BNP Paribas commits to ‘doubling’ renewable energy financing by 2020December 2015
BNP Paribas, the French multinational bank with a presence in 75 countries, is to take a further significant step in financing the transition to a low carbon economy by “more than doubling” its financing resources to the renewable energy sector, increasing its allocation to €15bn in 2020 - up 117% from €6.9bn in 2014.
The news came within days of the upcoming UN Conference on Climate Change (COP21) in Paris on 30 November and broad scientific and political consensus that the current CO2 emissions trajectory must be curbed before 2020, if global warming is to be restricted to a 2°C increase over pre-industrial levels.
Jean-Laurent Bonnafé, CEO of BNP Paribas, commenting said: “Our decision to more than double our financing in the renewable energy sector and to reinforce our carbon risk management procedures is both an environmental and economic necessity.”
He added: “It has been calculated that if we want to limit the increase in average global temperatures to 2ºC, only one third of existing fossil fuel reserves can be burnt. The electricity mix currently financed by the BNP Paribas Group, with 23% renewables - that is hydroelectric power, photovoltaic and wind power - and 23% coal-fired power, is already more advanced than the global average mix.”
The International Energy Agency (IEA), which predicts that renewable energy will represent the largest single source of electricity growth over the next five years, has put this global average mix at 21% renewables and 40% coal.
Deciding to strengthen its carbon risk management policies, the bank will also support clients “making a safe transition” to more sustainable energy and continue to promote the merits of Green Bonds to institutional investors. This is a market that BNP Paribas aims to be among the “top three players” worldwide for euro-denominated issues by 2018.
A climate component is to be included in the bank’s methodology for rating companies and the projects it finances. As such it will “progressively integrate” the use of an internal carbon price in its financing decisions going forward “to reflect changes brought about by the transition towards sustainable energy and to take into account the associated risks.”
Strengthening its carbon risk management policies further, the bank has decided that it will no longer finance coal mining activities, whether directly financing of projects or by financing mining companies specialising in coal extraction. That is, unless entities have put in place an “energy diversification strategy”.
BNP Paribas will establish a “differentiated strategy” in terms of financing coal-fired power plants. For the ‘high-income’ countries there will “no further financing” of such plants by bank, while in other countries they will “consider the possibility” of financing such projects - but only if certain criteria are met.
These criteria include: (1) The host country must have made a commitment to limit greenhouse gases (GHG) emissions as part of the COP21 framework; (2) A proper community consultation process (including access to a grievance mechanism) for local people potentially impacted by projects and where necessary compensation is provided; and, (3) Power plants designed to reduce GHG emissions.
Moreover, the bank will only provide financing to power generation companies that have a “formal diversification strategy” to reduce the share of coal in their power generation mix that is “at least as ambitious as that of their host country.”
Separately, on 23 November the European Investment Bank (EIB), BNP Paribas and Vigeo launched Tera Neva, a new sustainable investment solution designed to align investors’ financial objectives with their energy transition goals. The initiative is supported by twelve institutional investors that have invested in Tera Neva via a €500m equity index-linked bond issued by the EIB that matures in May 2029.
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