In February 2018, BBVA announced its Pledge 2025, a strategy to fight climate change and promote sustainable development with an ambitious goal of mobilizing €100 billion in sustainable financing by 2025. By the end of February 2021, the bank had already mobilized more than €50.2 billion. However, the institution's commitment to green and social finance predates the formalization of this commitment; in fact, BBVA is one of the most recognized institutions among large companies and clients for its leadership in offering sustainable products.
In general, financial institutions offer two different long-term financing models: bonds raise capital from financial markets, and loans, which are bank financed, can be presented in different formats. In addition, companies need short and medium-term financing instruments to carry out their day-to-day activities.
BBVA offers sustainable versions of all these corporate and investment banking products, that include bonds, loans, and a wide range of other transactional products and market solutions necessary for a company's daily operations.
Bonds are debt instruments issued by a company or government that are sold to investors in financial markets with the aim of obtaining resources to finance projects. Complying with the requirements of the Green Bond Principles, green bonds are issued to finance projects related to natural resources and the environment; social bonds are for projects that have a social impact (which follow the criteria of the Social Bond Principles; and sustainable bonds are for projects that combine green and social aspects. Additionally, there are bonds that are sustainable because one of their structural components, for example a coupon, varies according to its sustainable objectives (sustainability-link bonds).
BBVA is a benchmark bank in the structuring and placement of green, social and sustainable bonds for its clients. Particularly noteworthy is the bank's participation in emblematic operations in sectors like the automobile sector, the first one to focus exclusively on the electric car, as well as in the telecommunications sector, where BBVA has led the issuance of sustainable bonds that incorporate social categories in their operations.
In addition, the bank has been a very active issuer and pioneer in the sustainable bond market. BBVA became the first Spanish bank to issue a green bond in May 2018. With an amount of €1 billion, this operation is the most important issue of this type carried out to date by a financial institution. This operation was repeated in 2019. In 2020, BBVA launched the first-ever green contingent convertible (CoCo) bond by a financial institution, worth €1 billion. It became the first financial institution in the world to issue a green bond of this kind. And in May 2020 BBVA set a new precedent by issuing a social bond and becoming the first private European institution to place a Covid-19 bond.
A loan is a financial transaction by which one or more banking entities grant, by virtue of a contract or agreement between parties, capital to a third party in exchange for interest. According to the Green Loan Principles, a green loan is one that promotes environmental sustainability and is qualified as such by an environmental consultant.
Loans that are formalized between a single financial institution and the client are bilateral loans. Those with a very high amount, often have the participation of a syndicate made up of several entities. In sustainable syndicated loans, one of the banks manages and centralizes the documentation regarding the operation’s sustainable aspect. This person in charge is known as a sustainable agent.
BBVA has been a forerunner and a fundamental driver in the sustainable lending business, which has made it one of the most active global institutions today, particularly in Spain. BBVA and Iberdrola became pioneers in this type of loan when in February 2017 they signed the first green loan of an energy utility in the world with the largest amount subscribed to date. The Spanish paper company Tradebe became the first to sign a green syndicated loan in 2017, in which BBVA acted as a green agent.
Such as in the case of bonds, loans that link their financial costs to sustainable indicators are also considered sustainable as per the Sustainability Linked Loan Principles 2019 criteria. This type of loan allows BBVA clients to assume sustainable objectives in their projects without their nature necessarily being so. This was the case with Acerinox, a company with which BBVA closed the first sustainable operation in Spain within the steel sector in July 2020.
Another corporate loan format that can be sustainable are known as revolving credit facilities or RCF. These lines are not intended to finance sustainable projects, since, due to the nature of the product, the line is unwilling, although they can be sustainable by linking the price to ESG indicators. It is a very novel concept that is already being enjoyed by many national and international companies such as Red Eléctrica de España S.A. or Italian companies such as Hera and A2A.
A sustainable loan in a project finance format enables the financing of large infrastructure or energy projects that meet social objectives or are likely to obtain the green seal for the type of project they promote.
BBVA has become a pioneer bank in this business. In 2020, it signed the first green loan with a project finance structure on a global scale with the European operator Terna, and the first green project finance in Spain with Novo Hospital de Vigo.
Sustainable transaction banking framework
In 2018, BBVA developed an unprecedented methodology in the financial industry that allows us to categorize transactional banking products as green, social or sustainable. The transactional banking framework, which received a favorable opinion from the sustainability agency Vigeo Eiris, links short and medium-term financing products, necessary in the day-to-day life of companies, to the United Nations Sustainable Development Goals (SDGs).
Under this framework, the bank's clients can manage sustainable versions of various transaction banking products for BBVA companies: buyer's credit, factoring, guarantees, letters of guarantee, leasing, renting, reverse-factoring, supplier credit, export finance, and working capital loans.
In 2019, BBVA wanted to go a step further and expand the existing framework in order to also include transactional products that, through their link to established indicators (sustainability-linked products), respond to customers' sustainable commitments. Thanks to this new expansion of the framework, sustainable versions of products now include short-term deposits, structured deposits and supply chain finance.
Interest rate coverage
Interest rate swap (IRS) is a common practice in business operations. This product converts the company's variable flows into fixed ones, ensuring its financial cost.
BBVA has been a pioneer bank by executing a sustainability-linked interest rate swap in which the conditions of the product were linked to defined sustainability indicators. Vidrala was the first company with this type of coverage to link its conditions to a CO2 emission reduction objective. In the event of not reaching the CO2 emission reduction target, the cost of the product will increase for the company.