Since EDF France became the first ever large
company to issue a green bond in 2013, the market has never looked back. The
novelty with the French utility company’s milestone €1.4 billion bond was in the way it earmarked the transaction’s
proceeds for renewable energy projects. While the World Bank and the European
Investment Bank had issued the first ever green bonds in 2007, EDF underlined
the strength of investor interest in corporate issuers of green debt
instruments.
EDF’s success was foundation that gave the market
the confidence to grow – and it has since gone from strength to strength. It
has also spawned several other sustainable bond and loan products that have
witnessed astonishing growth. All of these sustainable
finance solutions are explicitly designed to solve long-term existential
challenges caused by ocean degradation, gender inequality, rising species
extinction and loss of biodiversity, deforestation and pandemics.
Earmarking funds for sustainable projects
is now starting to extend into traditional bank loans, revolving credit
facilities, bonds and even derivatives. BNP Paribas has pledged to increase
its financing targets for loans related to renewable energy projects from €15 billion to €18
billion by 2021. In addition to becoming entirely
carbon neutral in 2017, BNP Paribas is one of the top three underwriters of
green bonds and has ceased
financing oil and shale gas programmes, tobacco, and pledged not to finance
any oil or gas exploration or production projects in the Arctic. The bank is also committed to stopping all of
its financing related to the thermal coal sector in the EU by 2030 and
worldwide by 2040.
In the Americas, BNP Paribas was appointed
as an underwriter in 2019 for a $1.42 billion sovereign green bond issued by
Chile, the first in the region. Proceeds from the issuance will be used to fund renewable
energy facilities and other projects inside the country to
protect the environment inside the country.
Furthermore, BNP Paribas was
also underwriter for a $1.5 billion green bond issued by Apple, the funding of
which will be used to help reduce carbon emissions across the company’s supply
chain and support its energy transition. BNP
Paribas also developed a funding structure in conjunction with PUMA to
provide financing to the sports company’s suppliers to improve their
environmental, health and safety and social standards. More recent initiatives
include BNP
Paribas’ incentive-linked corporate revolving credit facility with Brookfield
Renewable Partners structured as a sustainability-linked loan. Meanwhile,
the bank
also closed a sustainability linked syndicated credit facility with WSP Global,
which will see the professional services firm avoid higher borrowing costs if
it meets its sustainability targets.
Financing markets are now starting to
operate with a new way of thinking. Increasingly,
interest rates are no longer solely linked to the borrower’s creditworthiness,
but also to their ability to focus on commercially viable environmental social
and governance projects. This enables companies to lower their funding costs
by contributing to a sustainable economy.