Sustainable Finance Watch

Author: Cédric Merle

Green & Sustainable Finance Watch

Topics of the day: Climate Finance Day

Our key takeaways

 

 

A few days ahead of COP 24 in Poland, the 4th edition of the Climate Finance Day successfully gathered more than 1,000 Delegates during the 3 days event. Numerous commitments from a myriad of actors, variable in their consistency and ambition (see infra) were unveiled. CEOs, Ministers, Regulators and Central Bankers populated the sessions. Their presence was critical to demonstrate that despite political uncertainty, the momentum is not fading away. However, “gilets jaunes” unrest reminded the participants that transition costs are also social and political, and that if not tackled adequately, they could stifle ecological and climate reforms.

 

The slogan “Time to scale-up” properly encapsulates the challenges ahead. Though climate finance flows exceeded €500bn in 2017, global climate financing needs are estimated at $2.5tn per year. Mainstreaming was the buzzword and somehow reflects the reality as regulators and central banks stepwise partner to play their full role. Noticeably, climate change has percolated into prudential and monetary policies discussions. It has henceforth become more a question of how than of if and why. All the signals and incentives are poised to be explored, for instance risk weighting calibration, in Europe or in China. 

 

Possibly as a side-effect of this “scalability concern”, the Climate Finance Day ended-up with a feeling of announcements patchwork overall lacking coherence. Furthermore, accountability is still missing and on the sidelines of the event, civil society and NGOs tried to pinpoint apparent inconsistencies between claims and action. Meanwhile, tools to implement ambitions are more than never needed, and the EU taxonomy is set to be a stepping stone.

Lastly, it is noteworthy that awareness about biodiversity and natural capital issues seems to grow.

 

 

 

OVERVIEW

 

I. MAIN BUSINESS ANNOUNCEMENTS FROM BANKS

II. CENTRAL BANKS & REGULATORS

III. MULTI-STAKEHOLDERS ANNOUNCEMENTS & TOOLS 

IV. THE EUROPEAN UNION (EU)

V. FRANCE

VI. CHINA

VII. RESSOURCES & PUBLICATIONS

 

I. MAIN BUSINESS ANNOUNCEMENTS FROM BANKS

 

NATIXIS

Update on the launch of a green weighting factor, which involves an internal taxonomy to classify financings depending on their climate impacts from green to brown, for all sectors, and to be applied to every deal. In the long run, it aims at aligning Natixis’ balance sheet with the objectives of the Paris Agreement. The choice of analytical RWA (without impacting regulatory ratios) has been made.

Natixis ESR is in the process of building a tool that can be applied to companies in 10 priority sectors, and will take into account ESG controversies and lies in an analysis of the main environmental and social risks specific to each sector.

Natixis Assurances will commit close to 10% of its investments each year to green assets, with the objective that 10% of total AuM will be comprised of green assets by 2030 at the latest (versus currently around 1% of its total €60 billion AuM).  The policy, which is largely based around the GBP, will see the firm increase the funds it allocates to green bonds, but also other debt assets such as renewable energy infrastructure funds, energy efficiency and low-carbon mobility investments.In relation to equities, the firm will target investments that meet the criteria specified through France's Transition énergétique et écologique pour le climat (TEEC) label. Funds with the SRI label and portfolios with a targeted carbon reduction will also qualify.

https://www.natixis.com/natixis/upload/docs/application/pdf/2018-11/natixis_ass_pr_cfd.pdf

Mirova, the management company dedicated to sustainable investment and affiliated with Natixis IM, targets €20bn in outstanding over the next 5 year (versus € 10.2bn as of end October 2018, of which 50% are invested in equity).  Mirova plans to explore new territories of "impact investing", such as biodiversity and human capital.

https://www.natixis.com/natixis/upload/docs/application/pdf/2018-11/cp_-_mirova_veut_doubler_ses_encours_dici_a_5_ans_pour_atteindre_20_milliards_deuros_-_2611.pdf

 

CAISSE DES DEPOTS ET CONSIGNATION (CDC) 

Managing Director Eric Lombard stated that the CDC will no longer invest - directly or through funds - in companies whose coal exposure exceeds 10% of turnover", compared to 20% today. Final exit of coal announced but without end line.

