Daily ESG Briefing: BNP Paribas’ deforestation pledge

The latest developments in sustainable finance

BNP Paribas has committed to encouraging its customers producing or buying beef or soy from the Amazon and the Cerrado in Brazil to become ‘zero deforestation’ and to demonstrate their progress. As part of the bank’s new policy, it will only provide financial products or services to companies with a strategy to achieve zero deforestation in their production and supply chains by 2025 at the latest. NGOs including Reclaim Finance, Canopée Forêts Vivantes, SumOfUs and Mighty Earth welcomed the measures but said they come “far too late.”

Despite acknowledging that a link between diversity and company performance has not been “established by rigorous academic research”, Norges Bank Investment Management (NBIM) has said it considers “board diversity as a contribution to the overall effectiveness of the board and an indication of an effective board nomination process,” as it brings additional perspectives and improves the quality of decision-making. In addition, in Diversity on the Board the manager of Norway’s $1trn sovereign wealth fund particularly highlighted the persistent underrepresentation of women on boards as a concern. The position paper will serve as a basis for NBIM’s discussions with company boards.

Throughout 2020, the Luxembourg Green Exchange (LGX) listed 407 new sustainable securities, totalling €186bn, according to Luxembourg for Finance’s annual review. Alongside this the agency, which is the product of a public-private partnership between the Luxembourg Government and the Luxembourg Financial Industry Federation, reported the number of securities added on LGX grew by more than 50% compared to the year before and for the first time, social and sustainable bond categories combined have surpassed green bonds on the platform in terms of total value.

The UK’s Pension Protection Fund (PPF) has provided £65m of an £85m deal to refinance the entire loan portfolio of Wales’ Monmouthshire Housing Association. It is the defined benefit pensions lifeboat fund’s first direct investment into the UK’s social housing sector. The funding is for 40 years and comes alongside £20m of flexible finance provided by existing lender, Barclays.

The Network for Greening the Financial System (NGFS), the central bank group, must revise its climate scenarios to drive decarbonisation in the financial sector, according to a new report by Oil Change International and Reclaim Finance. In NGFS Scenarios: Guiding finance towards climate ambition or climate failure? the NGOs claim that although the scenarios aim to help mitigate climate-related financial risks, “they may in fact increase them by driving financial institutions to adopt inadequate fossil fuel phase out pathways justified by a risky gamble on negative emissions technologies.” Moving forward, the pair are calling on the NGFS to centre on 1.5°C trajectories that highlight the need for a managed phase out of fossil fuels and to be transparent about the risks of relying on negative emissions to reach climate objectives.    

The German government has announced an agreement on a mandatory human rights and environmental due diligence law (Lieferkettengesetz); the news follows the EU recently closing a consultation on a similar proposed directive. Although the move has been welcomed as a first step, Miriam Saage-Maaß, Vice Legal Director and Head of the Business and Human Rights program at the European Center for Constitutional and Human Rights, expressed reservations. “We are skeptical about the fact that the law initially only applies to large companies with 3,000, later 1,000, employees. In addition, the law’s strongest language only applies to direct suppliers. Indirect suppliers are included only with weaker measures.” The proposal will be discussed in the German Federal Cabinet from mid-March.

3i, Macquarie Infrastructure and Real Assets, Brookfield, Epiris, and Cinven have been praised as embodying ESG transparency best practices in an analysis of 160 British private equity firms’ ESG reporting performance by ITPEnergised and Orbis Advisory. The results of ESG Transparency: A Private Equity Index by the consultancy firms is based on publicly disclosed information by the organisations.

The United Nations-convened Net-Zero Asset Owner Alliance, created by the UN Environment Programme Finance Initiative (UNEP FI) and the Principles for Responsible Investment (PRI), is in favour of the Task Force on Climate-related Financial Disclosures (TCFD) including an implied temperature rise [ITR] metric in its forward-looking disclosure recommendations, according to a consultation response. Other investor bodies such as the Transition Pathway Initiative and the Institute of International Finance have said the TCFD should delay introducing forward-looking metrics such as ITR as the market is too immature.