The role of EU funds in Europe's post-pandemic economic recovery – and in its green transformation – will be massive. But how do you see the significance of the banking sector over the period of the next EU multiannual financial framework?
The role of EU funds in Europe’s post-pandemic economic recovery will be significant. It is obvious the recovery will be largely based on the green-energy transformation, which besides pure economic effects will move Europe closer to meeting its climate goals. The new generation of EU funds available either through multiannual financial frameworks or through other EU programmes is important for the financial sector because of the scale of financial stimulus, but also because of the expected technological green innovation that will be initiated in the European economy. A large part of the EU funds available for green transformation and innovation will be made available to the market through financial instruments. This includes dedicated preferential credit lines, guarantee schemes, risk-sharing instruments, or grant schemes, or the combination of those. The financial sector, especially commercial banks, are natural partners for the distribution of these funds. They can act as a transmission channel of support to the final beneficiaries on the markets. It is also important to understand what unused potential is available within the banking sector. Commercial banks are heavily equipped with a full range of tools such as a large distribution network, either traditional or digital, information channels as well as a large base of clients, including individuals, SMEs and corporates. The financial sector, thanks to its role in the economy and available instruments has the means to significantly accelerate the green transition.
BNP Paribas has set itself the goal of "accelerating the move towards a sustainable economy". In what practical ways – in particular here on the Polish market – do you intend to make that acceleration happen?
The bank has been active in terms of financing the energy transformation for years. One of the first initiatives was the Polish Energy Efficiency Finance Facility, introduced in 2011 in cooperation with the EBRD. The initiative was focused on supporting Polish SMEs in their improvement of energy efficiency in the industrial and building sector. It proved to be a success and led to the completion of more than 2,000 energy efficiency projects in Poland. Another project was the Green Initiative, introduced together with the European Investment Bank, and focused on the energy efficiency of production facilities. Meanwhile, BNP Paribas was developing its know-how in terms of different renewable energy sources (RES) projects, including biogas. Currently the bank is developing its green products and services in every segment of the market and is cooperating on this subject closely with domestic and European institutions. One of the particularly important aspects is the development of internal know-how on technical aspects of energy efficiency or RES. With respect to this, the bank has established specialised energy teams within its structures and has developed cooperation with external energy expert groups helping the bank’s customers with the technical preparation of the projects. Besides pure technical expertise, BNP Paribas has been investing its resources to raise staff awareness about climate change and to prepare for a new regulatory framework.
How will your green bonds and sustainability-linked loans (SLLs) influence action taken by businesses to forestall climate change? What levers, what powers do banks have to change the mindsets of CEOs and business leaders with respect to the environment?
Green bonds and sustainability-linked loans (SLLs) are important, but still relatively new, instruments designed to support businesses in the development of their sustainability strategies. SLLs incentivise the borrower, usually through margin reduction, to achieve ambitious and predetermined sustainability performance targets (SPTs) to be in line with its overall sustainability strategy. The SPTs should be ambitious and meaningful to the borrower’s business. They should also be connected to a sustainability improvement in relation to a predetermined benchmark. Therefore, the borrowers may be required to provide third-party opinion concerning the appropriateness of the proposed targets. When the borrower meets the predetermined targets, being subject to an audit or external review, the margin of the loan is reduced. Other instruments include preferential credit lines and risk-sharing instruments offered thanks to the cooperation with the EIB or BGK as well as technical support schemes which help in the proper preparation of investments. All banks also have the right to refuse financing a given project if it does not meet sustainability criteria or is against environmental policy.
BNP Group has pulled out of financing coal-powered energy projects four years ago. You state that you will imminently cease "financing for companies that have not adopted a clear strategy for a coal exit by 2030 in EU countries". How does this affect your business in Poland, which makes up for 54% of all of the EU's coal consumption?
Since 2015, the bank in Poland has withdrawn from financing the coal-based energy sector and does not provide new financing to energy groups based on coal-based energy. By successively tightening the regulations in this area, in 2017 a decision was made to stop financing all projects for the construction of new coal power plants and thermal coal mines, and to support only those coal-based energy companies that are actively involved in switching to other energy sources. In 2019, the BNP Paribas Group has adopted deadlines (2030 for the EU and the OECD and 2040 for the rest of the world) after which BNP Paribas Customers engaged in coal power, mining or coal infrastructure, wishing to remain in a relationship with the bank, will no longer be able to use coal. The decision to disengage from the most polluting activities is compensated by accelerating the financing of activities that contribute to a decarbonized economy. This is exemplified by ambitious targets for financing renewables and energy efficiency, and also by engaging in green initiatives undertaken in cooperation with domestic and EU development banks.
Is Poland producing enough innovative new businesses in areas such as electromobility, green energy production and energy saving? Is it easy or difficult to find those Polish companies that are genuinely bringing to market goods and services that can have a positive effect on the environment? Are there enough Polish start-ups in the green-transformation space?
The energy transformation in Poland is definitely accelerating and one of the best examples is the rapidly expanding market of photovoltaic (PV) installations at prosumer and commercial level. The market is also growing in terms of operating entities: small, medium and large technology providers and installers. Apart from the PV market we are also observing a growing number of investments in the field of eco-mobility as well as activities of start-ups around clean energy. Additionally, the development of the market is also stimulated by some institutional activities such as the Clean Air Programme (Czyste Powietrze). This programme aims to refurbish millions of buildings in Poland by 2027. This has to be achieved thanks to financial support schemes worth billions of euros. Such large governmental stimulus packages, if well designed, usually positively influence the development of the overall market. Therefore, we may see a further positive (r)evolution in green the energy and renovation market in the near future.
BNP Paribas has been carbon neutral since 2017. What practices have you implemented across the Group to achieve that goal? How committed are your staff to sharing the Group's green vision?
We believe that changes start from ourselves. BNP Paribas Group has been carbon neutral on its operational scope (direct greenhouse gas emissions and indirect emissions linked to the purchase of energy and business travel) since 2017, through careful monitoring and reductions of CO2 emissions, the use of renewable energy and offsetting residual emissions. Contributing to the group approach we do our best to reduce negative impact of our operations in Poland; 100% of the electricity consumed by BNP Poland comes from renewables. We have also undertaken broader environmental actions, such as becoming a paperless organisation through the introduction of such systems as Autenti e-signatures. And we are also focused on improving staff awareness concerning climate change and its relation with internal policies: over 3,500 employees were involved in our internal educational programme, ‘the bank of green change’ (Bank Zielonych Zmian)
Even more importantly, we support our clients in their pathway towards net-zero. We do develop products, services and processes that accelerate financing energy efficiency and renewable energy projects. We have recently, as a group, joined the Net-Zero Banking Alliance launched by UNEP. Within this alliance we aim for the mobilisation of the financial sector for climate ahead of COP26. This includes such targets as aligning the credit and investment activities in line with achieving carbon neutrality by 2050, building credible transition scenarios, with clear interim targets and annual progress and action plans.