 

The CDC will support projects with a positive impact on the climate with €16bn by 2020 in the form of loans and investments (€18bn between 2014 and 2017), through its "Banque des territoires" and its subsidiary Bpifrance.

 

In 2019, CDC will issue a Sustainability Bond to finance local investment with positive social & environmental impacts.

 

Livret de développement durable et solidaire” (LDDS) (i.e. saving accounts dedicated to sustainable development) outstanding towards building thermic renovation, with an objective to reduce energy consumption by 38%. Stricter rules with earmarking only to green projects under the control of the CDC.

 

CRÉDIT AGRICOLE

First Green Bonds emission (inaugural €1bn bond Crédit Agricole SA, 5 year Senior Preferred bond).

 

► Generalize ESG criteria within its asset management company Amundi

 

► Objective to Favor renewable energy by participating in 1 of every 3 renewable energy projects in France towards 2020.

 

LA BANQUE POSTALE

Achievement of its carbon neutrality across entire scope of operations, which includes its 16 consolidated subsidiaries and takes into account its employees' business and home-workplace travel.

 

Commitments to climate protection projects through the "Carbon Fund", an innovative in-house mechanism set-up in 2015 for monetizing its carbon footprint.

 

AXA GROUP

 

 It announced that its newly acquired division, XL Group—now known as AXA XL—will no longer underwrite the construction and operations of coal plants, coal mines, oil sands extraction and pipelines, as well as arctic drilling. This commitment will represent over €100 million of premiums and it will be effective January 2020.

 

CNP ASSURANCES

It will in future refrain from investing in companies of which more than 10 % of turnover (as opposed to 15 % in the past) is linked to thermal coal.

 

CNP Assurances moreover confirms its target to reduce the carbon footprint of its share portfolio by 47 % to attain an investment level of 0.25 teqCO2/€K by the end of 2021[1] [1], lower the energy consumption of its property assets by 20 % by 2020, and make new investments worth € 5bn to further environmental and energy transition by 2021.

 

The Group’s target of putting €3bn in green investments before the end of 2018 was already reached in September 2018.

 

CREDIT MUTUEL

It will market from December 1, 2018, an Eco-Mobility offer for households (0.75% loan for Electric Vehicles, leasing offer as well), and an Energy Transition Loan offer at a subsidized rate for companies.

 

 

 

 

II. CENTRAL BANKS & REGULATORS

 

The Network for Greening the Financial System (NGFS), a coalition of 21 central banks[1] and supervisors, will provide voluntary policy recommendations in Paris on April 17, 2019 and publish a simplified set of climate change scenarios in 2019 to enable regulators & markets size the risk.

Interim report (October 2018):

https://www.banque-france.fr/sites/default/files/media/2018/10/11/818366-ngfs-first-progress-report-20181011.pdf

 

Closing speech of François Villeroy de Galhau, Gouverneur de la Banque de France,”Le rôle de la finance :  anticiper les risques climatiques, financer les opportunités liées à la transition

https://www.banque-france.fr/sites/default/files/medias/documents/fvg_28112018_climate-finance-day-2018_fr.pdf

 

Quotes: «  Au-delà d’une « photographie des risques », le NGFS travaille à la réalisation d’une « vidéo des risques », avec des tests de résistance prospectifs de long terme pour mesurer les effets du changement climatique sur l’économie et la stabilité financière » […] « d’un point de vue opérationnel, si des éléments montrent que les risques liés à la transition et les risques physiques ont un impact sur le profil de risque de certains actifs, les banques centrales doivent en tirer les conséquences et intégrer ces risques financiers dans leur dispositif de garanties (collateral framework) »

 

