensure you stay on track with your stated objectives?
LP: For each of our stated CSR [corporate social responsibility] goals, we assign key performance indicators, or KPIs, to help us track outcomes and our performance over time. We try to make indicators specific, measurable, and appropriate for the objective.
For example, our goal of increasing renewable energy financing is a backed by a KPI of doubling our financing for renewable projects to EUR 15 billion by 2020. A KPI for our commitment to innovative financing, is to be among the top 3 euro-denominated green bond issuers worldwide by 2018.
Corporate Social Responsibility: Defining Priorities & Measuring Performance
GOAL => Key Performance Indicator (KPI)
- Increase financing for renewable energy solutions => double financing of renewable energy projects to EUR 15 billion by 2020
- Reduce exposure to thermal coal energy sources => stop financing of coal-fired power plant projects and coal extraction companies with no energy diversification strategy
- Reduce exposure to unconventional oil and gas production => Stop business with companies with principal business activities related to shale and tar sands
- Mitigate business risks linked to energy transition => Incorporate internal carbon price into financing decisions
- Integrate carbon risk into investment activities for clients => Measure, monitor and disclose the carbon footprint of client investment portfolios
- Develop innovative financing and investment solutions to drive energy transition => Target to be among the top 3 euro-denominated green bond issuers worldwide by 2018 • Invest €100 million by 2020 to encourage innovative start-ups to develop technologies and business models that address energy-related challenges
- Engage with regulators, policy makers and the scientific community to support energy transition => Participate in ongoing dialogue, data and knowledge-sharing initiatives • collaborate with financial institutions and market regulators in developing efficient financial market mechanisms to drive energy transition and limit global warming
“For more than a decade, we’ve been developing a comprehensive SRI offering tailored to both the needs of individual and institutional clients.”
RS: Sustainability has gone mainstream. The latest estimates stand at more than USD 23 trillion globally.1
What in your view is responsible for the surge in interest?
Guy Janssens (GJ): There is a growing consensus among investors as to the importance of their contribution to caring for our environment and ensuring the well-being and prosperity of people around the world. Socially responsible investment or simply SRI, makes sense not only for ethical reasons, but also for financial reasons.
RS: Can you tell us more about the evolution of sustainability products at BNP Paribas Asset Management?
GJ: We are constantly innovating in terms of research, processes and analyses in order to develop new products in line with sustainable development issues and climate change. For more than a decade, we’ve been developing a comprehensive SRI offering tailored to both the needs of individual and institutional clients. It involves equity, bond and multi-asset funds and ranges from best-in-class funds to thematic funds that invest in companies that are helping solve environmental and social challenges around specific themes.
Since 2012, we’ve applied ESG standards based on the principles of the UN Global Compact to all our investment processes by means of strict sector policies. To do this, we’ve built up a dedicated extrafinancial research team that rates companies and sovereign states on the basis of ESG standards. We’ve also cultivated partnerships with award-winning environmental fund managers around the world. We currently manage more than EUR 40 billion2 within our SRI offering and have seen the strongest SRI growth in our private banking division.
We’ve seen particularly strong demand for sustainable investments in Belgium where we manage more than EUR 7 billion for high net worth individuals. BNP Paribas Asset Management and BNP Private Banking are committed to our clients and committed to socially responsible investing. We’ve been in the game for a long time and clients benefit from our long-term experience in SRI.
RS: Negative themes like climate change and catastrophic events will continue to confront us in the near and long-term. How are global megatrends impacting BNP Paribas Asset Management as a distinct business unit?
Guy Janssens (GJ): BNP Paribas Asset Management has always been interested in protecting the value of our clients’ investments over the long term—this commitment has never waned. Since 2002, we’ve been taking practical measures to combat climate change, which is one of the most critical and far-reaching of all sustainable challenges given its significant, immediate, and long-term impact on clients, business, and society.
We execute our strategy at three levels: (1) our external, global response (2) our own internal, operational response and (3) our response with our clients.
“Exceeding this global warming level will threaten economic stability and, consequently, long-term financial investments.”
RS: How do you define global response? Can you give us some examples of what that looks like?
GJ: Our global response is characterized by outwardly demonstrating our support for environmental responsibility that is consistent with containing global warming to +2°C. We believe that exceeding this level will threaten economic stability and, consequently, long-term financial investments. We are convinced of the necessity of redirecting the economy towards this objective through a combination of public policies and public-private financing. To achieve this, we focus on themes like capital allocation to sustainable companies, responsible stewardship, transparency and engagement.
In fact, we were among the first mainstream asset managers to sign the Montreal Carbon Pledge and join the Portfolio Decarbonisation Coalition in 2015 mentioned already by Laurence.
