COMMENTARY: SUSTAINABILITY
Values-addedbanking The head of BBVA’s new Global Sustainability Office, Ricardo Laiseca, firmly believes that, instead of being part of the problem, the finance industry – and banks in particular – can be part of the solution to the world’s environmental and social challenges The urgent need to tackle climate change at both governmental and corporate level is near-universally accepted. With the Organisation for Economic Co-operation and Development (OECD) estimating that $6.9trillion will be required up to 2030 to meet climate and development objectives, private capital will be required to do a lot of the heavy lifting. Corporates the world over have already started to assimilate environmental and social responsibility into their strategic objectives and operational governance, encouraged by influential investors such as BlackRock. Now, big banks are coming under increasing pressure to do better in their role as keystones of the economy and BBVA is one major player leading the way. BBVA is already the most sustainable bank in Europe and the second globally, as judged by the Dow Jones Sustainability Index 2020. Having already achieved carbon neutrality in terms of direct CO2 emissions last year, it recently announced a commitment to zero net indirect emissions by 2050 – surpassing the targets set under the Paris Agreement. At the time of the announcement, group chairman Carlos Torres Vila said that banks have a key role in ‘analysing investment opportunities and managing the risks associated’ with climate change. Indeed, BBVA was one of the first banks to adopt the World Bank’s Equator Principles – a risk management framework that seeks to ensure socially
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and environmentally responsible financing of large-scale infrastructure, mining and energy projects – in 2004. It's looking to develop sustainable versions of all its banking products, including a sustainable transaction framework, within the next few years, having already introduced specific initiatives, including green derivatives and green foreign exchange. Ricardo Laiseca, head of the Spanish giant’s global sustainability office, created in 2020, believes the banking industry could have a ‘transformative’ impact after the pandemic forced attention like never before on the social, as well as the environmental, ethics of big business. “We can support any transition, and, in particular, this transition from the pandemic into a new world that is much more based on values,” says Laiseca. “We can mobilise funds in order to fight against climate change and promote inclusive growth. We can also – as a financial institution, as a large player – develop capital markets and market incentives to promote sustainability.”
We can mobilise funds in order to fight climate change and promote inclusive growth. We can also – as a financial institution, a large player – develop capital markets and market incentives to promote sustainability He points to carbon markets and the capital markets union in the EU, that he says can help create a green market for bonds and loans. But adds that a particularly valuable tool, as a financial institution, is the decarbonisation of its own balance sheet by aligning it to specific goals such as the Paris Agreement on emissions. Banks across the world have long profited from investing in carbon-heavy ‘dirty’ industries, with some such as HSBC
more recently accused of ‘greenwashing’ by continuing to fund coal projects while pledging to go carbon neutral. BBVA has moved to reduce its exposure to coal-related activities by adopting an environmental and social framework that aims for zero exposure to coal clients by 2030 in developed countries, and by 2040 elsewhere. “The reason for that is that coal represents about around 40 per cent of total carbon emissions in the world,” Laiseca explains. “I feel this is the first step for any credible sustainability strategy, if you are committed to a net-zero future, so this is what we have done.” The bank intends to announce new goals for other sectors, particularly big polluters such as oil and gas, cement and steel, automotive, and transportation in general. But Laiseca stresses that it’s not just about limiting the bank’s interest in those sectors; it is also about adopting investment strategies that help those companies transition towards a greener future themselves. “We are happy to fund them, if they want to use their funds for renewable or sustainable energy projects,” he says. Indeed, it has played a significant role in co-ordinating three rounds of sustainable debt finance for Spain’s global utility company Iberdrola, helping it go coal-free last year. Most recently, the bank acted as the sustainability co-agent of a pioneering $2.5billion multi-currency syndicated loan to the company. The margin on the loan is linked to the company’s performance against two sustainability indicators that are wrapped into the loan agreement: not only will Iberdrola have to meet its emissions reduction target, but it will also have to increase representation of women in its boardroom. The finance is also subject to a third commitment from the company: to make donations to sustainability projects, the value of which is dictated by its use of the credit line. BBVA’s new sustainability advisory service also helps larger clients achieve their environmental, social and governance (ESG) targets, benchmarks www.fintechf.com
