EXCLUSIVE: ‘Values-addedbanking’ – Ricardo Laiseca, BBVA in ‘The Fintech Magazine’
The head of BBVA’s new Global Sustainability Office, Ricardo Laiseca, firmly believes that, instead of being part of the problem, the finance industry – and banks in particular – can be part of the solution to the world’s environmental and social challenges
The urgent need to tackle climate change at both governmental and corporate level is near-universally accepted. With the Organisation for Economic Co-operation and Development (OECD) estimating that $6.9trillion will be required up to 2030 to meet climate and development objectives, private capital will be required to do a lot of the heavy lifting.
Corporates the world over have already started to assimilate environmental and social responsibility into their strategic objectives and operational governance, encouraged by influential investors such as BlackRock. Now, big banks are coming under increasing pressure to do better in their role as keystones of the economy and BBVA is one major player leading the way. BBVA is already the most sustainable bank in Europe and the second globally, as judged by the Dow Jones Sustainability Index 2020. Having already achieved carbon neutrality in terms of direct CO2 emissions last year, it recently announced a commitment to zero net indirect emissions by 2050 – surpassing the targets set under the Paris Agreement.
At the time of the announcement, group chairman Carlos Torres Vila said that banks have a key role in ‘analysing investment opportunities and managing the risks associated’ with climate change. Indeed, BBVA was one of the first banks to adopt the World Bank’s Equator Principles – a risk management framework that seeks to ensure socially and environmentally responsible financing of large-scale infrastructure, mining and energy projects – in 2004. It’s looking to develop sustainable versions of all its banking products, including a sustainable transaction framework, within the next few years, having already introduced specific initiatives, including green derivatives and green foreign exchange.
Ricardo Laiseca, head of the Spanish giant’s global sustainability office, created in 2020, believes the banking industry could have a ‘transformative’ impact after the pandemic forced attention like never before on the social, as well as the environmental, ethics of big business.
“We can support any transition, and, in particular, this transition from the pandemic into a new world that is much more based on values,” says Laiseca. “We can mobilise funds in order to fight against climate change and promote inclusive growth. We can also – as a financial institution, as a large player – develop capital markets and market incentives to promote sustainability.”
He points to carbon markets and the capital markets union in the EU, that he says can help create a green market for bonds and loans. But adds that a particularly valuable tool, as a financial institution, is the decarbonisation of its own balance sheet by aligning it to specific goals such as the Paris Agreement on emissions. Banks across the world have long profited from investing in carbon-heavy ‘dirty’ industries, with some such as HSBC more recently accused of ‘greenwashing’ by continuing to fund coal projects while pledging to go carbon neutral. BBVA has moved to reduce its exposure to coal-related activities by adopting an environmental and social framework that aims for zero exposure to coal clients by 2030 in developed countries, and by 2040 elsewhere.
“The reason for that is that coal represents about around 40 per cent of total carbon emissions in the world,” Laiseca explains. “I feel this is the first step for any credible sustainability strategy, if you are committed to a net-zero future, so this is what we have done.”
The bank intends to announce new goals for other sectors, particularly big polluters such as oil and gas, cement and steel, automotive, and transportation in general. But Laiseca stresses that it’s not just about limiting the bank’s interest in those sectors; it is also about adopting investment strategies that help those companies transition towards a greener future themselves.
“We are happy to fund them, if they want to use their funds for renewable or sustainable energy projects,” he says.
Indeed, it has played a significant role in co-ordinating three rounds of sustainable debt finance for Spain’s global utility company Iberdrola, helping it go coal-free last year. Most recently, the bank acted as the sustainability co-agent of a pioneering $2.5billion multi-currency syndicated loan to the company. The margin on the loan is linked to the company’s performance against two sustainability indicators that are wrapped into the loan agreement: not only will Iberdrola have to meet its emissions reduction target, but it will also have to increase representation of women in its boardroom. The finance is also subject to a third commitment from the company: to make donations to sustainability projects, the value of which is dictated by its use of the credit line.
BBVA’s new sustainability advisory service also helps larger clients achieve their environmental, social and governance (ESG) targets, benchmarks key performance indicators against similar companies’, assists with reporting transparency, and with access to sustainable finance products. A growing body of evidence suggests that such companies not only perform better, but shareholders are more likely to give them their support. In a recent Institutional Shareholder Services’ survey, 75 per cent of investors said they would consider voting against directors who were not effectively reporting on, or addressing, climate change risk in particular.
Laiseca observes that calls for sustainable change can now be heard a long way down the value chain. The spotlight might have been on the bank’s corporate clients in carbon-heavy industries to begin with, but it’s being echoed by smaller business customers. Consumers also want the same sustainability and social issues addressed at retail investment level and in their daily financial lives. They are looking to the bank for support and guidance.
During the pandemic, there was a clear trend towards embracing alternative financial instruments that matched an investor’s ethics.
“People and small clients, individuals, are looking for a return, but they are also looking to fit their investment with their values,” Laiseca observes. “This is what we’re seeing right now – individuals, families and small businesses demanding new services. They want to adopt a new style of life that fits the new concepts, regarding sustainability.”
BBVA was one of the first private financial institution in Europe to place a COVID-19 social bond on the market, which was way over-subscribed within hours, proving his point.
“A lot of detrimental impacts – particularly those relating to the environment – can be minimised through information and the right digital tools,” says Laiseca. “I feel that digitisation, and large institutions or financial entities can play a very important role in this, in particular for the smaller clients.”
For example, BBVA’s financial aggregator One View uses data analytics to tell companies how much they emit in greenhouse gases through their daily activities. Knowing their carbon footprint enables businesses to make informed choices about how best to reduce their impact on the planet, while also exploring more sustainable ways of doing business.
Laiseca describes it as a step-by-step approach. But BBVA fully intends to put sustainability at the core of its operations worldwide. “These issues will affect developed and non-developed countries at the same time,” he says. “So we have to find a plan, a global plan, to meet global goals in the whole organisation.
“Our balance sheet, our credit activity and our lending business can contribute a lot to align the activities and the economy in general. So we are defining some of those common goals there,” explains Laiseca.
The bank is also setting targets in terms of transparency and disclosure at board level as sustainability requires more than aspirations and good intentions. It’s vital for a board to communicate what a business is doing so others can learn and incorporate such information into investment decisions.
“This is also important in order to create an environment for new green investment. And this is where we’re going, with common goals on mobilisation and direct impact, transformation of the balance sheet, and transparency and disclosure.”
Laiseca fundamentally believes that, instead of being part of the problem, finance can be part of the solution to the world’s biggest social and environmental challenges.
“Our strategy is nothing to do with high-level manifestos. This is not about that; it is not about a pure regulatory compliance programme,” he says. “We believe that sustainability is something core for us as financial institutions, and for society as a whole.”