Thursday 04 June 2020

BNP Paribas' Head of Engagement Transformation Gwen Yu discusses how sustainable finance can protect biodiversity and natural capital in a post Covid-19 world.


Forty-four trillion dollars – roughly over 50% of global GDP – is either highly or moderately dependent on nature and its services, according to the World Economic Forum's 2020 Global Risks Report. This report ranks biodiversity loss and ecosystem loss as one of the top five threats to humanity in the coming decade. Covid-19 has arguably had a magnifying effect among policymakers, focusing the debate on how governments, corporates and individuals can re-build a more resilient global economy with "natural capital" as a core variable.

Sustainable finance will play a vital role. Gwen Yu, Head of Engagement Transformation at BNP Paribas, joined Euromoney Corporate Social Responsibility Editor Helen Avery and biodiversity experts from WWF and the Natural Capital Finance Alliance, to discuss these key risks and opportunities in the post Covid-19 world.

Greater integration of social factors

As the pandemic swept across the world, many governmental agencies and supranational development banks, such as the European Investment Bank, BPIFrance and Italy's CDP, turned to the capital markets to support funding for their healthcare relief efforts and social services. Bond proceeds from these Covid-19 response bonds were earmarked for specific pandemic response projects, with a reporting framework in place to satisfy the requirements of ESG (environmental, social and governance) investors.

In 2020 to date, volumes issued have topped $150 billion, according to data from BNP Paribas and Bloomberg. While there is debate whether the recent focus on social metrics have come at the expense of environmental metrics, the pandemic has hit the most vulnerable the hardest – and a transition that takes account of this is critical.

"Social objectives must be at the same level as environment, and therefore nature," says Yu, who explains that the inability to support the most vulnerable will make it harder to achieve climate ambitions. "In the long-term, responses must incorporate both social and environmental needs. And if biodiversity and nature are core elements of businesses, incentives or products, solutions must be scalable, just and fair in terms of the transition."

Three paradigm shifts resulting from Covid-19

The pandemic has had an impact on every aspect of the economy:

  1. Policy: some governments are tying bailouts to climate targets, while the European Commission has underscored the need for a green new deal to be tied to recovery packages. The European Green Deal provides a roadmap to boost efficiency of resources by moving to a clean, circular economy, which also restores biodiversity and cut pollution.

  2. Corporates: the localisation of supply chains will shape things in the months and years ahead. Governance challenges will be important too – environmental requirements should not be rolled back, while there should be safety nets and metrics to prevent the crisis being used as an excuse.

  3. Personal behaviour change: during the crisis, consumers shifted their consumption habits, and some of those habits – such as local food sourcing and domestic tourism – will stick.

The Taskforce for Nature-related Financial Disclosures

Investors lack environmental data. However, Yu believes there are some challenges in applying existing data to address biodiversity risks. "We already have many data sources, but they may not be the right kind of data," she explains. "For example, some data may not be publicly audited because it is self-declared; in terms of structuring data, it may be unusable from a bank or investor integration perspective."

Some experts have called for a taskforce on nature-related financial disclosures (TNFD). Andrew Mitchell, founder of the Natural Capital Finance Alliance and the Global Canopy Programme (GCP), argues Covid-19 has highlighted the sheer size of biodiversity risk. "We need a Taskforce on Nature-related Financial Disclosure, as nature risk can be huge, fast and covers many sectors; yet it is unrecognised by many in the financial sector today. Covid-19 is changing all that and will be a driver to realise and understand how quickly we must accelerate addressing these nature-related issues."

BNP Paribas launched its inaugural Ocean protection policy in 2019

How is BNP Paribas supporting biodiversity and natural capital?

The bank has taken steps to put greater focus on biodiversity as part of its environmental approach: 
  • BNP Paribas has a range of sector policies on coal, shale-gas and tarsands aimed at protecting natural capital. In May 2020, BNP Paribas extended its coal exit policy to all OECD countries as part of its target to end the use of coal by its clients in the electric power sector by the end of 2030. 
  • In September 2019, at the UN Climate Summit in New York, BNP Paribas launched its inaugural Ocean protection policy and committed €1 billion by 2025 to finance the ecological transition of ships. This could contribute, for example, to dual-fuel Liquefied Natural Gas (LNG) propulsion projects and other initiatives to decarbonise shipping. 
  • BNP Paribas Asset Management has begun assessing the seafood sourcing and plastic/packaging strategies of companies in the consumer sector, adjusting their overall ESG scores and engaging with them to improve best practices. The initial study was conducted in collaboration with the Natural Capital Protocol. 
  • Since 2010, the BNP Paribas Foundation has financed the Climate & Biodiversity Initiative and provided €18 million for 27 research projects. 
  • First biodiversity-linked loan – BNP Paribas acted as sustainability coordinator for Finnish forest bio-industry company UPM's €750m revolving credit facility (RCF) linked to KPIs of achieving net positive biodiversity impact and a 65% reduction in CO2 emissions from fuels and purchased electricity.



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