BGL BNP Paribas is keen to help Luxembourg companies develop CSR (Corporate Social Responsibility) strategies. To that end, we have devised a new impact financing solution with an interest rate that can be lowered if a company performs well on non-financial metrics.
Companies have an important role to play in addressing environmental and social challenges. They can act now to combat inequality or accelerate the energy transition by adopting a range of measures. The need for such action is all the more pressing since the number of regulations requiring organisations to report transparent information on environmental, social and governance (ESG) criteria has ballooned in recent years.
In the future, these rules will be even more demanding.
When it comes to social responsibility, it is not always easy to work out how to take action at company level. BGL BNP Paribas has devised an impact financing solution – the first of its kind in Luxembourg – to help and encourage Luxembourg companies in this regard. Businesses can now take out a loan whose interest rate can be lowered when certain ESG targets are met.
"This product meets two needs for companies: the need to finance their own sustainable transition and the need to adopt a way of doing business that is more environmentally friendly or beneficial for society as a whole," explains Anne-Sophie Dufresne, Head of Corporate Banking at BGL BNP Paribas. "The aim is to support their transformation, allowing them to meet the expectations of their stakeholders (clients, suppliers, employees, shareholders, etc.). We hope that this will be especially useful to SMEs, which make up a large proportion of Luxembourg's economic landscape and are sometimes less well equipped than large organisations to fulfil these new requirements."
The impact financing offered by BGL BNP Paribas is made up of two products. One is aimed at companies adopting a CSR strategy for the first time, while the other is for those that have already taken a series of measures and set targets on topics such as reducing greenhouse gas emissions, sustainable management of business travel, responsible procurement, and improving diversity and inclusion indicators.
In the first case, you can take out a loan of between €100,000 and €100 million, where the interest rate will vary on an annual basis depending on changes in your non-financial rating. This means that your interest rate will decrease if your ESG performance improves, and vice versa. To offer this solution, BGL BNP Paribas has teamed up with EcoVadis, which establishes an initial rating for each company and assesses whether or not the selected ESG targets are met.
If the company has more experience with CSR, it can choose between two and five ESG targets consistent with its activities from a list drawn up by BGL BNP Paribas. It will then work with the bank to determine a realistic trajectory in relation to these targets.
BGL BNP Paribas is developing these new financing products today to allow SMEs to maintain or improve their competitive edge in the years to come. Performance in relation to the targets agreed upon by the client and the bank will be verified annually through a third-party assessment.
"With the various regulations stemming from the European Commission's action plan on financing sustainable growth, and especially the 2050 carbon neutrality target, it is vital for Luxembourg companies to lay the groundwork for a successful energy transition," says Catherine Wurth, Head of CSR at BGL BNP Paribas. "We have had lengthy discussions about CSR strategy with major players, most of which are facing the same challenge: their suppliers are often unable to make a CSR strategy work. However, the sustainability criterion is becoming a key part of the supplier selection process, and these large companies will soon be unable to choose suppliers without sustainable development targets. Adopting a coherent CSR strategy represents a genuine competitive advantage for any company. I also think it is an excellent way to get teams working together to achieve a common goal that is meaningful and has a positive impact."
By developing a solution aimed at helping all economic players achieve greater sustainability, BGL BNP Paribas is also pursuing its own growth in this area.
"All our relationship managers undergo training on sustainable finance, which sometimes proves highly technical. The BNP Paribas Group has committed to decarbonising its activities, in particular by joining the Net-Zero Banking Alliance launched by the UN Environment Programme in April 2021. These new impact financing products are another way to boost our collective efforts to achieve a sustainable transition," concludes Catherine Wurth.
Founded in 2007, EcoVadis is a European non-financial rating agency that specialises in assessing SMEs. It serves 110,000 companies worldwide and around 200 in Luxembourg, 70% of which are SMEs. "To assess companies' CSR maturity, we ask them to fill in a questionnaire tailored to their size and business sector, and to provide us with a set of documents demonstrating their commitment to responsible development," explains Julien Carboni, Strategic Account Executive at EcoVadis. "A team of 500 analysts then checks these documents to ensure that the organisations is doing everything it can to meet the targets set." A rating is then assigned to the company, which can compare its performance against that of its peers and seek to improve. "We are therefore helping companies comply with the new and increasingly stringent sustainability regulations," adds Julien.
Find out more: bgl.lu/en/impact-financing or sustainable-banking@bgl.lu
