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Carlos Barrientos: "Banks have the opportunity and also the challenge of financing the transition to a sustainable economy"

Interview with the Director of Sustainable Business and Financing Division.

Communication Bankia

By  Communication Bankia

Publish on 
05 December 2019 - 11:15

Carlos Barrientos is director of Business and Sustainable Financing of Bankia. In this interview, the manager talks about the role of banks in the ecological transition, of sustainable finance and how climate change is forcing families to modify their consumption habits and companies to adapt their business models to the new reality.

Why has climate change become one of the main risks for banking?

Climate change is today one of the main risks for society as a whole and therefore for banks. Academically, the risks associated with climate change have been classified into two broad categories of risks: physical risks and transitional risks. Physical risks are acute or chronic climatic crises, such as droughts, floods or a gradual global increase in temperature. Transitional risks are related to the transformation of economic sectors and activities until we are a neutral economy in CO2 emission. This transition will involve regulatory risks, changes in focus on industry policies, competition risks and changes in the consumption habits of the population.

All these risks, both physical and transitional, become economic and financial risks that are the ones to which financial institutions are exposed because of our activity of financing and channelling of investment towards families and industries. That is why regulators are emphasising that banks have to take them into account, since they are a relevant and growing part of the risks we face in our business models.

On which business areas does climate change have the greatest impact?

I would turn the question around. Which areas of the banking business can have the greatest impact in the fight against climate change? And in this regard, financial institutions can play a very important role in reducing CO2 emissions. For example, in regards to the real estate industry, promoting or channelling financing towards projects that improve the energy efficiency of houses or promoting the construction of buildings with a certain energy efficiency certificate. It must be borne in mind that, at the European Union level, between 35% and 40% of greenhouse gas emissions are produced by buildings. In Bankia we are working in this line through an agreement with the European Investment Bank (EIB) to promote residential building with a certificate of environmental sustainability. Based on this agreement, those who decide to acquire these homes will have access to favourable financing conditions through 'green mortgages' provided by Bankia, with favourable financing conditions from the EIB, which can lead to a reduction of up to 0.25 percent on the final interest rate.

The activity of financing renewable energy and energy efficiency projects also has a significant impact on the fight against climate change. In this case, it is about contributing for sectors that are pollutants to reduce their CO2 emissions and, therefore, their carbon footprint.

In the field of Individual Banking, we also offer sustainable financing for the purchase of electric vehicles, purchase of energy efficient appliances or renovations to improve energy efficiency in homes or commercial premises.

In short, to the extent that Bankia contributes so that its customers emit less CO2, its carbon footprint in relation to its customer financing activity will also be reduced. That is, the entity channels and mobilises resources so that its customers reduce their CO2 emission, which in turn increases the reduction of Bankia's carbon footprint.

What does the concept of sustainable finance entail?

Sustainable finance has to do with sustainability in the broadest sense and sustainable financing is the part of sustainable finance that has to do with financing investment with environmental, social and good governance criteria or ESG criteria.

Is it just a fad or is this banking model going to stay?

It is not a fad and it is here to stay forever. It gained momentum in 2015, when the UN approved the 2030 agenda and the Sustainable Development Goals, the so-called “SDGs”. That same year, the Paris Summit (COP 21) took place, in which it was agreed to keep the global average temperature increase well below 2 degrees Celsius above pre-industrial levels.

Basically it is from that moment when a growing global awareness has been observed. In the international corporate sphere, it is especially relevant since 2015, when the Financial Stability Board promoted the TCFD (Task Force on Climate-related Financial Disclosures) working group, with the objective of developing and promoting in a consistent manner, the voluntary dissemination of information related to environmental aspects, so that it is useful for credit institutions, insurers, investors and other stakeholders to adequately assess the risks associated with climate change. The recommendations that came from this group in 2017 govern the actions that the banks and companies adhered to TCFD are voluntarily addressing at the corporate level to manage the risks and opportunities posed by climate change.

Bankia has been making a conscious management of sustainability for more than a decade. The entire organization is involved in reviewing the application of environmental, social and good governance criteria.

Carlos Barrientos 
Director of Business and Sustainable Financing of Bankia.

