Click · BNP Paribas supported PUMA with this project and structured a dedicated program, whereby...
Transcript of Click · BNP Paribas supported PUMA with this project and structured a dedicated program, whereby...
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Turning sustainability into a competitive advantageUnderstanding sustainable
finance
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Table of contents
1
Welcome and
background
Why are we having this
session?
Sustainable
finance 101
What are the basics of
sustainable finance?
Table
discussions
Where are the current
knowledge gaps?
2 3
Group
debrief
What are the next
steps?
4
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1. Welcome and
background
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Our missionTo make more sustainable companies more successful
Business makes better decisions and discloses
more meaningful information
We work with business to improve decision-making and external disclosure
Financial system uses this
information to make more informed
decisions
to transform the financial system
Capital flows are directed to more
sustainable companies
to reward the most sustainable companies.
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ESG Performance & Lower Cost of Capital
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CPA Australia - 2017
Higher sustainability ratings are strongly associated with lower cost capital.
MSCI - 2017
High ESG rated companies experience lower levels of beta, lower costs of capital and higher valuations in terms of book to price and earnings to price ratios.
Int’s Journal Business - Mgt 2017
Literature is unanimous on the positive effect that ESG factors have on the reduction of risk and the reduction of the cost of equity.
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Companies already gaining advantage
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Finance factsheets
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2. Sustainable financeTodd Cort
Yale School of Management/Yale School of Forestry and Environmental Studies
Center for Business and the Environment at Yale/ Yale Initiative on Sustainable Finance
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Starting Point
The lever to create more socially and environmentally responsible business
has moved from society to investors.
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Agenda (of sorts)
Sources of Capital are very interested...
… and pulling a great deal of data…
...to support a wide range of investment strategies.
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Agenda (of sorts)
Sources of Capital are very interested...
… and pulling a great deal of data…
...to support a wide range of investment strategies.
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47% improvement on stock price performance
Interest
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Gunnar Friede, Timo Busch and Alxander Bassen, “ESG and Financial Performance: Aggregated Evidence from more than 2000 Empirical Studies” J. Sust. Fin & Inv., 5,4, 2015, 210-213
Interest
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Interest
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Interest
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Global Sustainable Investment Market (2016):
$22.89 Trillion of Global Assets Under Management
- 25% growth since 2014
- 26% of all managed assets GSIA, Global Sustainable Investment Review, 2016Interest
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Interest
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Agenda (of sorts)
Sources of Capital are very interested...
… and pulling a great deal of data…
...to support a wide range of investment strategies.
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Data
• Specialized Reports
• Financial Reports
• Media/Social
• Geospatial
• Peer/Benchmark
Data
• Analytic Firms
• Rankings
• Certifications
• Standards
• In-house
Process
• Passive
• Active
• Deal Flow/DD
• Credit Rating
• Fixed Income
Investors
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Agenda (of sorts)
Sources of Capital are very interested...
… and pulling a great deal of data…
...to support a wide range of investment strategies.
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• ESG/Sustainability is very likely to be ‘good’ for financial
performance
• But the reason why…and therefore the investment strategy
is unclear
• Two examples:
– De-risking
– Seeking E/S Impact
Esty and Cort, Journal of Environmental Investing, 8(1), 2017
Strategies
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De-Risking Capital Investments
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De-risking
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There is a gap between sustainability reporting and financial disclosures resulting from a lack of alignment between
- Risk and materiality; - accounting processes
Strategy
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Evolutions in Standards
Strategy
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The Tip of the Spear: Climate Risk Disclosure
De-risking
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Gore
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Seeking Impact
From Fixed Income to Private Equity
Renewable Energy
Sustainable Agriculture
Conservation finance
Housing
Health Care
Education
Employment
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Impact against a threshold:- Natural Capital- Social Capital- Science-based targets- Contextual metrics- SDGs- Planetary Boundaries…
Seeking Impact
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Equity
Public
Passive
Active
Private
Large-Scale
Project Finance
Micro-finance
Debt
Bonds
Green Impact
Social
Environmental
SDG
Loans/Notes/Credit
Blended Finance
Performance-Linked Loans
Supply Chain Loans
A (Partial) Snapshot of Investments
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April 4, 2019
Thank You
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2. Sustainable finance
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BNP Paribas
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A FULL SET OF SUSTAINABLE FINANCING SOLUTIONS
€100M in
energy
start-ups
Voluntary
Carbon
Emissions
Offset
Carbon
Emissions
Trading
Schemes
CARBON PRICE
HEDGING,
CARBON OFFSET
ESG Reporting
tools
Responsible
Equity
Indices
Responsible
Funds
ASSET MANAGEMENT
Wind Power
Futures
Renewable
Energy
Financing
Leasing
Solutions
Green,
Sustainable &
Social Impact
Bonds
Green
Securitization
Green Export
Finance
Arval
Electric and
Hybrid cars
Equity Linked
Green Bonds
Green
Real Estate
Sustainability-
Linked
Loan
INVESTING TO
REDUCE CARBON
FOOTPRINT, OR
IMPROVING
RESOURCE
EFFICIENCY
INVESTING IN
START-UPS
Supply Chain
Programme
ENSURING PRODUCTS
ARE MANUFACTURED
AND SOURCED
RESPONSIBLY
Green M&A /
Asset valuation
Green desks
ADAPTING
BUSINESS
MODEL TO
SUSTAINABILITY
Sustainable
Finance
Facility
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A REMARKABLE SUSTAINABLE SUPPLIER FINANCING PROGRAM FOR PUMA SE
Pricing of the program includes bonus/malus linked to Environmental & Social (E&S) rating of each supplier
◼ PUMA is a listed German multinational company, part of Kering Group, and is
specialized in selling athletic and casual footwear and sportswear worldwide.
