impak Battle : Crédit Agricole vs BNP
About the author: impak, the independent impact rating agency, regularly publishes content providing transparent data on the social and environmental impact of companies. By doing so, it aims to accelerate the transformation towards a stakeholder economy generating an overall positive contribution to society.
The impak Battle
Highly affected by the market breakdown sparked by the sanitary crisis, banks have an important role to play in the economic recovery, providing a lifeline to the real economy and businesses that suffered. Considering the loss of capital experienced, however, the banking system as a whole will have to reinvent itself. Let’s hope that it will be in a more sustainable way, given that any green or responsible recovery plan will have to include banks as well. With this in mind, impak has scrutinized the 2018 impak Score™ of two major banks: the French Crédit Agricole and BNP Paribas. Are there already some traces of impact practices that could give us a hint on their own recovery? As we like to say: one dollar invested in a company with a comparatively higher score will have more chances of generating a positive impact than one dollar invested in a company with a comparatively lower score.
Crédit Agricole has branches all over the world, of which many donated to solidarity funds to help their respective country during the health crisis, totaling €70M. The Group also set up a €20M Solidarity Fund for the Elderly to cover medical devices and equipment—Crédit Agricole’s CEO and deputy donated half of their compensation to it. Other support measures include a six-month moratorium on loan repayments, a 0% state-guaranteed loan without fees for farmers, and a €210M cooperative support mechanism for multi-risk insurance policyholders that suffered business interruptions.
For its part, BNP Paribas donated €55M throughout 30 countries for direct support to local hospitals and vulnerable populations. Some examples of the support given include providing screening tests and supporting NGOs helping refugees, low-income families, and victims of domestic violence. These donations also supported the implementation of special programs for social businesses and microfinance institutions with a vulnerable clientele. Finally, the Group has helped develop a new financial tool—Covid-19 response bonds— and supported its clients to issue over US eq. $59B of these bonds in 2020.
Crédit Agricole 18/500 Winner
Crédit Agricole (CA) has 4 material positive impacts for a total of 1% of its activities dedicated to solving SDGs. More than half (0.57%) relates to the financing of the energy transition (SDG 13: Climate action) through various financial tools: interest-free eco-loans, green bonds, partnerships (Engie), and investments (Unifergie). The second most important positive impact representing 0.02% of its activities, is the access to financial services for the poor and vulnerable provided by CA’s basic bank account EKO.
BNP Paribas 0/500
BNP Paribas has zero points for material positive impacts, but this does not mean it has no positive impacts. The company has three, but given the low percentage of activities they represent, the lack of disclosure and the Z on negative impacts (which affects the total positive impact score, see notes), the positive impact score is zero. Through investments in social companies totaling 885.1M euros in 2018, BNP Paribas helped to increase responsible and impact finance (SDG 17: Partnerships for the goals).
This positive impact is the biggest one identified and represents 0.06% of its activities. The two other non-material positive impacts can be linked respectively to access to financial services for the poor and vulnerable with 0.02% (SDG1: No poverty), and to SDG 8: Decent work and growth thanks to the Group’s commitment to microfinance institutions totaling 0.01% of its activities.
Mitigation of negative impacts
Crédit Agricole 39/300
Out of 9 material negative impacts identified, 3 are rated Z (which means that the impact does or may cause harm, see notes below), because of recent convictions. One was due to discrimination against a woman employee with respect to gender pay gap. Another Z was given for CA Guadeloupe’s conviction for mental harassment. Regarding the mitigation activities following this conviction, initiatives were implemented, but they are too vague for us to understand their effectiveness or efficiency. CA being part of the list of systemically important banks, the last Z is due to a conviction by the European Central Bank (ECB) over irregularities in the way it declared its 2018 CET1. Noteworthy, the Group has €2.75B of total assets invested that are covered with ESG criteria.
BNP Paribas 69/300 Winner
In contrast with Crédit Agricole, BNP Paribas has 8 material negative impacts, but only one Z due to a conviction in 2017 for “unsafe and unsound practices on foreign exchange market” (SDG16: Peace, justice and strong institutions). In 2017, 96.1% of employees received training related to financial industries’ laws and regulations. There is however not enough information on the offered training to assess its efficiency. It is also important to note that there’s an on-going trial regarding the Group’s participation in the Darfur conflict. Finally, in comparison with CA, BNP Paribas has €36.8B euros of total assets invested that are covered with ESG criteria.
Crédit Agricole 102/200 Winner BNP Paribas 95/200
The governance sub-scores are tight, but what differentiates the two companies the most can be explained in one word: intentionality. Crédit Agricole has partly analyzed its value chain to increase positive impacts and reduce negative ones, whereas BNP Paribas did not. This means CA slightly better assesses the risks related to the impacts it generates.
BNB Paribas wins 🎉
Surprisingly, even though BNP Paribas had less than 1% of material positive impacts in 2018, it mitigated its negative impacts better than CA, and when taking into account the size of both companies, it had considerably less convictions at that time. However, with the pending Darfur trial on the one hand and the new climate strategy on the other, committing to fully phase out coal and encouraging companies to close and not sell coal assets, it seems likely that tables will turn in next year’s analysis for these two massive financial players.
But for now, the Scores show two things: that there is a long way to go for the financial sector to generate material positive impacts, and that even the smallest sustainably-oriented maneuver can generate a big difference. With an impak Score of only 5 points over its competitor, BNP Paribas is the tight winner of this impak Battle.
Specificity of the sector
The current critical social and environmental events happening worldwide bring a new stance on the importance of banking. Climate change, which exacerbates social inequalities, is simultaneously the biggest negative impact for banks, but also an opportunity to do good on a massive scale. The sanitary crisis has enhanced this opportunity as banks are key actors in the different countries’ recovery plans, in which some countries have been bold enough to attach climate and social targets. The sector’s biggest liability could become its strongest asset if rightfully managed and in a timely fashion. Banks brought the Western world as we know it to life, we shall hope this blatant wake-up call will turn them into agents of impact.
The methodology follows the IMP classification: A (Acts to avoid Harm), B (Benefits stakeholders), C (Contributes to solutions), and Z (Does or may cause harm). Note that according to our methodology, in the case of a Z, a certain penalty is assigned based on the following 3 factors: the type of Z (does cause harm or may cause harm), the repetition of the Z over time and, only in the case of a Z that ”does cause harm”, whether measures have been taken to mitigate this negative impact.
It is important to mention that companies may have some potential positive impacts that were not considered because of the limited information available or because they represent less than 0.01% of their activities. As positive impacts are based on their relationship to the Sustainable Development Goals (SDGs), they can overlap. The percentages of activities related to these impacts can therefore be non-cumulative.
The sub-score related to governance is based on several criteria analysing the integration of impact mechanisms within the company. Thus, the role of the various beneficiaries in decision-making, the analysis of its impacts within the value chain and the assignment of a team dedicated to the impact mission are all important criteria for this section.
Given the significant growth in transparency and sustainability among investors, one or two years can make a significant difference to impak Scores.
*VEGA Investment Managers is in no way responsible for the information contained in this article. The analysis of VEGA IM does not constitute investment advice or recommendation.
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