With the recent wildfires in British Columbia and Ontario, devastating flooding in Europe, Asia and the United States, and heat waves that affected much of North America and Europe l last summer, climate change made its way into our daily conversations. As the recent report of the Intergovernmental Panel on Climate Change (IPCC) indicates, climate change will profoundly alter our way of life and the structure of the economy. They also represent a systemic risk for financial stability. According to the World Economic Forum’s Global Risks Report 2021, the most likely risks for the next ten years are extreme weather conditions, lack of measures to mitigate climate change and human-caused environmental damage.
Climate change also offers the financial sector a unique opportunity to support positive transformation by using innovative tools to help businesses tackle global issues, such as decarbonizing the economy and stemming biodiversity loss. . The United Nations climate change conference, COP26, will be a crucial moment for the countries involved. These should present clear, detailed and precise solutions on how they act to limit global warming to a level well below 2 ° C, and preferably 1.5 ° C, in accordance with the objectives of the Paris agreement, in order to trigger concrete actions on the part of companies and institutions.
Our future prosperity depends on the will of the entities to commit to clear and ambitious objectives to fight against climate change.
Banks have also started to adopt strategies that move us towards a more responsible economy, such as financing projects that promote long-term economic growth, and help companies implement sustainable business practices, particularly by reducing their ecological footprint. Today, many companies are already taking proactive steps to invest in projects that have a positive impact on the environment and in our communities.
Some financial products, such as sustainability bonds and loans (SLBs), have key performance indicators (KPIs) linked to environmental, social and governance (ESG) outcomes, which target concrete actions to achieve sustainability goals. These indicators allow companies to customize their financing facilities according to sustainability objectives. For example, the interest margin on an SLL (sustainability loans) could be directly linked to a sustainability goal.
In January 2020, Brookfield Renewable Partners was one of the first companies in Canada to announce its revolving credit facility structured as an SLL. This facility changes the cost of the company’s debt if it meets CO emissions reduction targets.2. However, SLLs are not limited to key environmental performance indicators. WSP Global Inc. was the first professional services firm in America to secure sustainability terms for its syndicated credit facility. These conditions included a key performance indicator linked to the increase in the percentage of managerial positions held by women.
Green bonds are another product specially designed to support the financing of green projects, such as those put forward by automotive companies Daimler and Volvo Cars.
After having had discussions with executives, Canadian companies are also recognizing the value of sustainable investments. In April 2021, BNP Paribas and other leading financial institutions became founding signatories of the Net Zero Banking Alliance (Net Zero banking alliance) (NZBA), a UN initiative. NZBA members are committed to being a powerful force to achieve a net zero economy, while pushing decarbonization strategies and providing banks with an internationally aligned framework to support their effort.
Finding solutions to the problems facing the world requires ambitious and coordinated efforts to promote sustainable economies.
As financial partners, we want to ensure that we play a leading role in the economy of the future. From a global perspective, there is no doubt in my mind that sustainable finance is a force of collective good that can finance the transition to a more sustainable future. Unless the financial sector is actively engaged in seizing the urgency and opportunity associated with achieving a net zero economy by 2050, our common goals will be impossible to achieve. In other words, sustainable finance is not only good for the environment, it is also good for business.
* BNP Paribas received the prize for the best bank in the world for sustainable finance at the 2021 Euromoney Global Awards.
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