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Financing the Circular Economy is a new opportunity for banks

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Financing the Circular Economy is a new opportunity for banks

By Lan-Ling Fredell, Financial Services Expert and Mark Lancelott, Sustainability and circular economy expert at PA Consulting

Consumers care about the planet. A recent survey has shown that 90 per cent of consumers feel that brands have a responsibility to take care of the planet, and 70 per cent of consumers are more than willing to pay more for products and services that protect the environment or don’t infringe on human rights. These types of  consumer trends are apart of the reason why the UN’s Business and Sustainable Development Commission forecast sustainability to be worth at least $12 trillion a year by 2030 to business.

But sustainability today is much more than what is on the traditional green agenda. Technology and consumer trends are enabling organisations to embed sustainability right into the core of how they think about, design for and do business – a framework that’s restorative and regenerative by design.

Financing the transition to Circular Economy is an opportunity for banks. Changes to the way we use resources, think about owning products and value longevity mean that banks can gain an advantage and progress further by rethinking the products they offer to their customers.

Banks’ new circular clients are already here

We are seeing innovative companies already capitalising on the huge opportunity of the Circular Economy – and it’s not just the small start-ups. Large retailers such as IKEA are using more recycled materials, developing circular supply chains and exploring innovative production techniques. UK mobile network O2, as another example, is offering an end-to-end programme for phone refurbishment and disposalAdidas is bringing out a new shoe in 2020 made out of just one plastic material which is fully recyclable. And AB InBev has plans for all its products to use returnable or majority-recycled packaging by 2025.

Such large corporates need their banks to understand the changes in their financing needs. Proactive banks can win new business by collaborating with these corporates to provide financing for new products and ecosystems. A number of financing opportunities lie within the entire spectrum from small ticket consumer lending and leasing to large project financing, green corporate bonds and equity risk capital.

On the other end of the size spectrum, there are start-ups launching as fully circular businesses. An EU survey showed that 73 per cent of European SMEs have invested in the transition to circular models in the last three years. But access to finance is a key issue, with 27 per cent of SMEs with at least one Circular Economy initiative finding it hard to access funding.

Banks have started to react to the needs of the Circular Economy

Leading financial institutions are already targeting services to meet the emerging demand for Circular Economy financing. So far, they’re focusing on building knowledge and initial financial products. Dutch banks ABN AMRO, ING and Rabobank, for example, all announced they will help Circular Economy businesses and collaborate to share knowledge. Meanwhile, BNP Paribas has established Kintessia, a B2B marketplace for leasing agriculture, transport and construction equipment.

Understanding and developing financial products and services for the Circular Economy will require new competencies and new ways of thinking. While some standard banking products and services may be applied directly to the Circular Economy, other products will require rethinking to adjust to a circular world. It is important that financial institutions start to understand the business models and associated complexity to support, and benefit from, the transition. For financial institutions to get a foothold on this rapidly emerging area, they need to answer three questions:

  1. what’s happening in sustainability and the Circular Economy, and how should my organisation respond?
  2. what products and services should my organisation provide to capitalise on the market opportunity of the Circular Economy?
  3. how can my organisation embed sustainability in everything it does?

Right now, Circular Economy principles aren’t mainstream. But growing consumer demand and improvements in technology have the potential to accelerate this transition. Banks that don’t understand circularity will find themselves less competitive, both in meeting the needs of their existing and future clients, and in helping to build a more sustainable world.

For more information, visit https://www.paconsulting.com/sustainability

Banking

Banks in EU to publish world’s first ‘green’ yardstick from next year

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Banks in EU to publish world's first 'green' yardstick from next year 1

By Huw Jones

LONDON (Reuters) – Banks in the European Union would have to publish a groundbreaking “green asset ratio” (GAR) as a core measure of their climate-friendly business activities from next year, the EU’s banking watchdog proposed on Monday.

As the trend in sustainable investing gathers pace, regulators want investors to get more reliable information on a bank’s exposures to climate change as storms and other weather events affect the value of their assets and liabilities.

The European Banking Authority (EBA) said the ratio, put out to formal public consultation on Monday, will measure the amount of climate-friendly loans, advances and debt securities compared to total assets on a lender’s balance sheet to reach a percent figure.

“I believe it’s the first time regulators are asking for a green asset ratio,” said Piers Haben, EBA’s director of banking, markets, innovation and consumers.

“The numbers may well be single digit for banks at first and that’s why context will be important. When a bank talks about where it wants to be in 2030, that is going to be really interesting on the green asset ratio.”

