Sustainable finance has revolutionised financial services and the way we all do business. Today, offerings like sustainable bond and loan products are growing at an astonishing rate and creating a more sustainable economy.
Since EDF France became the first ever large company to issue a green bond in 2013, the market has never looked back. The novelty with the French utility company's milestone €1.4 billion bond was in the way it earmarked the transaction's proceeds for renewable energy projects. While the World Bank and the European Investment Bank had issued the first ever green bonds in 2007, EDF underlined the strength of investor interest in corporate issuers of green debt instruments.
EDF's success was foundation that gave the market the confidence to grow – and it has since gone from strength to strength. It has also spawned several other sustainable bond and loan products that have witnessed astonishing growth. All of these sustainable finance solutions are explicitly designed to solve long-term existential challenges caused by ocean degradation, gender inequality, rising species extinction and loss of biodiversity, deforestation and pandemics.
Earmarking funds for sustainable projects is now starting to extend into traditional bank loans, revolving credit facilities, bonds and even derivatives. BNP Paribas has pledged to increase its financing targets for loans related to renewable energy projects from €15 billion to €18 billion by 2021. In addition to becoming entirely carbon neutral in 2017, BNP Paribas is one of the top three underwriters of green bonds and has ceased financing oil and shale gas programmes, tobacco, and pledged not to finance any oil or gas exploration or production projects in the Arctic. The bank is also committed to stopping all of its financing related to the thermal coal sector in the EU by 2030 and worldwide by 2040.
In the Americas, BNP Paribas was appointed as an underwriter in 2019 for a $1.42 billion sovereign green bond issued by Chile, the first in the region. Proceeds from the issuance will be used to fund renewable energy facilities and other projects inside the country to protect the environment inside the country.
Furthermore, BNP Paribas was also underwriter for a $1.5 billion green bond issued by Apple, the funding of which will be used to help reduce carbon emissions across the company's supply chain and support its energy transition. BNP Paribas also developed a funding structure in conjunction with PUMA to provide financing to the sports company's suppliers to improve their environmental, health and safety and social standards. More recent initiatives include BNP Paribas' incentive-linked corporate revolving credit facility with Brookfield Renewable Partners structured as a sustainability-linked loan. Meanwhile, the bank also closed a sustainability linked syndicated credit facility with WSP Global, which will see the professional services firm avoid higher borrowing costs if it meets its sustainability targets.
Financing markets are now starting to operate with a new way of thinking. Increasingly, interest rates are no longer solely linked to the borrower's creditworthiness, but also to their ability to focus on commercially viable environmental social and governance projects. This enables companies to lower their funding costs by contributing to a sustainable economy.