Green Europe Today, October 18, 2021
Author: Tomasz Bułhak
The development of environmental solutions and reduction of negative impact on the natural environment are the foundations of the strategies of modern companies. Experts agree that quick and effective measures should be taken to achieve climate neutrality as soon as possible. Environmental issues are the dominant theme of the 17 UN-defined Sustainable Development Goals, and the EU’s 2030 climate policy framework describes specific actions that should be taken by Member States to, inter alia, reducing greenhouse gas emissions (- 55% compared to 1990), increasing the share of energy from renewable sources (at least 40%) and energy efficiency (by at least 36%). Pro-ecological changes taking place in organizations result not only from regulatory changes. This process is also stimulated by the growing awareness and growing expectations in this regard on the part of customers and contractors. What role can banks and financial institutions play in these processes?
Green money: EU taxonomy and sustainable finance strategy
One of the key steps was the creation of a classification system called the EU taxonomy. It is a set of criteria that allows a given company to be qualified as an entity implementing the strategy and Sustainable Development Goals. These include climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of ecosystem diversity. One prerequisite to the positive assessment is also proving that the company does not cause significant environmental damage in any area. One of the purposes of this classification is to identify companies that will have access to the so-called “Green money”, that is, measures supporting eco-transformation. The key task for companies is to adapt to new criteria and challenges in this area.
– A closer look at the forces that have driven the sustainability movement over the past fifteen years indicates that ESG and Taxonomy issues will remain on the radar of many market players. Environmental change, in particular climate change, will scientifically be of increasing importance in the context of good governance and low carbon practices. Today, investing in ESG has reached a point where it can significantly accelerate the positive transformation of the market. We observe the increased pressure of investors in terms of ESG and Taxonomy requirements, we see it as the main catalyst for change. More and more of them systematically assess their investment based on ESG risks, taking into account the requirements of the Taxonomy. As a consulting firm, we already see companies integrating Taxonomy and Sustainability as a tool for systematic risk management and long-term value creation and investment. Investors are fully aware that ESG relates to cash flow in at least a few important ways. In addition to the commercial client with whom we work on a daily basis, city councils are also interested in sustainable development and ESG issues. With the support of the European Investment Bank, they have a chance to develop towards “resilient” cities – says Joanna Plaisant, Strategic Partnership and Sustainability Associate Director at Arcadis.
On July 6, 2021, the European Commission approved a package of documents, which include a new sustainable finance strategy. It is a set of activities aimed at encouraging companies to invest in sustainable development and preparing the financial sector for new challenges in this area. A project to introduce the “green bonds” standard, which will help in financing pro-ecological investments, was also presented. The main goal is to create a coherent, understandable and transparent system that will provide enterprises with access to financing sources. Public funds will not be sufficient to achieve the assumed goals, therefore financial institutions, especially banks, will play a key role in this area. Pressure from the EU to increase the share of “green” investments or loans is growing – in March this year the SFDR was introduced, which requires banks to disclose information on the balance of their portfolios. It is clear that ESG-related non-financial criteria will therefore have an increasing impact on risk assessment and thus loan decisions.
– In 2020, BNP Paribas reviewed the risk identification process, also in terms of climate events and associated risk factors. The ESG assessment was considered in the process of assessing the customers’ credit risk. In addition, we pay special attention to the financing of sectors considered sensitive in terms of ESG risk, and for this purpose BNP Paribas BNP Paribas Bank distinguished nine sectors (including mining and agri-food) and introduced CSR Policies defining specific requirements for customers active in these industries – – says Oskar Kulik, Sustainable Development Expert at BNP Paribas.
Are the banks ready for this green revolution?
A study conducted by PwC shows that 80% of the surveyed commercial banks have implemented elements of the sustainable financing policy in their strategies and products, and almost all of them take into account environmental risks in their lending processes. This is a big challenge that requires the employment of specialists with appropriate knowledge and competences, and the implementation of a number of tools and qualitative and quantitative methods that enable risk assessment in terms of environmental factors. How do banks deal with it in practice?
– We want to be an agent of positive changes and a leader in the field of sustainable finance by offering customers “green” products and services and support in the form of expert knowledge. It required taking a number of actions, the effects of which are already visible. Only in the first half of 2021, the value of “green financing” provided by BNP Paribas Bank amounted to PLN 842 million (+ 71% y / y). We have already financed over 32 thousand photovoltaic installations for households, we also support projects aimed at increasing energy efficiency. We are involved in the commercial solar farms, wind farms and biogas sectors, where we are expanding our portfolio. Since 2015, we have been gradually abandoning the financing of entities who fail to undertake the energy transformation towards renewable sources. In 2019, the BNP Paribas Group adopted deadlines (2030 for the European Union and OECD and 2040 for the rest of the world), beyond which BNP Paribas BNP Paribas customers involved in coal energy, mining or coal infrastructure wishing to remain in a relationship with the bank, they will no longer be able to use coal – explains Oskar Kulik.
New circumstances, new challenges
Dynamic changes in the legal and regulatory environment in the context of climate policy at the EU and Member State level are changing the image of the financial sector. Business representatives – both the largest corporations and medium and small companies – should carefully follow these processes, because their course will have a decisive impact on access to sources of financing for new projects.
We are working intensively on new solutions allowing for the systemic collection and processing of information resulting from the requirements of the EU Taxonomy. It relates to the necessity to obtain additional data from our clients, and from entrepreneurs it is required to monitor the impact on the environment and climate as well as susceptibility to climate risks. We predict that, in line with the legislators’ expectations, the importance of non-financial reporting will continue to grow, thus increasing reporting obligations on the part of enterprises and the financial sector, including banks. In this aspect, we do not forget about the need to educate and inform our clients. We do this through internal training of our business client advisors, but also training directly addressed to enterprises, such as the online conference “Energy Transformation of Companies” – adds Oskar Kulik from BNP Paribas Bank.
One thing is certain – sustainable development is a one-way street from which there is no turning back. The role of banks is to adapt to the new realities as quickly as possible and to provide clients with support in following this path. The degree of advancement in the implementation of this priority will have a decisive impact on the attractiveness and competitiveness of financial institutions, and thus – on their market position.
Written by:
Tomasz Bułhak – Chief Analyst, Green Europe Today
Tomasz Bułhak is currently working with the business, preparing comprehensive analyzes and providing marketing support. Actively monitors changes resulting from new trends and pro-ecological regulations and their impact on the business. For several years he worked in managerial positions in international companies from the automotive sector. He studied Journalism at the University of Warsaw.
Joanna Plaisant – Strategic Partnership and Sustainability Associate Director, Arcadis
Joanna Plaisant works as Strategic Partnership & Sustainability Associate Director, ESG Lead at the Polish branch of Arcadis – a world leader in civil engineering services. Joining the team in December 2020, Joanna focused on the development of the company’s business towards B2B and cooperation with foreign investors and entities from the public sector. She is also involved in the creation and promotion of the Arcadis portfolio of services in the field of sustainable development.
Oskar Kulik – Sustainable Development Expert, BNP Paribas Bank
Oskar Kulik is an expert on sustainable development at BNP Paribas Bank, where he deals with the issues of sustainable finance (including Sustainability Linked Loans) and tracking and analyzing changes in climate policy, as well as internal and external education in this area. Oskar is also a PhD student at the Doctoral School of Social Sciences of the University of Warsaw, where he studies climate policy in Poland. Previously, he worked in non-governmental organizations: WWF Polska and ClientEarth Lawyers for the Earth, and gained experience in governmental and intergovernmental organizations.
