KEESA
If you still call ESG in the credit markets a niche market, while my guest would strongly disagree with you and today she is going to tell you why. Agnes Gourc is head of sustainable Capital Markets at BNP Paraba Agnes, thank you for joining.
AGNES
Thank you very much.
AGNES
Very happy to be with you today.
KEESA
So first let's talk about the work you do structuring credit.
KEESA
We can talk specifically about sustainability, linked bonds, and some of the other areas that you focus on how long BNP Paribas has been in this space and why you are a bit annoyed when people refer to ESG and credit markets as a niche market?
AGNES
So first of all, kind of.
AGNES
We're very happy to be with you and effectively being able to tell you a bit more what we call stable finance said being the power BI and what we do with our clients from that perspective.
AGNES
Yeah, so actually we've been looking at stability for a very long time, I think.
AGNES
Well over 10 years ago the banks started putting in place policies and that cuts across all the business we are doing at the bank.
AGNES
So it goes far beyond even sustainable finance is really integrating sustainability in all our businesses.
AGNES
And that has evolved over time.
AGNES
You know, covering more sectors and being more refined as well.
AGNES
So actually this was the origins if you want.
AGNES
Of sustainable finance and today we look at sustainable finance.
AGNES
Across business lines across our client types and we try to really serve every counterpart we have in the market today.
AGNES
Whether it's on the investment side, whether it's on our borrower and issue aside, and and I think one of the the problem when we look at.
AGNES
The energy market.
AGNES
It's true that we called it needs for a number of years.
AGNES
I think the most advanced market today and is still on the stable bolts.
AGNES
Prompt because it was really kind of, you know, the first one to start and when you look at that just to give you a bit in number as effectively.
AGNES
We are, we've crossed already at the end of July.
AGNES
The level of issuances of sustainable bonds worldwide that we had at the end of the year last year.
AGNES
So effectively, in seven months we've done the volumes marketing in the market worldwide that we had seen for a whole year.
AGNES
2020 and pretty much every year for the last year. That's what we are seeing.
AGNES
And really, where we say?
AGNES
I think today we are at an inflection point we see in the volumes, but we also seeing in the way our clients are looking at this market.
AGNES
You don't really have an investor today that don't have sustainability in their investment processes in their in their funds.
AGNES
In what they sell to their own clients and you don't have a firm today that tells you I don't look at my financing and from a sustainability perspective.
AGNES
So, you know you have so many pointers that say today it is moving away from being a niche market and really becoming almost mainstream effectively.
KEESA
Well, you definitely make the case there, so thanks for that Agnes.
KEESA
I want to talk about primary trends and value drivers that you're seeing, and specifically how these trends and drivers can be used to do analysis, ensuring clarity for around default risk.
KEESA
For example, let's talk about those trends and drivers and how they're being used.
KEESA
Your analysis today so.
AGNES
Effectively this started with we always sell our clients on on the issue aside, if we focus on the bond market effectively, everything we do in Saint Paul Finance starts with their sustainability strategy, so we don't create anything in the vacuum.
AGNES
It's really worth it as a company.
AGNES
As a bank as its professional sometimes, what have you put in place today in your business?
AGNES
What have you committed to?
AGNES
And that will deliver a sustainable plan of development for your activity.
AGNES
And that's really the starting point.
AGNES
And what we have seen in stable finance over time.
AGNES
And that's really, I think, the big hidden value, sometimes unspoken value of sustainable finance, is that actually.
AGNES
We have and we want to see more and more of those, but effectively what we are looking at is when we have clients that how sustainability is tried.
AGNES
That are good, but not yet fully developed.
AGNES
Coming to the stable finance markets really helped them to speed that process and and I would say when they come with, you know, beat the Green Ball beta stable NBT link bond.
AGNES
They will effectively really have a deeper engagement with the investor base.
AGNES
You know when you when you look at what stable finance have delivered and it's even more true today.
AGNES
It's really an acceleration of the sustainability strategy that our clients are putting in place.
AGNES
So I would say you know a driver is really, you know, striving for always better, always faster and avoid, which is what investors are demanding.
AGNES
And if you know since the Paris Agreement we've had so many evolutions.
AGNES
Trends, but a lot of them recently you will have heard of the net zero, an asset manager alliance net zero asset owner line.
AGNES
So all those investors signing up to those reliance are saying effectively we need to have our portfolio reaching. Net 0 by 2050 and we need to have intermediary steps.
