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Responsible banking 20 Jun 2019

"The SDG and climate change entail a transformation on the same scale as digitization, but the stakes are much higher”

“The Sustainable Development Goals and climate change entail a transformation on the same scale as digitization, but, in this case, the stakes are much higher” This is how BBVA Global Head of Responsible Business Antoni Ballabriga described “this present moment and the opportunity and sense of urgency that we are dealing with today as societies” in the face of climate change.

Speaking today at ‘Sustainable Finance and its Importance in the Future of the Economy’, a one-week seminar organized by the Spanish Association of Financial Information Journalists (APIE) at the Menéndez Pelayo International University (UIMP), Santander, Spain, Ballabriga focused on dismantling the “false myths” that, in his opinion, still exist regarding sustainable finance.

The first great myth he addressed has to do with the belief that what we need to tackle is an important transformation, “but a manageable one, as always.” In that sense, Antoni Ballabriga explained that what we are facing is “a change like we’ve never seen before, which will require a new mindset and new models, something that, as we are already seeing, is gaining momentum, because, in the past two or three years, these issues have passed a tipping point for the industry.”

“We are facing a change like we’ve never seen before”

Another of the myths that, in his opinion, needs to be debunked holds that these issues only affect certain related sectors, particularly the energy industry. “It not about the energy sector alone. It is going to affect all sectors, and in that sense we must ensure that each sector can tackle this transition in an orderly manner.” Proof of this is that, in aggregate, the SDGs will create markets worth $12 trillion in 2030 across all sectors.”

“There is also a belief according to which the global agenda eminently involves states.” This, in his view, is also false. “The truth is that, it does not only involve states, but companies, the financial sector and societies too. What the Paris Agreement says in Article 2 is that the financial sector, in particular, should make finance flows consistent with a pathway towards a more sustainable world.”

These finance flows will translate into, according to Ballabriga, yearly investments totaling about $6 trillion in infrastructure projects – 70 percent of them in emerging markets – through 2030. In spite of that, he acknowledged that “resources are being increasingly mobilized, yet insufficiently.”

BBVA’s Global Head of Responsible Business also emphasized the growing interest on the investor side, with key players integrating more and more sustainability criteria into their investment strategies. “In this sense, sustainable investment reached €30 trillion dollars in 2018,” he explained. “Many studies have been conducted, including Oxford University’s meta-study based on 200 research projects. This study concluded that the companies with best sustainability performance are also performing better in profitability and share price.

Regarding the European Commission’s work, he explained that it has already set very clear objectives with a series of measures that will have a significant impact, “and this includes banking too. This week it announced a package of what will be the taxonomy of sustainable finance.”

Antoni Ballabriga, Director of Responsible Business of BBVA, during his speech.

For Toni Ballabriga, another myth that has spread around is that “risks are, fundamentally, reputational”. And this, in his opinion, is also not true: “according to the Network for Greening the Financial System (NFGS) – a network of central banks and supervisors – climate change is a source of financial risk,” and therefore “regulators are making it part of their mandates.” In this sense, the European Commission has already issued a mandate to the European Banking Authority (EBA) “to assess how banks are going to address this challenge.” “In the medium term, there will be probably a stress test linked to climate change. We have been asked to contribute with information on these issues, and there are many things that still need to be developed, but the pace at which these issues are picking up steam is remarkable,” he explained.

“The major change will come when we incorporate sustainability in our solutions for customers, for individuals, for SMEs”

The last myth that he dispelled is that consumers aren’t demanding these changes today and that, therefore, shouldn’t be a priority,  in this sense, Ballabriga underscored that “the major change will not come because of our activity in financing large companies or promoting green or social bond issuances. The major change will come when we incorporate this topic in our solutions for customers, for individuals, for SMEs. That’s where the great opportunity lies, and younger generations are already demanding it.”

In this sense, Ballabriga also discussed BBVA’s approach, an approach he defined as “integral, not just tactical.”  “Our strategy and our Pledge 2025 are based on three pillars: finance, manage and involve. Our obsession is creating products with sustainable alternatives, and our goal is to be doing this at full speed by 2020.” In this regard, he cited a few examples, including the green developer loan and the hybrid and electric car loan, both in Spain.

Antoni Ballabriga also referred to the Principles for Responsible Banking, which the entity will sign in September in New York, along with over 100 banks from across the world. “A set of principles that define the banking activity as we believe it should be.” In his opinion, the key is the commitment that its signatories take on: “Signing the principles entails a certain level of stress for the banks willing to commit,” because, among other things, “it entails developing solutions for our clients, setting objectives and measuring how we are honoring that commitment.”

During his address, BBVA’s Global Head of Responsible Business summed up what, in his opinion, are the five global factors that are driving sustainable finance towards its tipping point: the global agenda and society, the market, investors, regulators and supervisors, and technology. Forces which, according to Ballabriga, will determine the speed at which the changes that are yet to come will continue to take place.

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