BNP Paribas discusses its role and responsibilities, and how banks can help drive forward the allocation of resources to purposeful causes.
The panel debated the roles and responsibilities of private actors to accelerate the transformation to a more sustainable and equitable society.
Why transformation and innovation matterDelivering on sustainability is no less than a licence to do business in the 21st century. It is a key undertaking for companies and for society as a whole.
There is a general expectation that technological innovation will eventually bring solutions that deliver on sustainability needs while allowing for profitable sustainable investments. BNP Paribas believes that by acting decisively to support investment in innovation and disruption, the private sector will pave the way towards a more sustainable future and a healthier economy.
The challenge for many companies is now to bring environmental and social concerns and development into one single vision bridging the gap between investors and projects to allow for efficient capital deployment.
As one of the largest banks in the world, BNP Paribas serves clients across the globe. They are all facing similar challenges despite different contexts. They all need partners who share a common vision to collectively innovate and transform society in order to build a stronger future. Because of its daily interactions with large institutional investors and corporate clients, the bank is well positioned to identify their needs and to be a bridge between investors, that are keen to make a difference as they invest, and corporates, that want to transform their model to contribute to a better, more sustainable future.
Proactive InvestorsMany forward-thinking investors have taken a leading role in pushing the sustainability agenda. Almost every day a new institutional investor announces new sustainability targets. Increasingly, they dedicate a part of their portfolio to invest in renewable energy, to address gender diversity, to fight against poverty, etc. Some of largest investors in the world, such as BlackRock and Legal & General, have already committed to no longer investing in companies that cannot demonstrate tangible Environmental, Social and Governance (ESG) performance alongside economic performance. The underlying numbers in the investment world are substantial. To date, c. $23 trillion of assets under management (AUM) incorporate ESG criteria in their investment strategy [source: Global Sustainable Investment (GSI) Alliance, 2016].
The sheer scale of this number underscores the need for corporates wishing to attract the most responsible investors in the world to be proactive in pushing for an ESG agenda.
In parallel, regulators are pushing in the same direction. Governments have started to introduce mandatory disclosure requirements addressing climate risks (France) and gender equality (UK), to name but two recent initiatives. The scale of the challenge has been recognised by nearly all policymakers and regulators globally, who have spearheaded a number of wide-ranging initiatives to accelerate the transition. However, the drive does not only come from regulation, but also from customers and investors, employees and stakeholders.
The changing face of consumersOur corporate clients are grappling with some significant changes in consumer expectations. With greater transparency and better education, consumers are increasingly demanding sustainably-sourced clothing, food and energy. They want clean air filters, electric cars and environmentally-friendly furniture.
With the challenge posed by this constantly evolving demand from a diverse client base eager for more information and greater purpose in their consumer decisions, corporates have to keep pace, by changing their supply chains and adapting some of their products – and sometimes even their entire business models.
The role of technology in accelerating the pace of such a change cannot be understated. Between the enabling technologies coming to scale and maturity and the disruptive innovations brought by start-ups, the drive for transformation towards greater agility to stay relevant in the marketplace is gathering speed. Those companies that can outpace their peers in this transformation are those that will attract the large and responsible investors setting ever-higher standards for their portfolios.
How banks can take on the challengeBNP Paribas believes it has a leading role to play to help advanced investors bridge the gap with positive business developments projects and positive innovations, pairing smart capital with smart projects.
While the bank is acting across the board, the focus is on four main axes:
- Partnering with and financing start-ups to accelerate the development of sustainable technologies that will make a lasting impact
- Developing cutting-edge financing solutions to help facilitate the transition to new business models for corporates. A few examples include:
a. Green Bonds, a market that has seen tremendous growth, reaching $325 billion of issuance in barely five years. These bonds are real concrete stories of how capital can be allocated to climate solutions and appeal to the financial markets in a new way. For example, Anglian Water, the large UK water utility, issued a green bond to help them better manage water waste, energy and educate local communities on how to conserve water.
b. Beyond green bonds, many sustainable finance solutions are only just getting off the ground. For example, BNP Paribas recently structured a number of sustainable loans across Europe (e.g. Danone). These Positive Incentive Loans have a pricing mechanism linked not just to credit ratings and economic performance, but also to ESG performance – thereby giving it an incentive to meet specified ESG targets.
c. BNP Paribas is taking an active role in democratising access to green investments on a larger scale through the development of data-based standardised tools and methodologies to help investors better understand the sector.
- Partnering with investors to strengthen positive impact investment solutions that contribute to a better world. No fewer than 76% of investors in listed equities incorporate clear ESG criteria in their investment decisions (source: 2017 investor CFA survey). BNP Paribas is one of the first banks to partner with the World Bank on structured investments relating to the Sustainable Development Goals (SDGs). Such solutions provide investors with the tools to make a positive impact. In addition to this, financial performance shows that today, investments can be sustainable, responsible, and profitable at the same time, and there is no need to prioritise purpose over performance targets.
- Finally, banks are the natural intermediaries between purposeful capital pools and impactful projects. BNP Paribas is therefore working relentlessly to connect investors searching for sustainable and positive impact assets with companies looking for capital to finance their transition.
This brings a new dynamic to the bank's relationship with clients, stakeholders and communities at large by working together to build new solutions and co-create innovations, while leveraging start-ups to speed-up the transition.
Leveraging networks and algorithms to achieve our common goalsSocially Responsible Investment (SRI) also challenges everyone to think differently about data: investing seriously in digital solutions to manage the vast amount of CSR data allows for structured analysis to improve investment decisions on sustainability. Indeed, measurement and proof of impact are needed to enhance outcomes and drive greater engagement.
SRI also brings everyone closer to governmental and non-governmental actors, such as the United Nations, think tanks and regulatory bodies.
As a fully responsible company, BNP Paribas engages with clients and partners by drawing on its financial expertise, by helping build bridges between investors and projects and, ultimately, by directing capital to the most sustainable solutions. But in addition to this, BNP Paribas provides support to positive start-ups that accelerate transition. The bank strongly believes that by doing this it helps to bring greater long-term opportunities to investors, to clients, to employees and to society.