AGNES
To get there and they are driving really the issuers to attain do start to help them attain those targets in the portfolio.
AGNES
So I would say in acceleration of sustainability overall and that's one of the key trends.
AGNES
Carbon is really one.
AGNES
The main focus today and as soon as you say carbon, then you put the light on everything else because you know we know carbon is not enough.
AGNES
You need to look at circular economy.
AGNES
You need to look at water and then you need to talk about just transition.
AGNES
Because if we are going to move away, some businesses from what they do today to something new, what do you do?
AGNES
With the start of the local community, so all this into account when we look at sustainable finance.
KEESA
So just keeping along those lines you're talking about key trends, the acceleration and how that comes to bear carbon, as well as looking at transition.
KEESA
I want to take a particular area I want to look at oil.
KEESA
And gas drilling gas sector.
KEESA
So if we're looking at.
KEESA
This from that perspective, and if we're talking.
KEESA
Think about the acceleration that we see as a trend.
KEESA
If we're talking about transitioning, how can we look at those transformational strategies in the oil and gas sector?
KEESA
And and then, how are you acting as a bridge between the investor as well as the as a separate self in this transformation?
AGNES
Yeah, so thank you for using.
AGNES
Actually the word bridge key.
AGNES
So because I think that's really the way we see ourselves saying.
AGNES
Look, there are many parties.
AGNES
Effectively you know involved in sustainability and I said pretty much kind of in every function market participants today and we are really here to facilitate a connecting effectively.
AGNES
Relevant part is.
AGNES
And I think oil and gets the oil sector is actually a very good example.
AGNES
What we are looking at in a lot of you know, area that the economy is really sector.
AGNES
They are still really carbon intensive or we call them sometimes hard to abate sectors.
AGNES
And oil and gas, especially when you look at European major.
AGNES
They've made such huge strides actually in the recent months and really show.
AGNES
How they are going to transform their businesses so you know you will have heard some of them saying we are actually becoming energy companies.
AGNES
We should maybe call end gas anymore in the future and it's really a transformation that they are putting in place and from a sustainable.
AGNES
Finance perspective the way we look at it is really if you are in a in a sector and if you have a strategy where really you have to explain and to educate quite deeply actually.
AGNES
And try to put your message across as efficiently and as quickly as possible, because things are moving ahead very rapidly and you will see all the oil and gas you know, CEO, CFO.
AGNES
They will explain at length if you listen to any of their earning presentation.
AGNES
A lot of it will be on the edge.
AGNES
A lot of the questions will be on energy and actually what we tell our clients is really there is a unique tool to help you communicate this new strategy in an effective manner to your investor base.
AGNES
In particular, you debt investment.
AGNES
And this is around sustainable finance and sustainable bonds in particular.
AGNES
So again, kind of you know, we take as a starting point.
AGNES
Really, the the strategy of the issue sometimes will reach a point where actually we don't have all the technology at hand that is needed, and that's where you know we get really.
AGNES
Innovation coming into play.
AGNES
That's very frequent, I would say because it's such a growing market.
AGNES
There are so many new things that we.
AGNES
When you frontier that we keep pushing effectively so and alongside the volume growth, I would say innovation is always kind of going in pair with what we see in the market and in the oil and gas sector.
AGNES
That that's very true and you will have seen in the market.
AGNES
Two players in the oil from the European Major ENI and reps. Also being P5. I was active on both transactions.
AGNES
And and they've been really successful into bringing their new sustainability strategy to that investors in in a very kind of formatted way.
AGNES
So every investor straight away you know it attracts attention and they can clearly see you know what the salient points are.
AGNES
If you want of this decarbonization trajectory.
KEESA
So if we're looking at what's really differentiating what's the differentiating factor between a successful strategy or successfully bringing sustainability to investors versus an unsuccessful bid, is it simply in the education?
KEESA
So you mentioned using those earnings?
KEESA
Reports and those earnings conversations to talk about it.
KEESA
Really communicating.
KEESA
Is it simply in having the conversations or do you feel that there are other factors that lead to success outside of.
AGNES
So I think.
AGNES
Having the conversations is key because if you ask you know you will have kind of talked to a lot of energy investor.
AGNES
They will always say we need to engage with companies with you, know, every you know every each year, every company we hold in our.
AGNES
Portfolio we need to engage more to understand them better, but also to be able to influence and sustainable.
AGNES
Finance is a key tool for investing.
AGNES
So it goes both ways.
