Reinforcing client relationships through CSR engagement

Friday 02 December 2016

Finnish forest industry company UPM and BNP Paribas' shared commitment to Corporate Social Responsibility has benefited both firms.


 

When BNP Paribas informed UPM that it had a CSR policy covering the wood pulp sector and UPM was going to be assessed accordingly, UPM welcomed the news seeing it as a great opportunity for dialogue. The company was very forthcoming on its environmental and social practices and provided very insightful suggestions on how to refine some criteria of BNP Paribas policy. The CSR teams of both companies, under the auspices of the senior banker, engaged in a very fruitful dialogue on best CSR practices in the wood pulp sector, which will help BNP Paribas to better understand and appraise other clients in the same industry. This was also a great opportunity for BNP Paribas' senior banker to gain a better appreciation of the environmental and social (E&S) challenges faced by UPM.

The wood pulp sector CSR policy of BNP Paribas is used to benchmark client performance against a range of specific environmental and social best practices in forest management and wood pulp production. The policy covers topics such as the impacts of forest management on climate change and biodiversity, health and safety policies, and water usage in the pulp process.

The wood pulp sector policy is one in a series of financing and investment policies developed by BNP Paribas in cooperation with its stakeholders to guide the provision of financial products and services in industries that present significant environmental, social and governance challenges. Other financing and investment policies cover palm oil, defence, nuclear energy, coal-fired power generation, agriculture, mining and oil sands.

UPM is recognised as one of the world leaders in sustainable development, putting corporate social responsibility at the heart of everything it does. Its Biofore strategy focuses on the versatile use of renewable and sustainable wood biomass, innovation, resource efficiency, stakeholder dialogue and responsibility. From its sourcing and forest management policies to the creation of innovative, renewable and recyclable products, responsibility is at the core of its actions across the whole value chain, leading to cost efficiencies and increased competitiveness.

BNP Paribas is also committed to building a sustainable future, successfully developing a range of sustainable financial solutions including a green bond, green loans and green supply chain financing. The Group has also allocated €7.2bn of funding to the renewable energy sector in 2015 and aims to achieve €15bn by 2018. This specific key performance indicator has been included on the BNP Paribas dashboard, which is used to determine a part of the amount of the variable incentive plan for the Group's 5,000 Top Managers. BNP Paribas has also developed and implemented a solid CSR framework including eight CSR policies and a CSR screening process for its large corporate clients which allows for a systematic analysis of its clients' sustainability performance and best practices, leading, when needed, to engagement with the client.

Win-Win partnership brings benefits for both sides

Sami Lundgren, UPM Vice President for Environment & Responsibility, and Marjo Liukkonen Lazaro, Finland Corporate Coverage Director at BNP Paribas CIB, explain how the UPM/BNP Paribas dialogue on CSR worked and the benefits that it has delivered for both sides. Lundgren says the cooperation has been a 'win-win' for the partners, while Liukkonen Lazaro says both learned from each other when they discussed the bank's wood pulp sector CSR policy, resulting in better understanding of the company's E&S performance and areas of improvement for the policy.
How has BNP Paribas' partnership with UPM worked in concrete terms?
Marjo Liukkonen Lazaro, Finland Corporate Coverage Director at BNP Paribas CIB
Marjo Liukkonen Lazaro (MLL): UPM is one of BNP Paribas' longstanding cornerstone clients in Finland. It is one of our oldest clients - it has been a client for close to 40 years.

Here I saw an opportunity for collaboration in a new area. As UPM is an industry leader in CSR and as this matter is very important for the bank, I proposed to collaborate in our assessment of their performance, as per our policy, through extended discussions which resulted in a better understanding of E&S matters in the sector.

The point of this collaboration, on the one hand, was to give information to UPM on what kind of questions are important for financial institutions, to be able to take actions if necessary and communicate on these topics on their website or in their annual CSR report. At the same time, as they are an industry leader, I wanted to have their comments on our processes and our assessments and to be able to improve our own processes and work out how to express these questions, so we had conference calls with the Paris CSR team where UPM expressed their understanding of the different questions and made proposals on how the policy should be structured and expressed, and this was very valuable.
How has the partnership helped UPM in its environmental and social responsibility efforts?
Sami Lundgren, UPM Vice President for Environment & Responsibility
Sami Lundgren (SL): We have had a partnership with BNP Paribas for some time. We have had a good cooperation and this cooperation is now enabling us both to benchmark how corporate responsibility can be developed in our sector.

