Tehniyat Ikram and Kai Hussein
BNP Paribas under the microscope
Created in collaboration with LSE Green Finance Society
BNP Paribas claims to be an agent for positive change. However, the proliferation of self-conceited awards and frequent greenwashing in the banking sector hampers our ability to decipher the truth. The following analysis is focused on the environmental, social and governance ventures of BNP Paribas and will attempt to determine the credibility of its corporate and social responsibility (CSR) credentials. The evaluation will further detail the banking sector's performance to contextualise the success of BNP Paribas.
In 2016, BNP Paribas was one of the first companies to include a clear reference to UN sustainable development goals (SDGs) in its CSR policy. The S&P Global 2023 Sustainability Yearbook rankings, which include the top 15% of companies from each industry for sustainability, awarded BNP Paribas a ‘Top 5% S&P Global ESG Score’ of 82/100. The International Financing Review, a provider of global capital markets intelligence, named BNP Paribas both ‘Bank of the Year’ and ‘Bank for Sustainability’.
BNP Paribas is an industry trailblazer in facilitating the energy transition by financing low-carbon solutions. BNP dedicated €28.2Bn in outstanding loans to low-carbon energy production as of September 2022 and pledged €40Bn in outstanding financing for low-carbon and especially renewable energy production by 2030. Hence, it seems that BNP Paribas has secured its public image as a leader in sustainable financing solutions across multiple platforms.
However, there are cracks in this facade. BNP Paribas claims to have “stopped oil project financing in 2016”. Deeper research finds negligence in the specification of the type of oil they are stopping financing for. BNP Paribas has only stopped providing financial products or services to projects which derive more than 10% of production from unconventional oil and gas. Compared to conventional oil, unconventional oil extraction includes methods of hydraulic fracturing (‘fracking’) and coal gasification, both of which produce airborne contaminants that not only cause a higher risk of early death but are also blamed for leaking millions of tons of methane into the atmosphere. The bank also has stopped financing exploration and production projects in ‘sensitive areas’ which include the Arctic and Amazon regions. To put into perspective, at least 35 multinational oil and gas companies operate in the Amazon, with it being the home to more than 1 billion barrels of crude oil. Although this criterion is more credible than other banks, claiming to have ‘stopped oil project financing in 2016’ is misleading and a form of greenwashing.
Since the signing of the first agreement on professional equality, BNP Paribas has pursued a policy in favour of diversity, equality and inclusion by setting up decentralised governance. A team of 40 diversity officers promotes these themes daily, with more than 80,000 employees expressing a positive view of the firm’s Diversity and Inclusion Policy. In 2018, BNP Paribas CEO, Jean-Laurent Bonnafé, joined the eight Thematic Champions to promote the HeForShe United Nations initiative - a global movement to invite people of all genders to stand in solidarity with women. In 2021, BNP Paribas reported 52% female participation in its workforce compared to a 32% representation of women in senior management positions. Bonnafé was also recognised in the 2019 OUTstanding 100 LGBT+ Executives published by Yahoo Finance - a list highlighting industry role models who champion LGBT+ support within their firms. If the global recognition of a CEO’s efforts to advocate for equality is representative of the entire firm, BNP Paribas is most definitely a diversity and inclusion leader.
Conversely, BNP Paribas’ social efforts could be seen as purposeless and even, in some cases, tokenistic. Lauding Jean-Laurent Bonnafé as a UN Thematic Champion is not a tangible representation of the social progression of the bank. Furthermore, initiatives which aim to show solidarity in inclusion are often tame and generic, such as when BNP Paribas Belgium flew the rainbow flag in front of its building for International Day Against Homophobia, Transphobia and Biphobia.
In Asia-Pacific, BNP Paribas has received many prestigious industry awards in recognition of its achievements in transaction banking. Most recently, BNP Paribas acted as Sustainability Global Advisor Mandated Lead Arranger for Siemens’ €600 million sustainability-linked facility. By introducing a sustainability-linked trade finance mechanism, Siemens will pay a premium if it fails to meet certain ESG targets. However, should it meet those targets, the premium will instead be paid by the banks on the syndicated guarantee facility. Either way, the premium will be used to support a cancer research project at the Hospital La Paz Institute for Health Research in Spain. BNP Paribas is offering sustainability-linked solutions to clients, where the underlying asset in the transaction (construction of components for the world’s largest offshore wind farm) contributes to efforts to mitigate the effects of climate change and has a dual environmental and social purpose.
BNP Paribas falls short in governance by lacking corporate incentives to progress ESG indicators. It was reported in 2022 that 41 of the top 100 banks considered environmental factors in deciding the bonus of the Chief Executive Officer. BNP’s failure to include environmental or social factors in determining executive pay is disappointing and may point to misaligned incentives at the bank.
Overall, BNP Paribas has very credible corporate and social responsibility credentials relative to the banking industry. This credibility is built on environmental foundations as the bank leads the way in investing in the renewable energy transition. Our analysis finds BNP Paribas is currently overstating its social and governance credibility; bolstering this would give BNP Paribas a more complete CSR profile. With the bank's environmental stature, any shortcomings in its environmental objectives will have seismic effects on the industry and its push towards environmental sustainability. Thus, it is imperative that BNP Paribas provides transparency regarding oil financing and proliferates environmental and social targets in its corporate incentive structure.