AGNES
You know, issuers will educate investors on where they see themselves today where they want to go.
AGNES
But also investors will educate issues where they need them to go effectively, so it goes both ways, but also one of the very important examples and you know.
AGNES
There are companies when we start the discussion around stable finance.
AGNES
We have really a full review of where they stand in their stability strategy and there are cases where effectively we'd have to discuss.
AGNES
You know what new campaign corporate you know typical example?
AGNES
Can they actually start having commitment on scope free for example?
AGNES
Which then gives the full picture of the carbon footprint of the company and so.
AGNES
You know, it said, I would say the transaction or the framework that we that the company published and we advised them on.
AGNES
That's only the tip of the iceberg.
AGNES
There will be cases before where actually you know the company strategy has shifted from the first time we spoke, and that's you know, obviously.
AGNES
That you know you don't see it as easily as they then transaction itself, but that's I think one of the true value of sustainable finance.
AGNES
That's why we're saying, you know, it's an accelerator effectively of the development.
KEESA
Great no.
KEESA
Let's transition and talk a bit about data.
KEESA
What KPIs and data are helpful to investors to know if corporates are getting on that sustainability path in that accelerated way that you just mentioned?
AGNES
So I think.
AGNES
If you look at S&G and I would say Gee is a whole topic by itself and any investors you know whether it's conventional types of transaction or whether it's stable finance.
AGNES
There will be a bit the basis effectively.
AGNES
And here a lot of investors will directly through really deep engagement with the company.
AGNES
If there was anything they wanted to see change in the governance when we look at the stable bond market will typically, so that's a bit the foundation.
AGNES
Effectively, you know you need to have a good governance.
AGNES
Then what we work on is really the environmental and the social.
AGNES
So enst social the data.
AGNES
There's been a lot of dogs around it over the years.
AGNES
That's even more complex effectively.
AGNES
More difficult yet to quantify, and then when you look at the environmental side so I would say social, that's probably where we have even more work to do.
AGNES
We are actually code sharing the social Bond working group within the ECMA principles.
AGNES
And that's a big focus on you know, how do you have social?
AGNES
How do you have impact reporting on social bonds?
AGNES
Word measures?
AGNES
Can you improve there?
AGNES
And on the environmental side I.
AGNES
Would say it's probably step ahead.
AGNES
And in particular around carbon, that's probably where we have is.
AGNES
Not perfect yet, but that's where we have most progress so far.
AGNES
And even then I would say where we find difficulty is that you know we'll be able to find data company by company.
AGNES
So going onto you know, each separate sustainability report is still fairly difficult.
AGNES
And to have somewhere weights all aggregated you know, are they committed to. Net 0 by 2050 that they have intermediate targets? Against which methodology? So there is still a lot of a lot of room to go. I would say you know.
AGNES
Different you will see different region.
AGNES
Different investors will favor one methodology over the other.
AGNES
I would say 4 start.
AGNES
Could have you know, an easy way to find references of, you know?
AGNES
Do they have target?
AGNES
Which one out there, which methodology?
AGNES
That would be a good start there I would say.
KEESA
Great and in keeping with.
KEESA
Obviously you are not the only person who believes that just having that sense of reliability as well as just comparability across methodologies would be extremely helpful.
KEESA
And to that everyone is speaking and saying to me what I'm hearing is that Europe is really leading the way as it relates to.
KEESA
Regulations as it relates to the.
KEESA
Guidance you know and there are good proof points to support this.
KEESA
When you look at the taxonomy there, when you look at the sustainable Finance disclosure Regulation there.
KEESA
So Agnes with that, are you seeing specific behaviors in other regions that lead you to believe that these other regions may be following the lead quickly?
KEESA
I think in the accelerated pace is our theme for today.
Speaker 3
Sam Smith
KEESA
Do you see and accelerate it?
KEESA
Case in other regions, and if so, where are you seeing it?
AGNES
So I think it's true that you know Europe has been kind of at the forefront around the SG.
AGNES
It still has maintained that lead.
AGNES
I would say it's probably, you know, accurate that other regions are picking up, and if you look at the US under the new administration most certainly and it had.
AGNES
Started even before so that that will definitely accelerate.
AGNES
And I would say one of the key pieces of regulation we look at in Europe is under the Commission drive.
AGNES
Really, with the Green Deal, and in particular in stable finance, we look very much at FDR on the investment side and everything to do around the EU.
AGNES
Sex in the media will very much impact really the way we look.
