IFR
recently awarded BNP Paribas ‘Bank of the Year for Sustainable Finance’,
highlighting the Bank’s leading role in supporting clients as they address
critical environmental and social challenges.
“Across the sustainable finance landscape, there are several pathways for accelerating the transition towards a low carbon economy.”
Over the last year, sustainable finance has
stepped up to tackle key global crises – from climate change and biodiversity,
to the Covid-19 pandemic and the social impact the virus had on societies and
economies.
We unpack the key drivers for how sustainable
finance and BNP Paribas are supporting a responsible recovery, including the
scale up of renewable energy, product innovation for transition, social
finance, and the evolution of coalitions for impact across a range of issues.
Renewable energy lending to meet the Paris Agreement
Scaling
up renewable energy is a vital part of achieving the Paris agreement. The US
has officially returned to the Paris Climate Agreement aiming to ramp up the
implementation of clean energy across the country. The scale of the challenge
remains high though, for example the EU will require significant investments to
meet its 32% renewable energy target by 2030.
Offshore
wind is undoubtedly one of the ways to achieve this: whilst it currently
provides only 0.3% of global power generation, the International Energy Agency
(IEA) estimates it could supply more than 18 times the current global
electricity demand.
Recognising
this need, in 2019, 87% of the project financing granted by BNP Paribas in the
electricity-generation sector was devoted to renewable-energy projects, and 0%
to coal-related projects. Key renewable energy deal highlights include:
Fécamp – the largest French project financing transaction ever completed in power
generation, raising more than €2 billion. BNP Paribas acted as sole financial
adviser and hedge execution bank, and was one of three underwriters alongside
the European Investment Bank.
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Scaling up transition through product innovation
Across the sustainable finance landscape, there
are several pathways for accelerating the transition towards a low carbon
economy. This includes use of proceeds bonds (such as transition and green
bonds), and sustainability-linked financing (such as sustainability-linked
bonds and sustainability-linked loans), which are general corporate purpose
funding mechanisms that embed sustainability performance targets into the
mechanism.
Transition bonds are primarily issued in carbon
intensive industries, and assign proceeds to specific decarbonisation
activities such as renewable energy capex and energy efficiency measures.
Notable transition bonds supported by BNP Paribas teams include:
SNAM
€500mn 10-year – In June 2020, Italian energy
company SNAM launched a €500 million transition bond to support its goal of a 40%
reduction in direct CO2 emissions by 2030. BNP Paribas was joint
bookrunner.
Cadent
€500mn 12-year – Cadent issued the UK’s first ever transition bond in March 2020. The bond was 8.5 times oversubscribed
highlighting strong investor appetite to support the energy transition in the
UK. BNP Paribas was sole transition framework structuring advisor.
Sustainability-linked bonds (SLBs) and loans (SLLs)
are quickly becoming important tools for corporates to align their financing
needs with their sustainability objectives. SLLs are structured in a way that
the interest margin on the loan is directly tied to a pre-defined
sustainability target. The key performance indicator (KPI)-linked mechanism in
SLLs was then applied to the bond market in the form of the SLB, helping embed
credible, transparent and often science based targets into bond coupon
mechanisms.
Across both SLLs and SLBs, BNP Paribas has driven innovation in the
market, diversifying into new sectors and supporting corporate clients in their
transition journeys.
Sustainability Linked Innovations have included:
RETAIL – Tesco – SLL and SLB: The €750m benchmark 8.5-year sustainability-linked bond (SLB) issued in January 2021, for which BNP Paribas acted as joint sustainability structuring advisor and joint bookrunner targets scope 1 and 2 GHG emissions reduction. In October 2020, Tesco became one of the first UK retailers to establish an SLL through a £2.5bn revolving credit facility linked to emissions reduction, renewable energy sourcing and food waste reduction. BNP Paribas was sole coordinator and sustainability coordinator for the facility.
LUXURY GOODS – CHANEL became the first unrated issuer to place public bonds linked to sustainability metrics through a landmark €600m sustainability-linked bonds targeting decarbonisation and energy transition. BNP Paribas was joint structuring advisor and joint bookrunner on the deal.
PRIVATE EQUITY – BNP Paribas Financial Institutions Coverage teams have supported private equity clients through SLLs. This began in January 2020 with Eurazeo who finalised the first ever syndicated SLL for a private equity firm linked to climate and governance targets, with BNP Paribas acting as sole sustainability coordinator. The Bank has also since supported SLLs for Stockholm-based EQT and most recently in 2021 for US private equity firm Carlyle.
Green Bonds remain another key area to support
the transition, as use of proceeds are specifically allocated to support
financing of new or existing green projects. A notable development in the green bond market over the last year has
been the introduction of issuers in the auto sector. This includes Daimler‘s €1 billion,
10-year green bond designed to accelerate a low-carbon business model, and
Volvo Cars debut €500 million 7-year green bond to help finance investment in electric
vehicles, with BNP Paribas acting as structuring adviser.
Sustainable finance addressing social issues
Despite
the ongoing economic and social impacts of the Covid-19 pandemic, social bond
issuances are booming both in volume and in percentage of the total sustainable
supply. As this crisis has helped scale up sustainable finance as a response to
social issues, The Banker recognised
BNP Paribas for its leading role in Covid-19 related issuance as ‘Investment Bank of the Year for Social Bonds’ and ‘Investment Bank of the Year for Sustainable FIG financing’.
Elsewhere,
SLLs are showing the relevance of sustainable finance to support progress on
broader ESG objectives too, as Carlyle – a prominent financial sponsor in the
US – has secured the first credit facility uniquely tied to board diversity. BNP
Paribas has been at the forefront of equality-based SLLs, serving as the sole
sustainability coordinator for Montreal-based WSP Global on the first-ever SLL with such metrics in North America in February 2020.
Coalitions for impact
Partnerships remain core to increasing
inter-industry knowledge sharing, especially in the road towards COP26. BNP
Paribas is at the forefront of this approach, and is part of several coalitions
in different sectors including:
Nature & Climate Action: Includes the Financial Services Task Force (FSTF), a Sustainable Markets Initiative’s (SMI) led by HRH The Prince of Wales, the Taskforce for Nature-related Financial Disclosures (TNFD) and Paris Agreement Capital Transition Assessment (PACTA).
Real Estate: Includes the Coalition for the Energy Efficiency of Buildings and the UK Green Building Council (UKGBC)
Mobility: BNP Paribas is a member of the Movin’On Community of Interest on energy efficiency, which aims to scale up energy efficiency to support reinvestment in the energy transition
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