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Banks need to join forces to stop oil, shale businesses shopping around: BNP

BNP Paribas' decision to stop financing shale and oil sands projects resulted in the bank losing €100 million in revenue, and the business went to a U.S. lender, showing the need for banks to join forces in tackling the financing of polluting industries, according to the head of corporate social responsibility at BNP Paribas SA.

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BNP Paribas, which made €42.52 billion in revenues in 2018, announced in October 2017 it would no longer it would no longer finance shale and oil sands projects.

Laurence Pessez told the conference in Paris the bank had lost 60 clients and €100 million in revenues following the decision. In the end, the business had gone to a U.S. bank and if banks worked together they could avoid this situation, which had been particularly hard for the bank's sales people.

"Saying goodbye to clients is not natural for a commercial guy," she told the conference.

"I'm a big fan of coalitions and the idea is not to be the leading bank ... but to really rally as many financial institutions as possible," Pessez told a sustainable investment conference in Paris on March 12.

Banks, in general, need to get their corporate clients to do more on climate change and implement initiatives already in place in the fund management industry, she said.

The banking industry could follow initiatives in the fund industry such as Climate Action 100 plus, launched in late 2017 at the One Planet Summit in Paris, and designed to encourage heavily polluting companies to take action on climate change, Pessez added. BNP Paribas was ranked as the leading European bank in tackling climate change by investor advisory group ShareAction in late 2017.

Syndicated loans

She said banks could work together on syndicated loans when often more than 10 banks work on lending to large companies. That would help them achieve the goals of the 2015 Paris Agreement on climate change, which aims to limit the global temperature rise to below 2 degrees C above preindustrial levels

"We all have in mind those big corporates, which have 10 or 15 big banks and are not at all aligned to the two-degree scenario and are not prone to changing their practices," she said.

"Couldn't we join our forces and ... help corporates change the way they do business?" she said.

Pessez said she welcomed moves such as the United Nations Environment Programme Finance Initiative's Principles for Responsible Banking, of which BNP Paribas is a signatory and which will be implemented from September 2019, because it brought together banks that were focused on meeting climate goals.

READ: Lack of data a key challenge for banks in identifying climate risks

Like many banks, BNP Paribas is looking at different ways of reducing climate change risk to its lending portfolio such as teaming up with a group of banks including ING Groep NV think tank 2 Degree Investing Initiative, or 2˚ii, to take a sectoral approach to climate change.

The bank is also looking at other approaches to test the best direction to take and was exchanging ideas with investors and other banks, Pessez said.

"We are still struggling with some methodology issues and I think all the banks are more or less in the same situation," she said.

"We will have to monitor our portfolio," she told the conference. "So we have to identify in our credit portfolio within a specific sector, the players that are going to transition ... and the ones that are laggards, we don't want to stick with those ones so we have to deleverage."

Physical risks

For transitional risks, related to things such as changes in policy to tackle climate change, the bank can depend on organizations such as CDP, a nonprofit formerly known as the Carbon Disclosure Project which provides a global environmental disclosure system for investors for data. However, for physical risks, which take into account extreme weather events among other things, it was more difficult, she said.

As a result, the bank is currently running a pilot scheme based on eight sectors of activity with 10 corporate clients in each sector to assess physical risks, she said.

Pessez said BNP Paribas has been offering "positive incentive loans" for the last year and a half, which links the interest rate on a loan to environmental, social and governance criteria, a business she said that was "booming" with 40 such loans already contracted.

She said the loans enabled the banks to have "intimate knowledge" of a client's sustainability strategy and encouraged management to take a more active role.

"It is a very good tool for having a high-level dialogue between a bank and corporates," she said.