We of course know what's happening in our sector and so we have been able to help BNP Paribas to evaluate companies in our sector. At the same time, we have been able to learn a lot from BNP Paribas on how a leader in the banking sector approaches CSR. So, it was definitely a win-win - we both learned how the other is operating. BNP Paribas learned about best practices in the forest industry and we learned about the requirements for the financial sector.
And are there any wider benefits?
SL:       Of course we would like to have the same kind of standards in this business globally, and with a partner like BNP Paribas our outreach is much better and much wider, so there are big benefits for us.
How did the dialogue between UPM and BNP Paribas proceed?
MLL:    It was very much appreciated by both sides. These kinds of Know Your Customer and risk management compliance topics are often seen as constraints by both banks and clients but here the experience was mutually very positive, and we have both been able to improve our communications and processes. UPM's head of CSR said 'it is fantastic that you are doing this'. The client took it extremely positively, which is very rare, and it was thanks to this collaboration.
How does BNP Paribas' partnership with UPM fit in with the bank's broader commitment to corporate social responsibility and sustainable development?
MLL:    Corporate social responsibility is very important for the bank. We provide financial services and products to the global economy, and we have a duty to support the economy in a responsible way and to address our own CSR responsibilities. Our CSR strategy is structured around four pillars - our economic responsibilities, our social responsibilities, our civic responsibilities and our environmental responsibilities.

We also have responsibilities in relation to our clients and suppliers, so we assess our clients in terms of their CSR performance and potential areas of improvement. This assessment is part of our Know Your Customer processes and part of our risk management, and we have several different financing and investment policies for industries that may have higher risks, and one of these is pulp and paper.

Our customer assessments are quite large and there are dozens of questions to be addressed concerning the potential client in areas like environmental management systems, health and safety management systems, different certifications and their sourcing activities, as well as a range of social criteria. In the case of pulp, there are also aspects related to protected forest areas, water treatment and chemicals usage.
What steps has UPM taken to improve the social and environmental impact of its activities?
SL: We created our so-called Biofore strategy around eight years ago. Corporate responsibility and sustainability is an integral part of all our operations and we see it as a source of competitive advantage. So it has been integrated into everything that we do. We are committed to continuous improvement in all areas of economic, social and environmental responsibility, across the whole value chain including our sourcing and suppliers and partners. 
And what has the impact of the Biofore strategy been in terms of cost reductions and earnings?
SL: At the end of the day it's win-win, because having less waste means that we are better in our resource efficiency. And if we're using less energy, we are using less money to purchase the electricity. We have actually turned this around and we are now selling energy - that's one of our key business areas. Our excellent financial results are based on the fact that we are trying to be as efficient as we can, which is a big contributor to our earnings.
Are there ever situations where UPM might lose business to people who are less scrupulous and less responsible?
SL: This is the reason why setting global standards, like the ones created by BNP Paribas, are important. It is a way to raise awareness on the importance of corporate responsibility. UPM operates in a global market and if competition is able to offer cheaper products with possible higher environmental impacts, the customer might be tempted to choose the cheaper and more harmful option without knowing the full picture.
What are the benefits of UPM's strategy for shareholders, customers and employees?
SL: We try to make products that will benefit our customers, such as our UPM Valor lighter paper product which enables the customer to save logistics costs and reduce their carbon footprint or BioVerno renewable diesel, which is made out of pulp residue, and reduces CO2 emissions by up to 80% compared to fossil fuel. For shareholders, if we are mitigating risks and gaining benefits, the strategy should be good for them as well. And for employees, one responsibility indicator is personal health and safety. If we are doing things well, there are fewer accidents, which is of course good for employees, and the company. 
Does UPM have any specific financing needs resulting from its strategy?
SL: Not due to the strategy, but there are some cases where there is some special financing available for investments that fulfil certain environmental criteria. The biorefinery producing our renewable diesel is an example. We invested €179m in this and we were able to get better loan conditions because of the quality and credentials of the project.
What financial support has BNP Paribas been able to give to UPM?
MLL: We are one of their core banks, so we are funding them and we are working with them on several business lines in different geographies, so we provide financial solutions and other services to UPM.
And in more general terms, when the bank makes financing and investment decisions, how does applying CSR standards help? Does this sometimes prevent you from offering financing or making an investment?
MLL: If the CSR assessment is not approved or adequate actions not taken, we might take a decision not to fund a client for a specific project. If there are some issues in the assessment, we might accept under certain conditions and then this would be reviewed again later.
How important is a company's reporting of data on its performance in environmental and responsibility matters?
SL: I would say that it is of crucial importance. For customers, investors or other stakeholders, transparent reporting allows them to make better decisions. And we are competing globally so it is only fair if everybody reports everything openly. We do it on a corporate level through UPM reports. We do it on a unit level through so-called EMAS (Eco-Management and Audit Scheme) statements from our main production sites. We are communicating locally and then of course we have product level information. It's crucial that this reporting is transparent and verified, otherwise you couldn't compare.

MLL: It is critical that responsibility matters are correctly communicated to all stakeholders. There is very significant reputational risk both for the company and its partners. And there are also financial risks that can be linked to lawsuits or losses of revenue or impact from reputational risks. We have all seen these kinds of cases in the media, even this year, and these kinds of events can lead a company to face financial difficulties or can impact the share price. 
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