Just this year, we were among the most influential global institutional investors (with assets totalling more than USD$ 26 trillion) who launched the Climate Action 100+ to engage the world’s largest corporate greenhouse gas emitters to reduce emissions and step-up their actions on climate change.
BNP Paribas Asset Management—Response to Global Megatrends
Capital Allocation to sustainable companies — entails developing low-carbon investment offerings, financing the transition to renewable energy sources, measuring carbon footprints, and identifying & measuring carbon risks.
Responsible Stewardship — means addressing climate change in our voting at annual general meetings
and engaging directly with companies on climate change.
Transparency & Commitment — involves joining forces with other asset managers to demonstrate a
Engagement — this means being an active part in developing solutions with companies, clients and as
part of global forums.
RS: What criteria drive your internal response?
GJ: Our internal approach is mainly focused on identifying, measuring and reducing our own exposure to carbon risks. We restrict the impact of our activities on the environment by taking measures to contain our own environmental footprint. At a global and local level we strive for carbon neutrality in emissions arising from our internal operations.
In wider terms, as far back as 2002, we considered it part of our fiduciary obligation to protect the value of our clients’ investments by taking action against climate change. In 2003 we joined the Institutional Investor Group on Climate Change (IIGCC).
This was just one platform for investors to use their collective power to fight against global warming 1) by pushing corporate leaders to think about long-term risk in their business practices, 2) to devise investment products that consider and apply ESG principles, and 3) to work with the public sector to create policies that address climate change.
We also apply policies to limit investments in controversial sectors affected by climate change including mining, palm oil, agriculture and coal-fired power generation.
From a more operational standpoint, we are committed to raising awareness among our employees and reducing our environmental footprint through things like streamlining the use of paper and establishing a responsible travel policy.
“We considered it part of our fiduciary obligation to protect the value of our clients’ investments by taking action against climate change.”
RS: You mentioned accompanying your clients in transitioning to a low carbon economy as a third prong to your response to climate change. If I am a client, explain what that means for me?
GJ: We provide our clients with detailed analyses of the effects that climate change could have on their investments, and offer them a broad range of solutions that will meet their specific needs. We offer bespoke solutions to our investors, enabling them to reduce their portfolios’ carbon footprint. We’ve doubled the amount of funds for which we calculate a carbon footprint, which now stands at 200 in 2017.
RS: Public-private partnerships are a consistent theme when discussing sustainability initiatives and probably the most well-known of initiatives are the United Nation’s Sustainable Development Goals (SDGs). How is BNP Paribas using the SDGs within your CSR program?
LP: The Group’s CSR strategy contributes to a broad range of SDGs which include stimulating economic development, financial inclusion for vulnerable populations, gender diversity, microfinancing, preserving natural resources and ensuring health and well-being to disadvantaged communities. Our activities are global, spanning all continents [see Figure 1].
Given our expertise as a financial institution, it should come as no surprise that the majority of our projects revolve around financial inclusion and promoting access to loans and the banking system. Financial inclusion is a concept that can help facilitate the achievement of a number of SDGs including eliminating poverty, creating jobs, increasing gender equality, and improving good health.
“We provide our clients with detailed analyses of the effects that climate change could have on their investments.”
RS: Can you run us through some examples of projects from different regions that are planned or underway?
Obviously we want to maximize impact and the best way to do that is provide support in areas that play to a region’s natural strengths whether they be natural resources, human capital, or technological infrastructure. We are also guided by input from development agencies and local experts.
In Vietnam, we are helping conserve water, control pollution and save crops by modernising pumping stations to help residents and farmers control polluted drainage caused by flooding.
In Indonesia, in collaboration with the government, we are helping reduce poverty and economic enablement by increasing access to mobile banking services—a first among banking institutions in the region.
In India, where 41% of the world’s micro-borrowers are located, we are supporting gender equality, reducing poverty and promoting economic development by providing women with small loans. Our loans in India have increased more than 7-fold to 51.8 million in just 3 years.
BNP Paribas also signed an agreement with the United Nations Environmental Programme (UNEP) to bring private capital to sustainable projects in emerging countries. Key performance indicators include target capital funding amounts of USD 10 billion by 2025, and support of smallholder projects like renewable energy access, agro-forestry, water access, and responsible agriculture.
RS: You’ve highlighted examples from developing countries but are you also contributing to initiatives in the developed world?
Of course. A little closer to home in Europe and Eurasia, we’ve lent in excess of EUR 770 million for projects targeting SMEs, small farmers, and female entrepreneurs in Turkey and Poland. And our Ukraine-based commercial bank, UkrSibbank, is providing EUR 10 million in financing for residents to improve energy efficiency and access renewable energy.
