How can sustainable finance support a responsible recovery?

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.

• YPF Luz – the fifth-largest power generator in Argentina has committed to adding 297 megawatts of wind energy by 2021 where BNP Paribas Fortis has committed $95 million in secured credit.
• Ørsted  – BNP Paribas acted twice as the green advisor and joint lead manager for Ørsted, a leading renewable energy company, to issue New Taiwan dollar denominated green bonds to fund its offshore wind projects in Taiwan.
  
  

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. Other sectors have also tapped into sustainability-linked finance, and the bank has supported Suzano and Lafarge to issue SLBs in the pulp, paper and cement sectors.

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’.

From the multiple social bond deals, one example is the support BNP Paribas provided to the SURE Programme (Support to mitigate Unemployment Risks in an Emergency), in which the EU issued the world’s largest social bonds and largest ever syndicated Euro deal.

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