Pierre Rousseau, BNP Paribas Senior Strategic Sustainable Business advisor, talks to L'Opinion about how sustainability could become the new normal in finance.
Emmanuel Macron suggested reallocating a third of the world's finance to new climate response measures. Is this credible or even possible?
In the context of climate and biodiversity related matters, it is necessary to be ambitious and to jolt others into action. Most importantly, we need to move beyond fear into action. In order to achieve global decarbonisation, protect biodiversity, and successfully achieve the UN's 17 Sustainable Development Goals, we will need to raise a lot of funds, both public and private. The IPCC's most recent report highlighted the urgency of these matters. Finance is the indispensable fuel; this was the meaning of the President's message.
How might it be possible to attract capital to "sustainable" projects? Through financial innovations? Promises of strong returns?
A: Global capital is not in short supply! If we want to focus finance – a highly regulated sector – on environmental and societal concerns, it will be necessary to reinvent traditional financing and to align the regulatory framework with the goals to be achieved. Second: finance is going to have to review its operating methods. Finance functions in a bubble, on a fragmented basis, whilst the future is a collaborative endeavour. Finance must also integrate external factors on a more systematic basis. Today, we connect financial performance to the level of risk taken. Tomorrow, it will be necessary to assess the impact of investments in terms of the environment and other ESG criteria, which means being able to measure such factors and integrate big data. The issue is one of trust. The more transparency there is around the decisions made, the easier it will be to attract capital.
Is finance already changing?
A circular economy is gradually taking shape. This means in particular the growth of leasing. Rather than purchasing things, people are leasing them. When the owner recovers his property, he can reuse or recycle it. Today, leasing is not one of the main activities in the financial sector, but this is going to change. The other emerging trend, and one that is a focus for BNP Paribas, is "blended finance". This takes environmental issues into account, namely a mixture of philanthropy and finance, public and private funds, or the association of "impact investing" with traditional finance. This is a question of mobilising all available resources in the context of developing joint projects. For example, we are going to extend the offerings of multilateral development banks by accepting their guarantees to back private projects. We are also aligning philanthropic funds with commercial projects and we are working more and more with microfinance. This helps in particular farmers in emerging economies to adopt more virtous agricultural practices. Our role is to streamline the financing.
What difficulties are banks confronting when trying to advance in these areas?
The first difficulty is working with the multiple stakeholders involved in a project, as aligning interests is no easy thing. The other constraint is that we live in a world dictated by the short term. For example, listed companies have quarterly obligations, yet all sustainable investments and "sustainability" itself are based on strategy and therefore focused on the long term. Lastly, banks need to move from a world of banking products to a world of solutions. This generates constraints internally as promoting a product to a client and finding a solution for a client requires a very different skill-set.
What are the main commitments of BNP Paribas in terms of sustainable finance?
Our working methods are changing a great deal. Before, the bank was characterised by direct financing: deposits were required to grant loans. Today, the bank is financing less and less, for regulatory reasons. The capital markets are evolving, with green bonds, social bonds, and sustainable bonds. We are still at a very early stage of this process. As for the final investor, various categories are emerging. Alongside traditional pension funds and institutional investors, we are seeing the emergence of funds with a sustainable focus, namely "impact investors". The bank plays an intermediary role between these various stakeholders. Its clients are changing, in line with the incremental increase in the number of businesses with an environmental association. BNP Paribas is extending its solutions in the field of financing for solar energy, big data and electricity. Another significant trend is the development of the bonus/penalty system. In the transport of goods, for example, we are verifying more and more the traceability of products. If environmental standards and UN principles are complied with, the business is financed with favourable terms, and conversely the opposite occurs. BNP Paribas is currently working in this manner with a footwear manufacturer, for which we verify the origins and processing of its leather. Lastly, we are working on developing "sustainable" investment products for the general public. This is a specific case where regulation must adapt in order to ensure accessibility to the largest possible number of people.
What do you think of the "Wall Street Network on Sustainable Finance" promoted by Michael Bloomberg? Which structuring initiatives have been put in place?
Similar initiatives already exist. In particular of the Financial Centers for Sustainability (FC4S) of the United Nations Environment Programme (UNEP). It is a question of making Europe's financial centres more accountable in sustainable finance issues. For example, Paris, London, Dublin, Geneva, Frankfurt, and Milan have joined together to promote all aspects of sustainability. Other Asian cities have joined the initiative, such as Shanghai, Shenzhen, and Guangzhou. The number of relays is growing. They will make it possible to speed up the process. Moreover, we do not have a choice, we need to act now.
What is your vision of sustainable finance in five years?
There is a great need for a global ecological and social transformation, as expressed in the UN's Sustainable Development Goals. Finance has an unprecedented opportunity to play a positive role for humanity and the planet. I hope that in five years sustainable finance will quite simply be a major component of the financial sector.