Published by Global Banking and Finance Review
Posted on January 24, 2025
By Virginia Furness
LONDON (Reuters) - BNP Paribas is rethinking sustainable finance to focus on profitable deals and on redefining what it considers sustainable, a senior executive said, as it became the latest bank to distance itself from the ESG label.
The shift in the French bank's corporate and institutional banking (CIB) division is to ensure sustainable finance does not come at the expense of profitability, Constance Chalchat, the division's chief sustainability officer, said.
After initial enthusiasm for Environmental, Social and Governance (ESG) investment, subpar returns have prompted a widespread rethink.
Campaigners against ESG have drawn impetus from U.S. President Donald Trump's return to the White House.
In his first few days in office, Trump has pushed back against ESG areas such as diversity. On Thursday, he accused Bank of America and JPMorgan Chase of not doing business with conservatives.
Chalchat said the bank wanted to stick with investment it linked to a sustainable future and helping companies and societies adapt to climate change, but needed to ensure investor returns.
"We want to remain relevant for the long run, even for U.S. investors, and to realign profitability and sustainability," Chalchat said.
PRESSURE AND RESOLVE
Many big banks have reassessed their approach to climate finance in the face of political pressure, especially from conservative groups in the United States, and the need for energy security following Russia's invasion of Ukraine.
In recent weeks, global banks have quit one of the industry's main climate coalitions, drawing criticism from campaigners worried the sector has lost its resolve to take action on fossil fuels. BNP remains a member of the coalition.
The prevailing mood contrasts the excitement about ESG in the immediate aftermath of the COVID-19 pandemic when oil prices were rocked by a plunge in demand and energy majors turned towards renewable investment.
BNP has sought to be a leader in aligning its business with the goals of the Paris Agreement and last year said it would stop stop arranging bond deals in the oil and gas sector.
Going forward, Chalchat said, BNP's corporate and institutional bank will focus on four themes - adaptation, transition, conservation and societal resilience.
It will support companies and promote investment opportunities where it sees both future financial growth and positive contributions to the planet and society, she said.
It would also broaden the definition of sustainability to encompass efforts to decarbonise heavily emitting sectors such as cement and steel.
That means elevating investment in areas such as water, agri-business and adaptation finance, while abandoning generic exclusion frameworks that exclude entire industries and risk underperformance, she said.
"We believe these things can really deliver financial performance on top of actions that are required for the planet to be resilient," Chalchat said.
A survey of investors carried out by the bank last September found over half of equity investors expected to increase their focus on thematics, including on renewable energy, water, and health and wellbeing, she said.
(Reporting by Virginia Furness; Editing by Paritosh Bansal and Barbara Lewis)
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