In the European Union, the momentum has been remarkable since 2018 with the approval of the Sustainable Finance Action Plan. This Plan is framed within the creation of a group of technical experts who are entrusted with the task of establishing the so-called Taxonomy, which consists of a classification of economic activities based on their degree of contribution to the emission of greenhouse gas. The objective of this Taxonomy is to provide a common reference framework for financial agents to classify the different assets, be they loans, stocks, bonds, etc., depending on their degree of contribution to a more sustainable economy. For the moment, advances in Taxonomy have focused on the environmental aspect, but it is also planned to address the social part of sustainability.

En definitiva, nos enfrentamos a una amenaza real de impacto en nuestras vidas como consecuencia del cambio climático y los esfuerzos que se están haciendo a nivel mundial tratan de mitigarlo lo máximo posible. Esto implica que va a haber actividades económicas que tiendan a desaparecer. Un ejemplo es la industria del carbón en España dado que, según las previsiones del borrador del Plan Nacional Integrado de Energía y Clima, el precio previsto de la tonelada de CO2 va a hacer que para 2030 no resulte competitiva la generación eléctrica por carbón, en un entorno en el que cada vez será más barato y eficiente la generación por fuentes de energía renovables.

In short, we face a real threat of impact on our lives as a result of climate change and the efforts being made worldwide try to mitigate it as much as possible. This implies that there will be economic activities that will probably disappear. An example is the coal industry in Spain given that, according to the provisions of the draft of the National Integrated Energy and Climate Plan, the expected price of a ton of CO2 will mean that by 2030 coal generation will not be competitive, in an environment in which the generation of renewable energy sources will be cheaper and more efficient. Therefore, what seems fashionable today will become normal and in relatively few years most economic and management models will integrate ASG criteria and specifically environmental criteria.

What will be the cost to the financial system of turning towards a 'green' model?

Turning towards a green model implies for the financial actors an adaptation in their information systems at all levels in order to adequately report all their green activity. Insurers, fund managers and banks must be able to demonstrate that the green activity they report and that the green products they sell comply, for example, with the Taxonomy, and for this it will be convenient to have a global and holistic approach that addresses all the ASG criteria, and particularly the environmental ones if we are talking about a 'green' model. This type of adaptations usually entail internal and external costs, but certainly nothing comparable to the cost of not doing it in the future.

How does Bankia face the shift towards a sustainable finance model? Are there new business opportunities for the bank?

For Bankia, sustainability is not something new. The entity has been making a conscious management of sustainability for more than a decade. In fact, we currently have a biannual Responsible Management Plan that has a series of objectives, including sustainable financing.

In this regard, the bank has opted to strengthen this business line by creating the Sustainable Business and Financing Division, which started its operations in September. At present, this Division is immersed in a very cross-cutting internal process where the entire organisation -Systems, Risks, Business, Financial Management, Sustainability, Organisation, etc.-, is involved in reviewing the application of ASG criteria to financing in order to adequately identify the aforementioned risks, as well as the financing opportunities that are available in view of the foreseeable transformation in companies, which they have to undertake to bring their business closer to less polluting models and in consumption habits or of investment of the families, that will increasingly often apply sustainability criteria.

What will the transition to a green economy be like?

Indeed, the transition to a green economy is something that is being prioritised because it is very important. Basically because we cannot expect to change things overnight. The European Union has estimated investment needs between 200 and 300 billion euros annually over the next decades to become climate neutral in the year 2050, which shows the magnitude of this challenge.

Logically it takes time, but it is true that the supranational commitments acquired put pressure for this challenge to be tackled with determination and haste and taking into account the differential factors of each national economy, the so-called principle of fair transition.

Like the economy as a whole, banks are also undergoing a transition. Among all the activities we finance, some of them are logically going to be less sustainable, and in this sense we have to manage their transition. But it is very important to keep in mind that the transition to a green economy should not cause a disruptive effect on the economy and daily life of many businesses and families whose income depends on these less sustainable activities. Our role as a bank in this transition will be to channel and facilitate the financing of the change in household consumption habits and the change in the productive models of companies towards a sustainable economy.

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