◼ PUMA works with more than 300 external manufacturing partners, located
primarily in Asia, and distributes its products in more than 120 countries.
◼ In close cooperation with BNP Paribas, as sole Commercial Bank partner, and
with IFC (International Finance Corporation – a member of the World Bank Group),
PUMA wished to set up a supplier financing program to support its suppliers
worldwide in the implementation of Puma’s Environmental & Social (E&S) high
standards.
Supplier Financing
Program
H1 2016
◼ Provide suppliers with
funding conditions
based not only on
Puma’s credit quality but
also on the E&S rating
of each supplier as
granted by PUMA.
◼ Exert influence on its
suppliers and incentivize
them to enforce E&S
standards.
◼ BNP Paribas supported PUMA with this project and structured a dedicated
program, whereby BNP Paribas purchases the receivables of the suppliers onPUMA, providing them with an additional source of financing based on PUMA’s credit
profile.
◼ There are different pricings, in relation with PUMA’s own E&S rating grid (from
A to D) corresponding to E&S performance of each supplier.
◼ This performance and the associated rating will be reviewed by PUMA on a regular
basis. This will allow best-performing suppliers to be upgraded and get access to
cheaper funding conditions through the program in connection with the improvement
of their E&S standards.
◼ The program (invoicing, discounting) is managed with US-based GT Nexus platform.
◼ First go live in Q2 2016.
◼ Market innovation: first program of this kind including a commercial bank
◼ Strong relationship
with PUMA
◼ Flexibility and
creativity of BNP
Paribas’ set-up (in terms
of documentation,
platform etc.)
◼ Close cooperation
between all parties
(PUMA, GT Nexus,
BNP Paribas)
RATIONALE SOLUTION & MECHANISMS OF THE PROGRAM SUCCESS FACTORS
Context
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SUSTAINABLE SUPPLY CHAIN : FOCUS ON TRACEABILITY
INCREASING FOCUS ON SUSTAINABILITY IN THE COCOA SECTOR TRANSACTION STRUCTURE
◼ Challenges include small-scale farmers, low productivity, poverty,
deforestation, biodiversity issues, scarce availability of finance
◼ Increasingly strong demand from cocoa processing companies to
deliver sustainable products to their final customers
Corporate with identified commodities flow
SUPPLIER OFFTAKER
Physical Flows
Cash CollectionPayment in favour of
the supplier
CHALLENGES AROUND COCOA
PRODUCTION
SOLUTION
◼ The client needed to develop more traceability along the supply
chain & provide sustainable beans (with certified cocoa
origination) to processing companies
◼ Loan financing structure secured by assets as collateral
throughout the supply chain, leading to pricing benefit
Production Inland transit Warehouse at port of origin
Transit by vessel Warehouses at destination
Grinding Distribution
BNP PARIBAS ARE ACTIVE ALONG THE AGRI-VALUE CHAIN THANKS TO A WIDE RANGE OF WORKING CAPITAL SOLUTIONS
Payable Financing Solutions Inventories Buyers Receivables
https://www.google.co.uk/url?sa=i&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwjH05LzuIzbAhVCxxQKHQGhCYYQjRx6BAgBEAU&url=https://group.bnpparibas/en/&psig=AOvVaw1d2YNoFoyhwlOFN55h7z6x&ust=1526636128324755
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UPDATE ON THE GREEN/SUSTAINABLE BOND MARKET
Source: Bloomberg, BNP Paribas, as of 7th January 2018
DIVERSIFICATION OF THE GREEN/SUSTAINABLE BOND MARKET
x 4.0
x 1.6
x 1.6
$bn (Annual issuance)2018 FY SECTOR SPLIT
2018FY CURRENCY SPLIT
44%
24%
32%SSA
Corp
FIG
48%
24%
13%
4% 4%2% 5%
EUR USD CNY SEK CAD JPY Other0
20
40
60
80
100
120
140
160
180
200
2014 2015 2016 2017 2018
Sustainable (LHS)
Social (LHS)
Green (LHS)x 4.4
x 3.1
x 1.2
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UPCOMING TREND : THE TRANSITION BOND
* As per Corporate Knights & Council for Clean Capitalism draft guidelines
▪ China Light and Power (CLP) issued a USD 500mn 10-
yr note on the 18th July 2017
▪ SNAM came to the market on 21st February 2019 with
a long-6yr bond for a EUR500mn size
As a way to address the need to accompany the major players in the economy in their energy transition
No additional steps to issue a Transition bond compared to a
green bond as the four pillar (Use of proceeds, Process for
project evaluation and selection, Management of proceeds,