The new EU “taxonomy” would be used to define which assetsare environmentally sustainable.

EBA said that many stakeholders have a legitimate interest in the physical and transition risks that banks are exposed to from climate change.

Banks are likely to face pressure from investors to show what steps they are taking to increase their GAR over time, though few lenders are expected to reach 100%.

The watchdog was responding to a request from the EU’sexecutive European Commission on how to implement upcomingrequirements on climate-related disclosures by banks.

The GAR would published in a bank’s annual report, starting from 2022 based on data up to Dec. 31, 2021.

Banks will also have to publish three other indicators showing the extent to which fees from advisory services, major trading operations and off-balance sheet exposures are derived from climate-friendly activities.

(Reporting by Huw Jones; Editing by Ana Nicolaci da Costa)

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SoftBank’s internet business to invest $5 billion to resist overseas tech giants

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SoftBank's internet business to invest $5 billion to resist overseas tech giants 2

By Sam Nussey

TOKYO (Reuters) – SoftBank’s internet subsidiary Z Holdings outlined plans on Monday to invest 500 billion yen ($4.7 billion) in technology over five years to resist an onslaught from larger overseas rivals.

The announcement follows the merger of its internet business Yahoo Japan with chat app operator Line, creating a $30 billion domestic internet heavyweight.

Z Holdings said it is targeting sales of 2 trillion yen and operating income of 225 billion yen in three years, as the COVID-19 pandemic boosts demand for online services.

Following a complex transaction, two thirds of Z Holdings shares will be owned by a new holding company, A Holdings, owned 50:50 by SoftBank Corp and South Korea’s Naver Corp.

Z Holdings remains a consolidated subsidiary of SoftBank. Naver was the previous majority owner of Line.

The CEOs of Z Holdings and Line, Kentaro Kawabe and Takeshi Idezawa respectively, become co-CEOs of the combined entity, reflecting the hybrid origin of the firm which straddles e-commerce, payments, advertising and chat.

Kawabe pointed to the breadth of those services, many of which are deeply embedded in the lives of Japanese consumers, as its defence against rivals like Google parent Alphabet and Amazon.com and their larger research budgets.

In an early indicator of efforts to save on costs, Z Holdings said it was looking to integrate Line’s QR code payment service Line Pay into peer PayPay, which SoftBank has promoted aggressively to attract consumers away from cash, in April 2022.

Z Holdings retains its listed status, one of a number of such firms among SoftBank’s domestic holdings, despite calls for Japanese firms to unwind such structures.

Z Holdings also controls online fashion retailer Zozo Inc and office supplies firm Askul Corp.

($1 = 106.5600 yen)

(Reporting by Sam Nussey; Editing by Kirsten Donovan, Christopher Cushing and Raju Gopalakrishnan)

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Banking

Strong second half limits Bank of Ireland 2020 loss

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Strong second half limits Bank of Ireland 2020 loss 3

DUBLIN (Reuters) – Bank of Ireland limited its underlying 2020 loss to 374 million euros ($452 million) after a return to profitability in the second half, the bank said on Monday.

Ireland’s largest bank by assets also announced the closure of one-third of its branches in Ireland.

The bank set aside 1.1 billion euros to cover possible loan defaults due to COVID-19 disruption, the bottom of its forecast range that it expects to capture the majority of credit impairment risk associated with the pandemic.

An underlying 295 million euros second half profit limited the damage as lending and business income improved.

Chief Financial Officer Myles O’Grady said those trends continued into 2021, although Ireland was in a long lockdown again.

“It’s clear that there is some impact from this lockdown but the signals overall are encouraging. We do think (the second half) will be a return to a more normalised level of activity,” O’Grady told Reuters.

The bank cut it costs by 4% year on year in 2020, meaning it achieved its 1.7 billion euro annual cost target one year early. It set a new goal of cutting costs further to 1.5 billion euros by 2023.

That will partly be achieved by the branch closures with its Irish network cut to 169 from 257 and Northern Irish presence more than halved to 13. It struck a deal with the Irish post office to offer customers access to banking services at An Post locations.

Bank of Ireland’s core Tier 1 capital ratio, a key measure of financial strength, stood at 13.4% versus 13.5% at the end of September. The bank said it expected capital to remain broadly in line with those levels in 2021.

Analysts at Davy Stockbrokers said the results were “better across income, costs and, notably, impairments.”

($1 = 0.8272 euros)

(Reporting by Padraic Halpin; Editing by Edmund Blair)

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