►Speech by Yves Mersch, Member of the Executive Board of the ECB at a Workshop discussion: “Sustainability is becoming mainstream, Frankfurt”, 27 November 2018”. He asserted “undervaluation of risks in new green financial products could lead to price bubbles. I call this channel the Ponzi risk of green finance” https://www.ecb.europa.eu//press/key/date/2018/html/ecb.sp181127.en.html

III. MULTI-STAKEHOLDERS ANNOUNCEMENTS & TOOLS 

 

The  UNEP FI’s Principles for Responsible Banking were announced by 28 large financial institutions from around the world (six core principles: Alignment, Impact, Clients and Customers, Stakeholders, Governance and Target Setting, Transparency and Accountability). The 28 banks represent over $17tn in combined assets and 9 of their CEOs attended the launch.

http://www.unepfi.org/wordpress/wp-content/uploads/2018/11/Principles-for-Responsible-Banking_final.pdf  (November 2018)

 

The Natural Capital Finance Alliance (NCFA).  IFC, UBS, National Australia Bank, Citi, UniCredit and CDC Biodiversite partnered with the Natural Capital Finance Alliance (NCFA)[2] to launch a web-based tool called “Exploring Natural Capital Opportunities, Risks and Exposure “(ENCORE). It aims at helping global banks, investors and insurance firms assess exposure to the risks that environmental degradation, such as the pollution of

oceans or destruction of forests, cause for economic activity. ENCORE’s comprehensive database covers 167 economic sectors and 21 ‘ecosystem services’, i.e. the benefits that nature provides to enable or facilitate business production.

Exploring Natural capital opportunities, risks and exposure: a practical guide for financial institutions

http://www.unepfi.org/wordpress/wp-content/uploads/2018/11/NCFA_Exploring-Natural-Capital-Opportunities-Risks-and-Exposure_Nov-2018.pdf

 

 

G20: at the Buenos Aires Summit on 30.11 and 01.12, France will call for the acceleration of work on green finance. The President of the Autorité des Normes Comptables (Accounting Standards Authority), has been mandated by the Minister to work on the development of an extra-financial reporting standard for all G20 members.

 

IV.THE EUROPEAN UNION (EU)

 

The European Commission's Technical Expert Group (TEG) will issue next week an 80-page consultation document presenting a list of a 'first group' of eligible activities that help mitigate climate change across five key sectors, covering about 20 industries.  Also, it will issue a call for more experts come up with a separate taxonomy for adaptation activities.

 

The legislative package on sustainable finance is poised to be adopted by mid-2019.

 

On 28 November 2018, the European Commission presented its roadmap to achieve carbon neutrality by 2050, called “A Clean Planet for all -  A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_en.pdf

 

V. FRANCE

 

The French Financial Markets Authority (AMF) has released its roadmap on sustainable finance titled “sustainable finance: what is the role of regulator?”. It outlines its different priorities for action in favour of sustainable finance, support, supervision and education.  5 key pillars: Support for stakeholders and innovation, Supervision and monitoring, Participation in European work and collaboration with other regulators, Education for savers, Development of internal expertise and governance.

https://www.amf-france.org/magnoliaPublic/dam/jcr:a951130e-48c0-4dff-a8ad-049b8cda8bcd/english_FEUILLE%20DE%20ROUTE%20AMF%20FINANCE%20DURABLE%20-%20POUR%20PUBLI%20(REV%20SUITE%20COLLEGE)20181127.pdf

 

Minister for the Economy and Finances Bruno Le Maire emphasized the role of the public sector to "lead by example". All companies in which the State is a shareholder must put a precise policy in place to reduce CO2 emissions (publish GHG curbing plans in the coming weeks).

 

G7 in 2019 under France’s Presidency with the goal to put green finance at the heart of the discussion (implementation of TCFD).

 

Confirmation that all coal power plants in France will be closed by 2022 and Caisse des Dépôts will support affected regions and people.

 

The PACTE law will request insurance companies to propose climate related products

 

A High Council on Climate created on Tuesday by President Emmanuel Macron to The thirteen-member body will advise the government on ecological transition and evaluate the measures taken by the executive. Members include: climatologists Corinne Le Quéré and Valérie Masson-Delmotte, former climate ambassador Laurence Tubiana or economists Pierre Larrouturou, Alain Grandjean, Céline Guivarch and Katheline Schubert.

