Sustainability has long been a fundamental part of the BNP Paribas strategy. As the topic rapidly takes hold across the wider trade finance industry, care should be taken to ensure that the supply chain as a whole becomes more sustainable, and to avoid the pitfalls of greenwashing, say Bruno Francois, Deputy Global Head of Trade Finance, and Françoise Neuville, Head of the Trade Expertise Desk and sustainable trade coordinator.


Q: What have been some of the recent innovations in the sustainable trade finance space?

Francois: Sustainability has always been a top priority for BNP Paribas – long before people even started questioning the role that banks can play in driving the sustainability agenda.

It has now become a very hot topic within the industry and is gaining a lot of traction.

While there has certainly been a recent shift of mindset among all stakeholders within the trade ecosystem, some of which has been driven by the Covid-19 crisis, we’re still at the beginning of the journey.

I’m always surprised by the expectation from those who are not too familiar with trade, who think that because cross-border activity is such a fundamental part of international commerce, we should have somehow made more progress in terms of developing sustainable financing products. But the fact is that the payment mechanism for trade is always going to be a letter of credit or a guarantee – an established payment instrument – and it is only the borrowing company and its fulfilment of ESG criteria, or the use of proceeds, that can be green, or sustainable.

That’s really where the innovation comes in – around setting and monitoring the key performance indicators (KPIs) for these companies, as well as the mechanisms for pricing, including margin ratchets, and sometimes – as BNP Paribas has done in the past – the innovative ways in which the premium is then used.

But most of what we’re doing in the trade finance space today is replicating and applying the same principles from other parts of the banking world, such as the bond and loan markets, which of course becomes increasingly difficult to do when you move beyond the large corporates to the more granular levels of the trade ecosystem. The challenge we face is defining a methodology to qualify a trade transaction as green, and then being able to replicate that across a larger set of companies.


Q: How can the trade finance industry ensure that progress around sustainability continues to be made in a meaningful way?

Francois: As this becomes a more popular topic – and a bit of a buzzword – for clients and other players across trade, as an industry we need to be extremely cautious that we don’t succumb to greenwashing. We cannot indiscriminately simply add the word ‘green’ to our financing methods in order to make them more significant or attractive. We need to be very vigilant of this type of activity in order to maintain our credibility. We need to ensure that every trade finance product that is marked as ‘sustainable finance’ is worthy of that label, and this requires a clear methodology with KPIs and the capacity to measure them.

Neuville: The way in which we set and measure our clients’ sustainability KPIs is incredibly essential to avoiding greenwashing within the trade industry. This is where we are seeing true innovation in terms of the tools that we use, such as track and trace technology, which is becoming a lot more sophisticated.

But it’s not just about gathering the data, it’s how we use that data efficiently, and so at BNP Paribas we have built a diverse source of experts to analyse the data – not only our own internal CSR teams around the world, but also external players and ratings agencies that specialise in various fields.

There is a lot of data that needs to be digested in order to remain relevant, consistent and reliable. Without proper analysis, the danger of falling into the greenwashing trap is just too great – this is something that the bank approaches very prudently.


Q: Embedding sustainability into business is becoming a necessity, from a commercial as well as a reputational perspective, as stakeholders increasingly focus on ESG metrics. What are some of the new ways you’re seeing companies addressing the environmental impacts of their supply chains?

Neuville: Companies of all sizes, including SMEs, are broadening their focus when it comes to assessing their impact on the environment. They’re now looking at factors that were not really a concern to them in the past, and evaluating things like the means of transporting their goods, based on emissions, and whether these can be reduced by selecting low-carbon modes, for example, such as switching from trucks to inland water transportation.

In that sense, we have seen an evolution among companies in terms of how they are approaching sustainability, from very obvious use of proceeds to support green projects, such as wind farms for example, to commitments that are perhaps less tangible.

We have also heard from a number of clients who are investigating a shift in the location of their factories and supply chains. Often these decisions are driven primarily by costs, efficiency and concentration risks – especially in light of the recent supply chain disruptions as a result of the pandemic – but the impact on climate change is also at the top of the agenda.


Q: How can we enable the supply chain as a whole to become more sustainable, and is there a role that banks can play in facilitating this?

Francois: While the big corporates have the financial means of supporting data gathering and analysis, and can relatively easily migrate the sustainability efforts that they have adopted elsewhere in their business to trade, it’s less straightforward for smaller companies, who don’t have the same kinds of resources to commit to this.

As banks, we are somewhat curtailed because prudential regulations don’t currently make any allowances for sustainable finance – although we understand that some progress is being made on that front following numerous calls from the industry for this to change.

The big challenge is to see how we can move further down the chain to enable the midcaps and SMEs to apply these principles, given the fact that this comes with great expense.

One angle that BNP Paribas is taking on this is to work more closely on sustainability matters with supranationals and development institutions, whose support and already established programmes we can leverage to offer financial incentives to smaller clients who are able to meet green criteria.


Q: What is BNP Paribas doing to ensure that smaller companies are not left behind on this journey?

Neuville: As banks, our role is evolving from a structuring role – as is often the case with larger companies that are looking to secure funding for large-scale green projects – to more of an advisory role in our dealings with mid-caps and SMEs.

This advisory process will often begin with us helping clients with a sustainability audit so that they can understand their current situations, then move to identifying their future goals and where the constraints may lie in achieving these, as well as pinpointing what opportunities might be harnessed along the way.

It’s important to support companies in recognising what they are able to control themselves, but also what might be affected by external factors, and where they have an influence. It is around this information that we are then able to help them set their specific KPIs.

To help us in this advisory role, within the bank, we have an internal reference guide to share information, methodology and best practices across all the BNP Paribas Trade Finance teams. We need to ensure that we’re coordinating our efforts with colleagues and clients all over the world and capitalising on what has been done successfully elsewhere.

Francois: It’s important to note that banks have a vital role to play in keeping economies moving through the Covid recovery and beyond. We have supported a lot of companies of all sizes through the current crisis, and will continue doing so as businesses start to rebuild themselves – often with a greater focus on sustainability – post-Covid.


This GTR Trade Insights podcast features a conversation with Bruno Francois and Françoise Neuville, two BNP Paribas representatives, who provide an overview of some of the recent developments in the sustainable trade finance space, and the ways in which they’re seeing sustainability being embedded into clients’ business.

The discussion – moderated by GTR’s editorial director Shannon Manders – is the follow-up to the first instalment of a recent BNP Paribas/GTR content series called the “Trade Innovation Lab”, which focuses on particular areas of innovation within trade and trade finance.