Finally, in North America, our US banking subsidiary, Bank of the West, helps provide medical services for disadvantaged communities in Southern California. The Bank has loaned over USD 22 million and enabled nearly a million patient visits. [see Figure 1]
Figure 1: Examples of BNP Paribas Sustainability Projects around the world
RS: Tell us more about the KPIs you’ve developed for your CSR program?
LP: Absolutely. We’ve mentioned a few of them already. We recognize the usefulness of KPIs and in order to further boost our actions, we actively measure our contributions. We’ve also introduced the SDGs into the key performance indicators for the Group’s CSR program.
BNP Paribas has 13 CSR management indicators which we reviewed and re-defined in 2015 for the period 2016-2018; and the Group has taken on new quantitative commitments for this period.
The Group’s Executive Committee and Board of Directors review the achievement of these objectives annually. Nine of these thirteen indicators are used in calculating the deferred variable compensation of the Group’s 5,000 top managers and account for 20% of the conditions for attributing this compensation.
In addition, we were supported by Vigeo-Eiris in the development of a yearly global indicator—the first of its kind in the banking sector—which measures the proportion of loans making a direct contribution to attaining the SDGs. In 2016, the contribution stood at 16.6%, compared to 15% in 2015.
“We are committed to protecting and preserving forests and improving agricultural practices.”
RS: Change never occurs in isolation and often needs the synergies of collective entities working together to share information, improve understanding, and steer the future direction of an issue. What coalitions or initiatives has BNP Paribas joined to help shape the sustainability landscape in the financial services industry?
LP: We’ve been involved in a number of coalitions and initiatives that are strongly linked to our core business but also those which are largely in line with our ambition to support ecological transition. Guy has referred to some of these on the asset management side of the business. On the lending side, BNP Paribas is most notably involved in the Equator Principles3 which aims to provide banks with a responsible framework for due diligence in project financing.
As a signatory of the BEI Soft Commodities Compact,4 we are committed to protecting and preserving forests and improving agricultural practices; and through our support of the Carbon Pricing Leadership Coalition we support the implementation of a worldwide system for pricing carbon.
On top of these examples, we are members of other coalitions that foster more transparency, accountability and responsibility in banking. At the end of June 2017, we were among the +100 companies that affirmed their commitment to support the voluntary recommendations of the industry-led Task Force on Climate-related Financial Disclosures.
“We hope to forge new paths, construct new investment vehicles, and invest in pioneering companies to commercialize new energy technologies.”
RS: You previously mentioned the One Planet Summit in Paris back in December, what makes this event significant and why did BNP Paribas participate?
The One Planet Summit in Paris brings together major private and public sector forces to combat climate change. The Summit was also the platform which Bill Gates used to announce the expansion of his Breakthrough Energy Coalition (BEC) and its venture capital arm, Energy Ventures (EV), to include more financial institutions, including BNP Paribas.
The BEC and EV bring together governments, research institutions, prominent companies and private investors to design and finance new models for investing in energy innovation. Through our involvement with these and other initiatives we hope to forge new paths, construct new investment vehicles, and invest in pioneering companies to commercialize new energy technologies and accelerate the transition to a low-carbon economy.
3 A risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects. For more information visit www.equator-principles.com.
4 An initiative of the Cambridge Institute for Sustainability Leadership to direct the banking industry to invest capital in business models that increase agricultural yields and support livelihoods while achieving zero net deforestation by 2020.
About BNP Paribas
BNP Paribas is a leading bank in Europe with an international reach. It has a presence in 74 countries, with more than 192,000 employees (including more than 146,000 in Europe, 16,000 in Asia Pacific and 10,000 in Africa). The Group has key positions in its three main activities: Domestic Markets and International Financial Services (whose retail-banking networks and financial services are covered by Retail Banking & Services) and Corporate & Institutional Banking, which serves two client franchises: corporate clients and institutional investors. The Group helps all its clients (individuals, community associations, entrepreneurs, SMEs, corporates and institutional clients) to realise their projects through solutions spanning financing, investment, savings and protection insurance.
In Europe, the Group has four domestic markets (Belgium, France, Italy and Luxembourg) and BNP Paribas Personal Finance is the European leader in consumer lending.
BNP Paribas is rolling out its integrated retail-banking model in Mediterranean countries, in Turkey, in Eastern Europe and a large network in the western part of the United States. In its Corporate & Institutional Banking and International Financial Services activities, BNP Paribas also enjoys top positions in Europe, a strong presence in the Americas as well as a solid and fast-growing business in Asia-Pacific.