When popularity rhymes with complexity: helping sustainable finance overcome its growing pains

Sustainable finance is no longer a niche: it’s the new normal. ESG-related assets under management are projected to rise from $18.4tn in 2021 to $33.9tn by 2026. And individual investors, who weigh a whopping $42tn, are joining the movement. But with this momentum comes increased complexity.

• First question, and not an easy one – what makes an investment sustainable? “There is not one agreed upon definition of sustainable development investing”, admits the Global Investors for Sustainable Development Alliance. In fact, as Eleonore Bedel , Chief Sustainability Officer at BNP Paribas Wealth Management , points out, “the number of definitions almost matches the number of investors”.
• Sustainable investments do share three traits, says the Eurosif - The European Sustainable Investment Forum : the importance of ESG factors, long-term sustainable outcomes, and well-governed social, environmental, and economic systems. A definition that is as effective… as it is broad!
• Fortunately, tools can be designed to help investors chart their path through the maze: at BNP Paribas, for instance, we’ve built a methodology ranking the responsibility level of financial instruments from 0 to 10. But investors may also rely on frameworks such as the FSB Task Force on Climate-related Financial Disclosures (TCFD) , which examines both companies’ impact on the environment and society and, conversely, the latter’s impact on the former, an approach known as “double materiality”.
• Broad industry initiatives such as the TCFD are flourishing: 300 financial institutions (or half of the global banking industry) have signed the United Nations Environment Programme Finance Initiative (UNEPFI)’s “Principles for Responsible Banking”, a commitment to evaluate impact beyond just financials. The strength of such initiatives? Their numbers. As Laurence Pessez , Head of Corporate Social Responsibility at BNP Paribas, notes, “when hundreds of institutions make a public commitment to steer their activities towards financing a world that is carbon neutral in 2050, this has a very real influence on the selection of investments and the financing process”.
• From 50 regulations in 2000 to nearly 900 today… sustainable finance regulation, too, is booming. “We are seeing increasing action by regulators around the world to define, measure, oversee and enforce standards and disclosures linked to sustainable investing”, says Jane Ambachtsheer , Global Head of Sustainability at BNP Paribas Asset Management .
• Yet much must still be done to ensure the cohesiveness of these texts. “Many challenges remain, chiefly ensuring easier and more consistent implementation for companies, and interoperability of the standards globally”, says Jeanne Aing , Head of CIB Regulatory Anticipation at BNP Paribas. Fortunately, initiatives are underway to mutually recognise sustainability reporting standards, both in Europe (ESRS) and globally (ISSB). And though harmonising all these taxonomies may take time, it’s a vital step to make sure our path to carbon neutrality is as fast and efficient as possible.

?Dive into this crucial question and its challenges for the financial sector and learn more from our experts in the latest issue of Perspectives, our publication dedicated to sustainable finance.

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New frontiers?

As climate change and political turmoil intensify, Europe will see a surge in refugees. An opportunity that hinges on one challenge: job market integration.

• Enter each One , a mission-driven company blending education with professional training. Each One has already helped 3,000 refugees secure long-term employment in France and aims for 10,000 by 2027.
• BNP Paribas is proud to have championed each One from the start, through the Act for Impact by BNP Paribas program, and to have taken part in the company’s recent fundraising round.

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Explorers

• Just as financial risk assessment relies on financial data, extra-financial evaluation hinges on information like carbon emissions and energy efficiency, data which often proves difficult to collect.
• This is where AI's capabilities can become a true asset. BNP Paribas has created a machine-learning algorithm to estimate the energy performance of residential properties not in the central database, which helps analysts understand real estate loans' energy efficiency and plan a decarbonisation strategy.

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Milestones

Three decades! That is how long microfinance institution Adie and BNP Paribas have worked hand in hand to champion microcredit in France.

• To date, 40,000 low-income entrepreneurs have benefited, with over 47,000 microloans granted and €192 million injected by BNP Paribas.
• But the partnership extends well beyond financial support, to include philanthropy via the Fondation BNP Paribas and skill mentoring from our teams.
• Curious? From its work with microentrepreneurs to its partnership with BNP Paribas, learn more about Adie from its assistant director, Laure Coussirat-Coustère .

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From the observation post

Looking for inspiration in an uncertain world?

• Look no further than between the pages of Jane Goodall’s Book of Hope, says Agathe Brun , ESG data domain lead at BNP Paribas CIB . “Her observations of the resilience of nature and the power of collective action have been a source of comfort. They remind me that, like the ecosystems she's studied, we too can adapt and thrive”, says Agathe of the famed primatologist’s essay. Read her full post here!