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Responsible banking 04 Sep 2019

“Younger generations are already demanding solutions”

Antoni Ballabriga, BBVA’s Global Head of Responsible Business, was recently appointed Co-Chair of the Global Steering Committee for the United Nations Environment Programme Finance Initiative (UNEP FI). The UNEP FI is the global partnership established between the UN and the financial sector to promote sustainable finance, a cause that will keep Antoni Ballabriga busy well after the summer holidays. His calendar features a trip to New York on September 22 when BBVA, as one of the founding banks, will sign the United Nations Principles for Responsible Banking.

Antoni Ballabriga received a B.A. in Business Administration and an MBA from ESADE Business School. He completed postgraduate studies at Harvard Business School where he focused on strategy and corporate social responsibility.  He chairs the European Banking Federation’s working group on sustainable finance. He has also chaired the Spanish Forum for Socially Responsible Investment (SpainSIF) and the Spanish association of executives for corporate social responsibility (DIRSE).

Ballabriga reports directly to the bank’s management board. His avowed mission is “to ensure the bank systematically positions people at the heart of its decision-making processes.”

Question: Natural disasters, global warming, pollution of both our air and oceans, relentless migration, inequality, etc. It seems like society has finally woken up to the feeling that there is no turning back from the global challenges we face. Will the private sector in general – and the finance sector specifically – rise to the challenge? 

Response: It must. We must. Never before have we faced a change of this magnitude. It’s the kind of thinking every business, every industry needs to adopt. The mainstream public is embracing this change in thinking, and now the financial sector must face up to its responsibility and adopt a different mentality too.

In this sense, we are seeing increased investor interest in the performance of sustainable businesses. Just take a look at BlackRock’s annual letters to its shareholders, where it points out that companies in the long term need to focus on transitioning towards sustainable finances and preventing a climate emergency.

Furthermore, it cannot be said enough: from a business perspective, sustainability is profitable. The facts prove it. According to the 2018 Global Sustainable Investment Review, sustainable investments have grown to $30 billion (January 2018).

Be that as it may, the quantum leap that is needed won’t come about because financial companies are financing large companies or participating in issuing green and social bonds. The sea change will occur when sustainability is incorporated into customer solutions, solutions for large enterprises, SMEs, and private individuals alike. Younger generations are already demanding these solutions.

Q: -Do you think sustainable finance will gradually take on more weight in corporate strategies?

R: Yes. It is time for the private sector, in our case the financial sector, to take a definite step forward. The global agenda concerns both governments and companies; the financial sector; and, of course, society as a whole. Article 2 of the Paris Agreement says that the financial sector specifically should control the capital flows in such a way that is conducive to a more sustainable world.

Furthermore, according to the Network for Greening the Financial System (NFGS), a network that includes central banks and supervisors, climate change is a source of financial risk, which regulators are incorporating into their mandates. No one can act surprised. The European Commission has assigned the European Banking Authority (EBA) with the mandate to assess how banks are going to address this challenge. The European Central Bank has already announced that there will be a stress test related to the climate emergency.

Q: A few weeks ago the third annual EduFin Summit came to a close in Madrid. How was it received?

R: This year was the year the EduFin Summit established itself as the leading global event dealing with financial education. The event was held in Madrid, where BBVA Chairman Carlos Torres Vila’s participation demonstrated the bank’s high-level commitment to this important topic.

Over the course of two days, participants shared their experiences and knowledge about digitization and financial education as drivers of opportunity for everyone. Two hundred and fifty guests from 21 countries attended: internationally recognized experts, researchers, and representatives from agencies like the OECD, the Banco de España, the European Banking Federation, CAF- Development Bank of Latin America, to name a few.

Q: What is BBVA doing in the area of financial education?

R: Between 2008 and 2018, more than 13 million people benefited from BBVA’s financial education programs around the world. All of this as part of the remit of the Financial Education Global Plan, which has a three-pronged strategy: (1) to promote responsible financial inclusion for the most disadvantaged groups; (2) to integrate financial education into the solutions the bank provides its customers; and (3) to promote partnerships in the field, bringing the topic to the forefront of the global agenda. The Edufin Summit is a good example of this.

