Finextra Research spoke to Antoni Ballabriga, global head of responsible business at BBVA, co-chair of the global steering committee and European banks’ representative for the United Nations Environment Programme Finance Initiative (UNEP FI) about sustainable finance in the investment and lending space.
Ballabriga says that the UN SDGs enable a bank to operate strategically and disclose ethical, social and governance (ESG) factors, identifying where a financial institution can play a more defined role and build upon business opportunities with technology solutions.
“The UN SDGs are the biggest business opportunity for banks for the next 10 years, but investments of $5-$7 trillion will be required each year to implement the goals fully by 2030. There will be massive disruption within businesses and banks, as well as a massive shift of value between sectors and activities,” Ballabriga explains.
With a focus on climate finance and inclusion, BBVA have also put together a five-year plan with an aim of providing sustainable technology solutions for their clients to support the transition. However, before this, financial markets participants will need to evaluate the European action plan and develop a taxonomy that determines what is sustainable, and what is not.
Ballabriga adds that “another key driver that promotes the review of investment and greenhouse gas emissions, other than regulation, is corporate disclosure. This can be done with better access to the comparable data that investors, asset managers and asset owners need.” It is evident that a single regulation is required to standardise and create benchmarks.
Factoring in technology
During the European Banking Summit in October 2019, Ballabriga discussed the importance of “weaving digitalisation and sustainability together to realise the full potential of the banking sector and the financial systems in contributing to the SDGs and the Paris Agreement,” - a motion being undertaken by the European Commission which has resulted in the DG FISMA, the Directorate-General for Financial Stability, Financial Services and Capital Markets Union.
He expressed that financial inclusion can be supported through digital identification, the use of big data and artificial intelligence, while decision-making processes can be made sustainable through data-driven advisory services and the use of blockchain, “not only to improve process efficiency, but also provide investors with access to social impact data, to increase transparency levels.”
Ballabriga added: “using sustainability-related data to progressively integrate environmental and social risks into risk management policies at banks.” As digitalisation can build ecosystems and partnerships, connect new technologies and create new business models, “big data is critical because, in aggregated form, it can be made available in social initiatives addressing the challenges our societies face.”
In conversation with Finextra Research, he goes on to say that the involvement of technology in this area is not a minor issue: the combination of Internet of Things (IoT) and blockchain can have a significant impact on scaling up sustainable investment - an initiative being spearheaded by the Sustainable Digital Finance Alliance.
BBVA were the first to issue a structured green bond (negotiable assets with a fixed maturity and a return based on interest rates, shares, an index, or an exchange rate) using blockchain technology, a private placement in which insurance company MAPFRE invested €35 million into a six year term bond linked to the evolution of the five year euro swap rate.
Ballabriga says: “Blockchain can be used to help investors become green asset owners. Some are also working to connect the data from the final asset that promotes the improvement, which is unfortunate for the larger financial institution. To mobilise sustainable investment, we need technology.”
Sustainable finance is a core component of BBVA’s strategy and the Spanish bank recently reaffirmed its environmental policy to develop a more sustainable economy by setting an internal price for its CO2 emissions in alignment with the Paris Agreement, solidifying its commitment to be carbon neutral in 2020 and echoing chairman Carlos Torres Vila’s message at COP25 in Madrid.
At Davos 2020, Vila also stated that banks should incorporate the risks and opportunities that are associated with climate change into their investment and financial decisions and in turn, help clients adapt to the new environment.
“We finance and advise our clients in this environmental transition. […] We have limited time, until 2030. […] We need to give people time to adapt their businesses,” Vila said, pointing out that the transition will need to be fair and ensure that no entity is left behind. In 2018 and 2019, BBVA has mobilised €30 billion, according to chairman Carlos Torres Vila at Davos 2020.
Finextra Research and ResponsibleRisk will be focusing on sustainable finance in investment and asset management at the second SustainableFinance.Live Co-Creation Workshop on 23rd March 2020.
Register your interest for the event, where you will be able to discuss the demand for sustainability, the challenges that lie ahead for sustainable investment and how firms across financial services and technology can achieve the UN’s Sustainable Development Goals by 2030.