The bank that does good
Strengthening a leading league table position in the increasingly competitive world of sustainable finance was no mean feat in 2019. Banks fell over themselves to declare their green credentials as the world heated up, but for continuing to bring calm and thoughtful leadership to a rapidly evolving and sometimes chaotic market, Credit Agricole is IFR’s ESG House of the Year.
Credit Agricole’s continued dominance of the green and sustainable bond market and high profile in sustainability-linked loans is remarkable given increasingly tough competition in 2019. Global banks challenged French banks’ expertise as Asia discovered sustainable finance, and the US lagged the world under the Trump administration.
“We’re the best because we’re the most ambitious and we’re the most committed in terms of the level of demand, human capital and the passion that we’re putting into this market,” said Tanguy Claquin, Credit Agricole’s head of sustainable banking.
ESG went mainstream in 2019, and the shoots of green and sustainable financing entwined their way through the financial system as investors continued to force the pace of change, bringing a myriad of new products and concepts and discussions to the capital markets, including social responsibility and human rights, as the “S” in ESG moved up the agenda.
Credit Agricole’s market-leading position required mastering a proliferating number of themed sustainability bonds that tested the strict “green” definition of use of proceeds as the year progressed, including climate, blue, social, sustainable and transition deals.
The success and relentless rise of sustainability-linked loans tied to corporate strategy and the UN’s Sustainable Development Goals via key performance indicators offered a blueprint for the bond market to follow.
Credit Agricole has been a leader in green bonds since the start of the European market, which continues to drive issuance and innovation, and the bank has dedicated considerable resources to help create the structure and framework of the market.
The bank has a strong advocate in the form of Claquin, who heads the bank’s centralised 16-strong sustainable financing team that oversees ESG quality in all business lines globally, and is regarded as one of the market’s leading experts. A former climate scientist, Claquin is a member of the European Commission’s Technical Expert Group on sustainable finance and helped draft ICMA’s Green Bond Principles.
STRATEGIC APPROACH
Credit Agricole unveiled its strategic approach to the market in mid-June when it released its 2022 medium-term plan.
The three-year plan includes a group climate strategy fully aligned with the UN’s Paris Agreement on climate change, which strengthened Credit Agricole’s commitment to energy transition and climate change action, as a longstanding buyer, issuer and arranger of green, social and sustainability bonds.
“We’re not yet another investment bank trying to jump on a fashionable movement. This is coming from core roots of the bank. We’re a cooperative bank and all decisions are taken collaboratively. We’re coming from the farmers universe and they see what’s happening with biodiversity falling and the climate changing and (they) have to cope with that,” Claquin said.
The plan strengthens energy transition by giving customers scores and reallocating loans and investment portfolios to align with the Paris Agreement. Credit Agricole aims to finance energy transition by doubling its green portfolio to €13bn by 2022 and promoting sustainable investment products, including via asset management arm Amundi.
DARK SIDE
The bank is offering an incentive to expand green financing with a lower cost of liquidity as it starts to cut the “dark side” of its balance sheet with a major pledge to phase out thermal coal financing by 2030 in the US and OECD countries, 2040 for China and 2050 for the rest of the world.
On a practical level this means publishing the level of the bank’s coal exposure in 2020, stopping banking for clients that derive more than 25% of their revenues from coal-related activities, and encouraging those with less than 25% to develop a strategy to get out of the sector.
“This is a very strong commitment because getting out of some activities is difficult from a business standpoint. I’m very proud of it, and the group I belong to, but I am interested and excited about the way we’re going to do that in the coming 10 years,” Claquin said.
Leadership in the green finance space is critical to Credit Agricole’s own strategy. It has issued green bonds since 2013 and was one of the first commercial banks to issue a benchmark in November 2018, which it followed with a new green bond framework and green bond impact-reporting.
Credit Agricole’s position at the top of the green and sustainable bond league tables and as a major underwriter meant the bank has had to push – and bid – harder to maintain its competitive position and succeeded through volume and innovation.
Its fingerprints were all over most of the significant deals and innovations of the year, headed by Italian utility Enel’s first sustainability-linked bond, which is widely viewed as a potential game-changer.
Enel is IFR’s ESG Issuer of the Year and Credit Agricole played an active role structuring its US dollar and euro bonds due to its track record arranging Enel’s green bonds previously and expertise in sustainability-linked loans, which allowed it to move smoothly between the products.
Credit Agricole often acts as green structuring agent and the bank has become known for the consistency of its advice and defence of principles, so was not intimidated by the furore (some of it in IFR) that Enel unleashed by moving beyond its green bond programme.
“Green bonds should fund assets and not behaviour. Behaviour is very important for climate change but can be managed by sustainability-linked deals and not by green bonds, which are really dedicated to growing the asset base for transition. Those are two different stories and if you don’t use the right instrument for the right story or objective, then potentially you impact the credibility of the market,” Claquin said.
Credit Agricole was also involved in global sovereign trades in Chile, South Korea and Hong Kong, which broke new ground, having never issued green bonds previously. It similarly played a leading role in the first social covered bond for French agency Caffil, which is IFR’s Social Bond of the Year.
Other highlights included the first telecoms sustainable bond for Telefonica and the first investment-grade sustainable bond for Italian insurer Generali.
“The bank has been a pioneer and leader almost from the origin of the market and we have to make sure we’re part of anything new or exciting or leading the way. On that count I think we’ve delivered, said Atul Sodhi, Credit Agricole’s head of global DCM.
On the sustainability-linked loan front, Credit Agricole has designed structures that link the credit quality of the issuer to the KPIs that are chosen to affect the margin, as with the €3.9bn amendment for French supermarket operator Carrefour that are linked to its pioneering corporate social responsibility initiative. The deal is IFR’s Social Loan of the Year.
“We really try to be diligent, have constructive discussions, keep a critical eye and make sure we have high standards for the efforts of our clients,” said Lucie Campos Caresmel, Credit Agricole’s head of EMEA corporate loan distribution.
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