Accelerating green financing in the automobile market

The association of green and sustainable financing with the auto sector may seem unlikely, but is a growing reality.

Until recently it may have seemed strange to talk about green and sustainable financing and the auto industry in the same breath. However, even businesses with large carbon footprints are increasingly recognising the importance of sustainability. Failure by the auto industry to adequately future-proof its operating model to take into account the risks of climate change would have serious ramifications. By using green financing tools such as green bonds, auto manufacturers can further demonstrate their commitment to invest in clean transportation and electric vehicles (EVs).

By using green financing tools such as green bonds, auto manufacturers can further demonstrate their commitment to invest in clean transportation and electric vehicles.


A number of high-profile auto manufacturers are beginning to issue green bonds as they look to transition to a low-carbon economy. BNP Paribas acted as joint bookrunner for Daimler‘s €1 billion, 10-year green bond designed to accelerate the company’s move towards to a low-carbon business model. Volvo Cars recently established a Green Financing Framework off which it has raised its debut €500 million 7-year green bond to help finance investment in EVs, with BNP Paribas acting as structuring adviser. Volvo Cars is aiming to have 50% of its sales from fully electric vehicles by 2025, with the rest from hybrids.

Regulators galvanise auto manufacturers into action

Regulation in the EU has been a major catalyst for green auto financing, according to Trevor Allen, sustainability research analyst at BNP Paribas. As of 2020, EU rules demand that newly built vehicles emit no more than 95g of CO2/km, otherwise manufacturers risk incurring massive fines. According to Bloomberg, auto manufacturers could be facing penalties of up $39 billion under these new emissions rules. “The regulation does have teeth,” said Allen.

The EU’s Sustainable Finance Action Plan, which comes into effect in 2021, is also likely to have an impact on auto manufacturers. As part of the Action Plan, policymakers have developed a comprehensive taxonomy, a standardised classification system outlining what activities are sustainable. Regulators are hoping that making it easier for investors to benchmark sustainability will help redirect capital flows into greener assets and companies. The rules will also require institutional asset managers and asset owners to publicly disclose how they integrate sustainability risks into their investment processes.

“The EU’s taxonomy helps investors identify what is green and what is not green. It is very black and white and there are metrics across all industries including auto, steel and electricity,” said Allen.

One of the taxonomy’s primary purposes is to prevent greenwashing, whereby investors build up portfolio holdings in unsustainable assets but pass them off as being ‘green’. Agnès Gourc, Co-Head of Sustainable Finance Markets at BNP Paribas, said the new rules incentivise investment in green auto financing. Gourc said that investors buying traditional bonds issued by auto manufacturers will need to identify which parts of the issuers’ businesses are green under the taxonomy’s provisions. As a result, it is likely that only a percentage of the total investment in a traditional auto bond issue will be categorised as being taxonomy-eligible. Conversely, Gourc said that a green bond issued by an auto manufacturer would be classified as being entirely taxonomy-eligible under the EU’s rules.

Standards help drive interest

While institutions were previously highly sceptical about green auto financing, interest is now growing. This is partly because there is greater clarity around industry-wide standards for green bond issues. Gourc said that the Green Bond Principles outlined by the International Capital Markets Association (ICMA) are now firmly entrenched. She added that the EU’s Green Bond Standards have incorporated many of the principles adopted initially by ICMA, and will play a vital role in establishing best market practices.

Green auto bonds: a burgeoning market

Gourc noted that the green auto financing market has evolved. As technological advancements have allowed auto manufacturers’ strategies to move towards alignment with the Paris Agreement, they have become strong candidates to access the green bond market. Investor appetite is certainly strong, evidenced by the fact that the Daimler green bond issue was more than four times oversubscribed. “There is a lot of interest coming from sustainable funds, ESG (environment, social, government) criteria funds and green bond funds, especially those in the US and EU,” commented Anjuli Pandit, Sustainability Manager for Primary Capital Markets at BNP Paribas. ESG and sustainable funds have enjoyed significant growth this year. According to Morningstar research, assets managed by sustainable investment funds have exceeded $1 trillion for the first time ever, and this is one of the few investment strategies to record net inflows during COVID-19.


The appeal of green auto bonds

Investors are piling into green auto bonds for several reasons. Pandit said the need for managers to obtain portfolio diversification is a major draw. Right now, a number of sustainable funds investing in green bonds are heavily exposed to just a handful of sectors such as utilities. Pandit added that when green auto bonds began to enter the market, sustainable funds saw it as an exciting diversification opportunity. Investment in green bonds generally is also being driven by institutional investors such as pension funds and insurance companies, many of whom have integrated ESG in their financial decisions for many years. There is also a compelling risk-management case for investors to participate in the green auto bond market, as those with long-term investment horizons want assurance that their underlying holdings are viable. A refusal by a company to plan for the future or to incorporate sustainability into its corporate strategy is a risk from both an investment and credit perspective.

Opening up the green bond market to other sectors

As the deal volume for the green auto bond market picks up, Delphine Queniart, Global Head of Sustainable Finance & Solutions, Global Markets at BNP Paribas, is confident that other sectors which hitherto would have been spurned by ESG investors could eventually issue green bonds of their own. “Auto was initially seen as being a tricky sector to issue green bonds a few years ago. However, the success of the green bonds in the auto sector is now prompting other industries which have advanced their transition to think about issuing green bonds,” said Queniart. With institutional investors looking to diversify their highly concentrated green bond exposure, more industries are likely to follow the auto sector and issue green bonds as they seek to decarbonise their business models. 