Reporting) remain the same and are reviewed by a SPO
Two Climate Action Bond / Transition Bonds
frameworks in the market:
ISSUERS
MARKET OBSERVERS
▪ Corporate Knights and the Council for Clean Capitalism
released draft Clean Transition Bonds Guidelines in Nov
2018 – a first step in establishing an important new
category of bonds
▪ To help defining project categories that are consistent
with a Clean Transition that can help these firms and
investors channel capital to the most viable options
Definition
INVESTORS
▪ Positive reception on recent deals - a mind-set shift underway
▪ Generally not a fit for the Green Bond Fund but few placed it in
Sustainability Funds
▪ Interest in developing investment strategies, with some
planning new funds, dedicated solely to investing in transition
issuance
Use of proceed bonds tagged to key technologies/initiatives
that enable the energy transition, issued by carbon intensive
companies who can prove to investors that their larger
corporate strategy is over time committed to the transition
Target
Industries
For Example*: Oil and Gas companies and Non-Fossil fuel
Commodities (Cement, Chemicals & Fertilizers, Iron and
Steel, Lime & Gypsum, Mining, Pulp & Paper, Smelting and
Refining)
Structuring
Use of
Proceeds
Projects falling within the Energy Efficiency category with
projects/ investments that are substantially helping the issuer
to improve the energy efficiency of its production/distribution
process and prepare the business to adapt to the
transition
Target
Investors
Reputational risk remains a concern especially if investors are
not convinced of the issuer’s commitment to the transition.
Dedicated roadshows are therefore essential as well as efforts
made towards the dedicated press
Not marketed as a “Green Bond” but as a “Transition” bond.
Not specifically aimed at traditional Green Bond funds. Aimed
at more general SRI funds that are keen to support the energy
transition of the issuer
Risk
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UPDATE ON THE SUSTAINABLE LOAN MARKET
An expanding market with a strong development in 2018 and continuing growth expected in 2019
Green Loans
▪ Introduced in 2013 with limited activity until 2017 and a steady
growth in 2018
▪ Mainly senior unsecured term loans with a mix of bilateral and
syndicated transactions
▪ In alignment with the Green Bond principles, the Loan Market
Association (LMA) has issued the Green Loan Principles in March
2018
▪ BNP Paribas anticipates that Green Loan Principles, together with
EU’s Action plan for financing sustainable growth, could lead to
further activities in the Green Loan sector and a potential rise in its
volume
Sustainability-linked loan
▪ Introduced in 2017 with an eight-fold increase in 2018 to €42.4bn.
Largest volume in EMEA with US and APAC picking-up
▪ A majority of large syndicated transactions in the form of RCFs
▪ Growing number of SLL transactions, robust pipeline and growing
interest
▪ The Loan Market Association (LMA) has issued the Sustainability-
linked loan Principles in March 2019
▪ A large spectrum of sectors and activities are eligible to SLLs
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3. Table discussionsWhere are the current
knowledge gaps?
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Table discussion
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12.15-12.30
What are the gaps between
CSOs and internal finance
teams in response to
sustainability challenges
12:30-12.35
Choose / vote on
which perceived gap
(1-2) the table would
like to address
12.35-12.50
Design a sustainable
finance program that
would best respond to
selected gap
2 3
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4. Group debrief
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What are the next steps?
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WBCSD (Geneva)Maison de la Paix l CheminEugène-Rigot 2BCP 2075 1211 Geneva 1Switzerland
WBCSD (New York)747 Third Avenue Suite M205, New YorkNY 10017, United StatesUSA
WBCSD (Delhi)WBCSD India, 4th Floor, Worldmark 2,Aerocity New Delhi 110 037India
WBCSD (Singapore)WBCSD Asia Pacific Ltd.theBridge2 Science Park DriveSingapore 118222Singapore
WBCSD (London)WeWork Mansion House33 Queen StreetLondon EC4R 1BRUK
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