What are the forces pushing sustainable finance forward and how can we leverage them even more?
It is hard to deny that we are facing a moment of urgency. Global temperatures are rising, natural disasters are increasing and the gap between rich and poor is bigger than ever before. The search for fairer economic growth should be a priority for individuals, businesses and countries. None of them can win in a world that loses.
Acting sustainably and having a positive social and economic impact as an international banking group, such as BNP Paribas, is essential in terms of corporate social responsibility, as well as business opportunity and access to new markets. To do so effectively, clients, employees and various stakeholders have to be taken on board.
The sustainable finance sector is currently gaining momentum. We have never had so many Socially Responsible Investment (SRI) products on the market and such an appetite for sustainable investing. Today, we see an unprecedented number of innovative sustainable projects developing and in need of sustainable finance in the real economy. In 2017, BNP Paribas Wealth Management reached €12 billion invested in Responsible Investments, which has grown by 50% every year since 2011.
The business argument “doing well by doing good”
According to United Nations Environment Programme (UNEP) Finance, at least $1.5 trillion in annual climate financing is needed to meet the target of less than a two-degree rise in global warming per year. This is a challenge but also a business opportunity for asset managers and private banks. For instance, the BNP Paribas Group has already taken action as an accelerator for the energy transition, promising to invest €100 million in innovative startups by 2020 and at end-2017 invested a total of €155 billion to promote the energy transition and the UN’s sustainable development goals (SDGs)[1]Through an agreement with UNEP, another goal of BNP Paribas is to raise international funds for projects of sustainable development, thereby enabling to finance $10bn of projects by 2025.
There is also the risk management factor. Over time, we put in place a system that takes into account Environment – Social – Governance (ESG) criteria as a framework for policies in sensitive environmental and social sectors, such as agriculture, mining and energy. It enables us to assess our clients and evaluate the policies that govern our lending.
The partnership argument: “Innovative PPPs”
Business as usual – along with regulations, lending and investment policies – often makes it difficult to leverage responsible finance. Nevertheless, incentivized solutions already exist. For instance, we realized in Luxembourg that it was possible to innovate and create impact through partnerships with public and private actors. Innovative funds, such as the Forestry and Climate Change Fund and the Luxembourg Microfinance and Development Fund, have introduced a first loss absorption system through the class A shares subscribed by the Luxembourg government, which in turn mobilizes private and institutional investors.
Huge incentives to mobilize private debt for impact projects include guarantees that take into account part of the risk, such as the European Investment Fund’s EaSI guarantee for social enterprises and microenterprises, as well as InnovFin for innovative startups. Another very recent example is the agreement between BNP Paribas and UN Environment signed at the One Planet Summit to establish Sustainable Finance Facilities in emerging countries with a target capital funding amount of US$10 billion by 2025. The aim is to support smallholder projects related to renewable energy access, agroforestry, water access and responsible agriculture among other sustainable activities[2].
The demand argument: “millennial investments”
Typically defined as those born between the early 1980s and the early 2000s, millennials value purpose-driven investments. BNP Paribas Wealth Management has identified an emerging group of “Millennipreneurs” – entrepreneurs under 35 who often invest most of their investable assets in SRIs and expressly seek positive impacts in their businesses, their investments and their lives[3]. One commonly quoted reason is that millennials are better informed and more willing to screen their investment options.
In Luxembourg alone, BGL BNP Paribas offers more than 100 socially responsible investment funds, ranging from thematic funds, such as the Parvest Funds on Water, Food, Climate Change and Environment – to more general SRI funds, such as the BNP Paribas Human Development. At the end of 2017, BGL BNP Paribas’s financing activities in Luxembourg contributed €600 million in lending that directly contribute to achieving the UN SDGs. That is already a major impact and the start of a long and inspiring road ahead.
Catherine Wurth, Project Leader CSR Accelerator, BGL BNP Paribas
About Catherine Wurth
Catherine Wurth is a sustainable finance expert and works at the CSR Accelerator, the bank’s department in charge of Corporate Social Responsibility and innovation projects. She manages microfinance and social entrepreneurship projects and is responsible for the development of a sustainable finance offer for the bank.
About BGL BNP Paribas
BGL BNP Paribas (www.bgl.lu) is one of the largest banks in Luxembourg and part of the BNP Paribas Group. It offers an especially wide range of financial products and bancassurance solutions to individuals, professionals, private banking clients and businesses. At end 2017, the BNP Paribas Group employed around 3,700 people in Luxembourg, of which 2,379 at BGL BNP Paribas. In 2018, the international magazine Euromoney named BGL BNP Paribas “Best Bank in Luxembourg” for the third year in a row.
[1]https://invest.bnpparibas.com/sites/default/files/documents/ddr2017_bnp_paribas_gb.pdf, page 491
[2]https://group.bnpparibas/en/press-release/united-nations-environment-programme-un-environment-bnp-paribas-partnering-bring-private-capital-sustainable-projects-emerging-countries
[3] 2018 BNP Paribas Global Entrepreneur Report