 

Launch of a transpartisan collective in France "Accelerating the Ecological and Solidarity Transition", which brings together 150 members of parliament, to present concrete proposals for more climate financing.

 

Publication in the Official Journal of the « low-carbon label » a tool to certify innovative practices in the Territories. 

https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000037657959&dateTexte=&categorieLien=id

 

Ville de Paris, Anne Hidalgo, the Mayor of Paris and Chair of C40, announced the first beneficiary companies of the Paris Green Fund, which represents €100m.

 

VI. CHINA

 

Doctor Ma Jun stated that the PBoC plans to lower risk weight for green asset (reportedly from 100% to 50%, i.e. halving it). He said that in 2017 in China, the non-performing loan ratio for green loans was only 0.4 percent, far lower than that of 1.7 percent of the banking sector. Under such circumstances, lowering the risk weight for green assets will be in line with the macro-prudential principle to ensure banking system stability, with the additional benefits of meeting the government objectives of optimizing the economic structure, strengthening the ability of the financial system to serve the real economy and fostering greener economic development, he said.

 

Belt & Road Initiative. Announcement from Kong Wei that China, especially the Green Finance Committee (GFc) will be shortly launching with the City of London 7 principles for greening overseas / belt & Road Finance.  The IFC and the PRI were members of the drafting committee.

 

VII. RESSOURCES & PUBLICATIONS

 

► Finance for Tomorrow and Climate Action (November 2018), “Global Report on Climate Action into the Financial Sector”;

https://www.climate-chance.org/wp content/uploads/2018/11/en_cahier_3_def.pdf

 

UN Environment’s 2018 Emissions Gap Report

http://wedocs.unep.org/bitstream/handle/20.500.11822/26895/EGR2018_FullReport_EN.pdf?isAllowed=y&sequence=1

 

► 2018 edition of I4CE's Landscape of Climate Finance

https://www.i4ce.org/download/2018-edition-of-i4ces-landscape-of-climate-finance/#

 

► OXFAM (Novembre 2018) “Banques françaises, les fossiles raflent la mise” €10bn in financing dedicated to coal since COP21, and €43bnto fossil fuels in 2016 and 2017, compared to only €12bn for renewable energies.

https://www.oxfamfrance.org/wp-content/uploads/2018/11/BanquesFrancaises_Fossiles_Nov2018.pdf

 

►Observatoire mondial de l’action climatique non-étatique.

https://www.climate-chance.org/wp-content/uploads/2018/11/2018_rapport_cahier_3.pdf

 

►UNEP FI’s Positive Impact Initiative, “Rethinking Impact to Finance the SDGs”,

http://www.unepfi.org/wordpress/wp-content/uploads/2018/11/Rethinking-Impact-to-Finance-the-SDGs.pdf

 

►Financing the Sustainable Develoment Goals: Impact Investing in Action.

https://thegiin.org/assets/Financing%20the%20SDGs_Impact%20Investing%20in%20Action_Final%20Webfile.pdf

 

 

 

[1] Banco de México, Bank of England, Banque de France / Autorité de contrôle prudentiel et de résolution (ACPR), De Nederlandsche Bank, Deutsche Bundesbank, Monetary Authority of Singapore, Banque Populaire de Chine, Finansinspektionen de Suède, BaFin, Banco de España, Bank al Maghrib, Bank Negara Malaysia, Banque de Finlande, Banque centrale du Luxembourg (BCL), Banque nationale de Belgique (BNB), ABE, Banque centrale européenne (BCE), Financial Services Agency (FSA) du Japon, Oesterreichische National Bank (OeNB), Reserve Bank of Australia, Reserve Bank of New Zealand

[2] A collaboration between the UN Environment Finance Initiative (UNEP FI) and Global Canopy, in partnership with UN Environment World Conservation Monitoring Centre


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