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Turning sustainability into a competitive advantageUnderstanding sustainable

finance

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

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.

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

Starting Point

The lever to create more socially and environmentally responsible business

has moved from society to investors.

Agenda (of sorts)

Sources of Capital are very interested...

… and pulling a great deal of data…

...to support a wide range of investment strategies.

Agenda (of sorts)

Sources of Capital are very interested...

… and pulling a great deal of data…

...to support a wide range of investment strategies.

47% improvement on stock price performance

Interest

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

Interest

Interest

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

Interest

Agenda (of sorts)

Sources of Capital are very interested...

… and pulling a great deal of data…

...to support a wide range of investment strategies.

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

Agenda (of sorts)

Sources of Capital are very interested...

… and pulling a great deal of data…

...to support a wide range of investment strategies.

• 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

De-Risking Capital Investments

De-risking

There is a gap between sustainability reporting and financial disclosures resulting from a lack of alignment between

- Risk and materiality; - accounting processes

Strategy

Evolutions in Standards

Strategy

The Tip of the Spear: Climate Risk Disclosure

De-risking

Gore

Seeking Impact

From Fixed Income to Private Equity

Renewable Energy

Sustainable Agriculture

Conservation finance

Housing

Health Care

Education

Employment

Impact against a threshold:- Natural Capital- Social Capital- Science-based targets- Contextual metrics- SDGs- Planetary Boundaries…

Seeking Impact

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

April 4, 2019

Thank You

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2. Sustainable finance

33

BNP Paribas

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

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

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

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

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

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

1

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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