Q: It looks like important steps have been taken to establish a classification system for sustainable finance.  What is the current status of the EU taxonomy?  

R: In 2018 the European Commission launched an action plan on sustainable finance with the goal of aligning public policy with capital markets in order to redirect capital flows towards sustainable development. On June 18, 2019 the expert group published its first report on the taxonomy and green bond standards and its interim report on benchmark indices.

There is a lot to be done, but our initial assessment is clearly positive. I would emphasize the proposal to have a more encompassing definition of sustainable, a definition that includes those activities that contribute to the transition in addition to those activities that already meet the goals of a carbon-neutral economy. I also think it’s important that companies aren’t labeled green or sustainable, but rather that the focus is exclusive to their activities.

The challenges will appear with the implementation of the taxonomy. While companies are not required to provide non-financial data about the climate emergency, it’s not going to be easy for banks, investors, and insurance providers to use this data to manage climate-related risks.

Q: What are the implications for banks?

R: The EU taxonomy is like a dictionary that defines which activities are sustainable. It won’t be mandatory for banks to use it, but it will certainly be the baseline dictionary that will be used to report to the markets, to investors, and to supervisory authorities about corporate sustainable finance activities developed or in development.

To facilitate its voluntary implementation and use, the UNEP FI and the European Banking Federation have kicked off a project to provide a guide to help banks use the taxonomy. The benefit comes from using common criteria across the industry. We hope to publish the guide in the first half of 2020.

Q: There are also the Principles for Responsible Banking, which will be ratified in New York in September.

R: BBVA was one of the founding banks of the UN Principles for Responsible Banking. We announced our commitment to the initiative in November of last year, along with almost 30 other banks; to date a total of 124 banks have signed up to the Principles. The Principles represent the first global guiding framework that defines the industry roles and responsibilities for a sustainable future.

The principles are heavily influenced by the sustainable development goals and the Paris Agreement, but also place emphasis on “commitment, impact, customers, interest groups, governance, goal-setting, transparency, and accountability.”  These principles define the way we want banking to be done. The commitment the signatories make is essential: signing the Principles involves great responsibility on the part of participating banks because, among other things, it will entail developing solutions for customers, defining goals, and measuring how well those goals are met.

Q: What is your appraisal of BBVA’s Pledge 2025 announced last year? 

R: I’d give it a very positive assessment. Our goal is to secure €100 billion in the eight years between 2018 and 2025, in order to prevent a climate emergency and contribute to sustainable development. We already raised €11.8 billion last year. In the first half of 2018, we have reached €10 billion, 50 percent more than the same period the year before; so, we’re picking up the pace.

In the wholesale market, we have clinched our position as leaders in sustainable bonds, as well as in providing sustainable corporate loans. We have continued to innovate, providing new solutions that contribute to a complete portfolio. We have also created a framework of transactional products, which is aligned with the SDGs and enables us to provide such diverse solutions such as providing loans, factoring, letters of credit, renting, leasing, etc.

Q: And for the retail customer?

R: We have moved forward with sustainable solutions for our retail customers, products like our recently launched line of loans for developers of energy efficient housing and green loans for electric or hybrid vehicles. 

We aspire to offer an equivalent sustainable offering alongside all our customer solutions. Not only for large enterprises and institutions, but also for small and medium-sized businesses as well as individual customers. We hope to hit this goal in 2020 for our principal product lines in Spain.

Q: The Business Roundtable announced this summer, that their member companies have committed to treating suppliers fairly and ethically; investing in employees; supporting their communities; and generating long-term value for shareholders. For the first time, all stakeholders have been prioritized and will benefit, not just the shareholders. How would you assess this statement?  

R: We view the letter that was signed by the CEOs of the largest companies in the United States as a positive, significant signal. It is a necessary and welcome step, but we have to move from talk to action. In that sense, they missed out on some very specific elements and wasted a good opportunity to incorporate them. One element has to do with the idea of joining your business clients and consumer customers in their pursuit of (and in in the case of banks in the financing of) sustainable solutions. The other missing point I would like to see has to do with leveraging corporate muscle to drive systemic changes that contribute to the creation of opportunities for everyone.

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