AGNES
Specifically at some of the the instrument, like the green bombs for example.
AGNES
That will have a big shift actually.
AGNES
In effectively we now have a dictionary.
AGNES
What is considered or what is the definition of a green project according to the EU Commission?
AGNES
And that's very important, because then we can start.
AGNES
Then we have a common language and we can start discussing.
AGNES
Maybe we disagree on the definition, but at least we all talk the same language.
AGNES
And I think you know alongside measurement, having a clear understanding of definition is very important, because you know, you know when you're trying to measure.
AGNES
So in that respect, I think you know Europe has really, you know.
AGNES
Keep at least probably showing kind of where we try to have the next step coming from, and there are clearly you know lots of bridges being built.
AGNES
For example, in the taxonomy between regions and with every regulation, it needs to be properly dosed effectively, so it achieves the right the right ambitions.
AGNES
But I I think at least so far it has proven to be done.
AGNES
Fairly well actually.
AGNES
I, I would say you.
AGNES
I would say from the investment sides.
AGNES
What we have seen in the US is really, really interesting because effectively, you know, even if there wasn't, assume the same drive effectively from a regulatory perspective, really the demand on the investor side has been there and and we can probably see, you know.
AGNES
Or those two or three years even.
AGNES
And what we get from you know my counterparts sitting in York.
AGNES
They get so many more discussions and and so many more inbounds actually.
AGNES
Whereas in the past they would have been, you know, trying to kind of, you know, engage and have the discussion and, and now it's more kind of, you know, so many kind of discussions that need to be started.
AGNES
From the client side, so you can really see that that change and APAC.
AGNES
I would say has always been keen on ESG overall, so maybe you don't see.
AGNES
Kind of you know such.
AGNES
Such a big change of gear effectively that we would see in the.
AGNES
US, and more generally.
AGNES
I would say so.
AGNES
Here I'm talking about, you know regulatory aspects and investment side and what is quite important to us at the Empire buys as well.
AGNES
You know we see our role obviously in in what I do and what if suddenly my colleagues unstable final.
AGNES
But also, as I was mentioning at the very beginning, everything we do as a bank.
AGNES
How does it translate effectively?
AGNES
You know, with our clients with our communities.
AGNES
And here I I do think there is.
AGNES
You know there's been a drive as well in Europe and we were among five of the category, but we called the cat Avicii banks and there were already European at.
AGNES
That it was looking basically at methodology to devise the carbon footprint of our lending portfolio and this goes really hand in hand with something that is more recent, which is called the net Zero banking alliance and effectively it's when we signed it. It was 43 and founding banks.
AGNES
Saying effectively all our lending and investment portfolio need to be. Net 0 by 2015.
AGNES
And that goes, you know it's a pair.
AGNES
Basically, now we have the long and medium and we are going to have the medium term targets and we have the.
AGNES
So the Cateechee banks and created what is called the pattern methodology, and that's effectively giving you the tools to measure your portfolio sector by sector.
AGNES
So we can unite the two.
AGNES
How do we effectively have the commitment?
AGNES
How do we reach those?
AGNES
Commitments in practice.
KEESA
Perfect, so the tools are there in practice. How can we reach the goals? Such great information. Also talking about the SuccessFactors that you mentioned earlier.
KEESA
Agnes having conversation is key, but to your point.
KEESA
Education goes both ways, so there's a need for companies to engage.
KEESA
And speak to the investors about what their plans are, what the strategies are.
KEESA
But there's also need for the investors to educate the issue or on where they need them to go and what they need from them in order to meet.
KEESA
Goals and obviously a lot of folks would agree with you here.
KEESA
Agnes the social data it carries a higher level complexity simply because it's just much more challenging to quantify, and there's definitely more work to do there.
KEESA
Uh, governance is foundational need that definitely, and also environmental data.
KEESA
Carbon is where there seems to be most progress.
KEESA
But the difficulty again, and this is something that we see over and over again.
KEESA
Understanding which methodology is being used, making sure that it's comparable, comparable, and also the different regions which regions are favoring which methodology over the other.
KEESA
Just a real need to get comparable information.
KEESA
And that is reliable there.
KEESA
And also I think one of the most important things we all need to speak the same language, so knowing what we're trying to measure and making sure we have the same measuring stick can help us out tremendously.
KEESA
Agnes Gourc head of sustainable capital markets at BNP Paribas.
KEESA
Thank you so much for being our guest.
AGNES
Thank you very much, thank you.