Beyond green bonds, the sustainable finance market has now expanded to a range of other financial instruments, meaning companies can now fully integrate sustainable finance into their funding programmes with the addition of sustainability-linked loans or hedging, for example. As new industries gain access to instruments for sustainable financing, the financial markets’ potential to fight climate change and ensure a just transition is increasing significantly.


Related solutions

Global Markets

BNP Paribas’ Global Markets offers consistent client service and innovative solutions for investment, hedging and financing opportunities across asset classes and geographies, as well as cross-asset strategy and economics to help our clients make informed decisions.

ALiX

ALiX has the full power of Cortex FX in a conveniently small window on your desktop. ALiX is indisputably pixel for pixel the most powerful FX platform on the market. Understanding everything from a spot ticket to a complex option ALiX is there to save you both screen space and time.

ALiX on Symphony

Get seamless access to ALiX through Symphony – our latest evolution to streamline the way you interact with ALiX. Set up a chat with ALiX, request prices and execute trades – all on Symphony.

Americas

BNP Paribas has been present in the Americas for more than a century. We provide capital markets, securities services, financing, treasury and advisory solutions to corporates and institutional investors.

Asia-Pacific

BNP Paribas has a strong heritage in the Asia-Pacific region, having established our presence over 150 years ago. Today the bank offers one of the region’s most comprehensive branch networks and provides investors with products and solutions tailored specifically to their needs.

Brio

This platform offers clients the ability to conceptualise and test their investment strategies before connecting with their sales representative to proceed to transaction, specifically for Delta One and Quantitative Investment Solutions (QIS).

Commodity Derivatives

With a global footprint and over 30 years of expertise in the commodities market, we are one of the few banks in the world with a long term commitment to the growth of our commodity derivatives franchise bringing innovative and ground breaking solutions to clients worldwide.

Cortex ATS

The Cortex ATS is a non-displayed order book for listed equities that can be accessed by clients directly, or via any of BNP Paribas' equity execution products.

Cortex CD

Cortex CD is our online-cross commodity trading platform. It offers a wide range of hedging solutions for clients who are exposed to the price of physical commodities. The platform provides transparency and live pricing through its accessible interface and helps you track derivatives transactions on a wide range of energy and commodities.

Cortex Deposit

BNP Paribas’ corporate deposits platform, allowing you to quickly consult and securely trade deposits.

Cortex Equities

By harnessing the power of innovation, we continue to drive digital transformation and strengthen our electronic offerings for our clients by taking an agile approach.

Cortex Equities Americas

Cortex Equities connects you to the deep global pools of BNP Paribas' liquidity and our long-standing expertise to help you manage it.

Cortex FX

Cortex FX is BNP Paribas’ advanced multi-product FX trading platform

Cortex iX

Cortex intelligent execution (iX) is the cutting edge FX spot algorithm execution service from BNP Paribas

Cortex Listed

Our best-in-class Execution Management System for listed derivatives trading, powered by Fidessa

Cortex Plus

Cortex Plus is our online derivative structures platform, providing live pricing and simple click and trade execution.

Cortex Rates

Cortex Rates offers a comprehensive range of Fixed Income Interest Rates products and services

Cortex Secondary

Cortex Secondary is BNP Paribas’ secondary market trading platform.

EMEA

BNP Paribas has presence across most financial centres in Europe. Thanks to our strong local representation and long-standing relationships with governments and regulators we can offer unparalleled access to European, Middle Eastern and African markets.

Global Credit

Our combined Primary and Credit business enables us to realise synergies while maintaining strict boundaries between the public and private sides. We provide solutions to clients throughout the entire credit continuum from origination through execution to secondary market trading and post trade services.

Global Equities

Building on our long-established world-class Equity Derivatives business, BNP Paribas continues to diversify and scale our Equities offering. Clients can now access the combined strengths of our market-leading Prime Services and Cash Equities platforms.

Global Macro

Global Macro offers the full spectrum of products across FX, Rates and Commodities in both developed and emerging markets, from millisecond electronic trading supported by the most advanced AI platforms, through to long dated, high touch solutions.

Global Markets Portugal Open Positions

Find below the latest job opportunities available at Global Markets Portugal.

Global Rates

We aim to be a top 3 house across both developed and emerging market rates. Our business has grown substantially and we operate a culture of “shared purpose”. Our focus is aligned around the social and economic outcomes of supporting our broad client base across Corporates and Institutional Investors.

IBOR

London Interbank Offered Rates (LIBORs) are being replaced by Risk-Free-Rates (RFRs) with the reform leading to multiple impacts on market participants, including changes in the way certain products and contracts operate

Markets 360

A radical new approach to strategy and economics to provide you with top quality views, focusing on evidence-based research and thought leadership. We bring economics and strategy together in thematic notes across asset classes, delivering what you need when you need it and continuously adapting to your needs.

Precious Metals

Access BNP Paribas’ competitive precious metals offering across a plethora of platforms, and enjoy partnering with a bank with strong reputation across Asia, Europe and the Americas

Regulation

Effective regulatory strategy to anticipate and mitigate risks is the best protector of our business. As the regulatory landscape is continuously changing, BNP Paribas Global Markets is well placed to adapt to new regulatory challenges with agility and a focus on the future.

Smart Derivatives

Distributors of structured products face multiple challenges on a daily basis. Smart Derivatives is your digital one-stop-shop to manage the entire lifecycle of structured products and AMCs in one place. We have leveraged the best of our internal resources and partnered with fintechs to provide you with cutting-edge technologies.

Sustainability

We aim to facilitate the emergence of a carbon neutral economy and socially responsible world, innovating new ways to help our clients integrate ESG into all their activities