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BNP Paribas may lose up to 50% of power clients due to coal policy

➤ BNP Paribas SA expects to lose up to 50% of clients in power generation because of its commitment to stop financing coal

➤ The bank will focus on deforestation in new biodiversity position paper

➤ BNP Paribas plans to phase out clients at risk of having stranded assets

S&P Global Market Intelligence spoke to the head of corporate social responsibility at one of France's largest banks, BNP Paribas. In the interview, Laurence Pessez outlined the bank's commitment to end relationships with customers that use coal to generate electricity and its increasing focus on biodiversity in a year marked by the coronavirus pandemic.

The following transcript is edited for length and clarity. Listen to audio from the interview on ESG Insider, an S&P Global podcast.

SNL Image
Laurence Pessez, head of corporate social
responsibility at BNP Paribas

Source: BNP Paribas

S&P Global Market Intelligence: BNP Paribas' coal policy has evolved over the years, and in May the bank expanded its commitment to exit coal worldwide by 2040. How are you working with clients to exit coal and other fossil fuels?

Laurence Pessez: We have an ongoing dialogue with our clients. We've been talking about coal reduction, diversification, the need to fight climate change and align with the Paris Agreement for a long period of time. We are not the only ones. A lot of investors and banks are doing the same especially since the Principles for Responsible Banking were signed last September. We have more than 30 banks [committed] to align their portfolio with the Paris Agreement. The idea is to have as many banks as possible asking the same thing of their clients to put pressure and to achieve a tangible result. If you are the only bank to ask something of your client, you are perceived as the annoying guy and it is not the best way to really have some impact.

What other ways are you working with banks on fighting climate change?

We are used to working with other banks on an international or national level, which is why we joined the Katowice agreement in 2018 with four other international banks to work on a common methodology to align our portfolio with the Paris Agreement. There is no current methodology so it has to be designed.

We are about to release the methodology, which is going to be open source as we want as many banks as possible to join. The idea is sector by sector to assess the resilience of our clients to the 1.5 scenario [which involves limiting global warming to 1.5 degrees Celcius relative to pre-industrial levels] and then be able to identify those who are already ahead of the pack.

We will also identify the laggards who won't transition rapidly enough and will be potential stranded assets. Of course we don't want stranded assets in our portfolio so we will have to reduce our exposure to those clients and phase out the relationship.

Would you turn your back on large clients if they are not prepared to change?

Leaving a client is not something natural for a business. For us, it is the ultimate solution when there is no other, when the client is not willing to interact with us. Most of the time we achieve some results or we can see there is an improvement and they are worth supporting. But if we go back to the coal policy we just announced, it's obvious that we will have to exit the relationship with at least 30% to 50% of our current clients in the power generation business. Because especially when you take Asia or some other regions that are still very dependent on coal, they won't be out of coal by 2040. So we'll have to take decisions.

What impact is the pandemic having on the ESG movement?

There's been a link that has been established between the loss of biodiversity and the increased risk of pandemics. It will help us have a more offensive biodiversity policy at BNP Paribas. We want to issue a global position on biodiversity before the end of this year. Environmental and social dimensions have to be linked if we want to build and create a sustainable world.

What kind of conclusions are you hoping to make in your position paper?

2020 should have been the biodiversity year. There was going to be the biodiversity [Conference of the Parties] at the end of the year, which will now take place in 2021, but it will still have a lot of visibility. I hope it will be as big as it was in 2015 for climate. It will be successful if corporates and the financial sector make ambitious commitments.

We started [our focus on biodiversity] in 2019 with marine biology to protect the ocean. We finance a lot of ocean-related industries like shipping and fisheries and we can act to protect the ocean. Now we are going to work on land. We already have some commitments on palm oil and paper pulp financing, but we are going to broaden our commitments to other commodities such as soy, beef and cocoa. We have clients in Brazil — you've heard of the fires last summer in Brazil and their connection to beef producers because of deforestation. There, again, we can do something to put some gentle pressure on clients to be more transparent. With the big traders, who trade in all kind of commodities, we can ask them to improve their transparency in their supply chain. Deforestation will be the main focus because it is a critical issue.

READ MORE: Read interviews with sustainability leaders at Barclays in the U.K. and BBVA in Spain. Listen to interviews with ESG executives from JPMorgan Chase, the largest U.S. lender, and DBS, Southeast Asia's biggest bank. Sign up for our weekly ESG newsletter here, and read our latest coverage of environmental, social and governance issues here.