Many banks talk a good game when it comes to sustainable finance but France’s banks have taken discernible action, making huge strides in recent years towards enhancing their green finance credentials in particular.
This can be attributed to institutional strategies on the one hand, which have been driven by regulatory pressure from public sector authorities on the other. The resulting progress has positioned France’s banking sector as a world leader in a financial domain that is likely to shape the sector in the coming decades.
Though serious challenges remain – not least in terms of exiting carbon-emitting investments – the sector as a whole has come a long way. Encouragingly, it has done so in tandem with strong operating results.
Top marks
Various independent analyses affirm these developments. In its 2017 report ‘Banking on a low-carbon future’, London-based charity ShareAction – which focuses on responsible investment and bills itself as the ‘responsible investment watchdog’ – analysed the response of Europe’s 15 largest banks to climate-related risks and the low-carbon economic transition.
The methodology included themes around climate-related risk assessment and management, low-carbon products and services, climate-related public policy engagement and the implementation of low-carbon transition plans. French lenders secured three places among the top five banks, with BNP Paribas topping the overall ranking, while Crédit Agricole and Société Générale secured fourth and fifth positions, respectively.
Meanwhile, the Rainforest Action Network, a US-based campaign group, published the 2019 edition of its fossil fuel finance report card detailing the lending and underwriting activities of 33 global banks. While the research indicates that most banks have much work to do, including those from France, French lenders were among the best performing institutions in the analysis. In terms of financing for fossil fuel expansion, large French banks (Société Générale, BNP Paribas, Crédit Agricole and BPCE/Natixis) featured in the small tier of lenders to have prohibited coal financing, while putting in place other limitations on oil and gas projects. Only one other bank in the world, ABN Amro, achieved a higher rating.
Setting the pace
This success arrived partly because French banks were among the first in the world to spearhead efforts on issues related to green finance. By adopting climate-linked policies early on, a number of institutions now boast broad expertise. This in turn has generated new growth opportunities as the climate crisis has accelerated and awareness of green finance has increased. “It represents a huge opportunity for us. We started working in the climate finance space early, so we think we can leverage our experience and knowledge to deliver real value,” says Xavier Musca, deputy CEO of Crédit Agricole.
Legislative and regulatory changes in France have also helped to focus minds among the country’s banks. In January 2016, for instance, the Energy Transition Law was enacted, which included a specific article (173) that strengthened the mandatory disclosure requirements for listed companies and banks. Under the law, listed entities are required to detail the financial risks posed by climate change, the steps being taken by the company to alleviate them and the impact of climate change on commercial activities and the goods and services on offer.
As the ShareAction report notes: “All three French banks surveyed score well compared with their European peers. Our research shows this seems to be related to the introduction of legislative and regulatory measures, including Article 173 in France. This has important implications for policy-makers and regulators in other countries.”
Meanwhile, in late 2019 the Bank of France, the central bank, announced plans to begin stress testing the country’s banks and insurers in 2020 under different climate scenarios. The announcement was preceded by a declaration by France’s financial centre, signed by the country’s banking federation, to establish an observatory to track the progress being made by financial centre members. The declaration also pushes signatories to adopt a coal divestment strategy with a defined divestment timetable, while researching ways to better analyse portfolio exposure to climate risk.
Individual decisions
At an individual level, leading French banks are taking notable action. “One out of four renewable energy projects in France is financed by Crédit Agricole. Our aim is to increase this number to one out of every three projects by 2022,” says Mr Musca. Indeed, Crédit Agricole first estimated the carbon footprint of its loan portfolio as early as 2011. Since then, the bank has introduced sectoral policies excluding engagements with offshore arctic drilling in 2012, while the lender stepped away from project finance in the mining and coal-fired power sectors in 2015.
Beyond this, Crédit Agricole’s asset management arm, Amundi, has worked with the world’s leading multilateral institutions to develop the global green bond market. This includes a tie-up with the World Bank’s International Finance Corporation, to launch the world’s largest targeted green bond fund focused on emerging markets in 2018. In addition, Amundi and the Asian Infrastructure Investment Bank (AIIB) announced a $500m Asia climate bond portfolio in 2019, designed to stimulate action among AIIB members and grow the climate bond market. “In terms of green finance, we can demonstrate that we have a real added value. We have been repeatedly chosen by the biggest counterparts in the world,” says Mr Musca.
BNP Paribas, meanwhile, announced plans to reduce its exposure to thermal coal financing to zero by 2030 in the EU and by 2040 in the rest of the world. This has been accompanied by an increase to its renewable energy project financing target from €15bn to €18bn by 2021. The lender also pledged €1bn to support the ecological transition of global shipping by 2025.
Most notably, in 2017, BNP Paribas made the decision to cease working with oil and gas companies principally dealing in shale or oil sands formations. As part of this announcement, the bank also ceased working on projects linked to the export transport of unconventional oil and gas. “We clearly have a commitment to our staff, our shareholders and clients to be really active in this area,” says Jacques d’Estais, the bank's deputy chief operating office and head of international financial services.
Not there yet
Nevertheless, despite the obvious progress made by French banks – particularly compared with their global peers – there appears to be room for improvement. In a report published by Oxfam and Friends of the Earth in 2019, it was claimed that the carbon footprint of the four largest French banks remained vast, with their total investments and loans responsible for about 2 billion tonnes equivalent of carbon dioxide emissions in the previous year. While these claims were disputed by France’s finance minister, Bruno Le Maire, in comments made to the Financial Times, they suggest more action is needed.
In the coming years, the importance of green and climate-related finance is only set to grow. This direction of travel will be guaranteed by a growing range of regulatory and societal pressures, while a mix of market dynamics and social responsibility will also motivate many banks to expand their activities. For French banks, who have gained an early foothold in this space – generating world-leading expertise and experience in the process – this bodes well.
Moreover, as many of today’s bankers are discovering, it will take a strong commitment to green finance in order to attract the next generation of financial leaders. “Young people wanting to work for us are delighted to discover that we are leading the way on many of these climate finance issues,” says Mr Musca.
