Photo: BBVA's Global Head of Sustainability, Javier Rodríguez Soler Credits: BBVA.
By Patricia Ruiz Guevara
If a company does not focus on a commitment to sustainability, it will cease to be profitable and will end up going out of business. With this categorical statement, BBVA's Global Head of Sustainability, Javier Rodríguez Soler (Madrid, 1969), highlights the direct correlation between economic profitability and sustainability, which is vital for a company and also for the bank that endorses it.
The expert is backed by the wealth of experience he has: with a career in the energy sector and focused on development strategies, he has been in charge of sustainability at the most sustainable bank in Europe and the world (a global position he shares with the South Korean entity KB Financial Group) since 2021, according to the Dow Jones Sustainability Index (DJSI) analysis as of February 2022. BBVA has also recently joined the MIT Climate and Sustainability Consortium (MCSC).
To reach this level, it is important to take the right steps. Rodríguez Soler tells us how, thanks to measures such as the transition and support offered to clients’ shift towards decarbonization and tools to calculate their carbon footprint, the bank seeks to position itself safely and support companies and productive sectors in the face of an imminent situation: climate change already poses an economic risk.
BBVA has started 2022 by joining the MCSC, an MIT consortium that seeks to speed up the development of large-scale solutions to combat climate change. BBVA is the only bank in the world in this alliance, what does it involve?
The companies that are doing research with MIT are leaders in each sector; there are examples such as Apple and Boeing. In our case, they were looking for a bank with an innovative and sustainable vision, as well as an international reach in emerging markets. At BBVA we are convinced that it is essential to innovate.
Decarbonization efforts, in all economic sectors, call for a reinvention of how each of the energies or materials needed in their value chain are produced. A bank is a regulated financial institution that understands how resources can be optimally channeled to intelligently research and finance that transformation. We are talking about the most significant disruption in history.
In 2021 they announced that the bank would stop financing coal-related companies by 2030 in developed countries and by 2040 in other countries; this year, targets are being added in four other sectors: power generation, automotive, cement and steel. How do you make this transition to a net zero or zero carbon footprint client portfolio?
It is important to state that this is not about demonizing any company or sector: it would be a mistake for an institution such as a bank to turn its back on an industry. What we are doing is an exercise in client portfolio alignment.
Photo: Solar panels installed in Ciudad BBVA, in front of the emblematic La Vela building in Madrid. Credits: BBVA.
We want to finance those activities that help the most in decarbonization with technologies that are being used in a successful way. This is the biggest investment opportunity in history. But there are certain industrial activities that are no longer going to be appropriate on the road to decarbonization.
The most obvious one is burning coal, so we need to help coal companies "transition" to renewables. The next step is very interesting: we have added these four new sectors, and we are also working on agriculture, air transport, shipping, real estate and oil and natural gas.
This is not something that can be done overnight, how do you support customers?
Everyone has the right to reinvent themselves and we want to help everyone; we give them time, but it is not infinite. Our goal is to be carbon neutral by 2050 and that includes our customers and investments, but we have to set milestones in between, to follow up and look at the relative emission. For example, if it is a car factory, we analyze the grams of carbon dioxide per kilometer of the car's life, we see what plans they have to reduce emissions and we advise them to be more ambitious.
"Data and digitalization, along with people, are the key ingredients to push the sustainable agenda forward."
We have a tool called TRI, for transition risk indicator, which gives back a highly sophisticated calculation for large companies. What we do is tell each of them where they are in the ranking relative to other companies in their sector. If it is doing well, we are still willing to finance it; if not, we warn that we will have to stop supporting it if it does not change.
In fact, we are going to double the target in sustainable financing from €100 billion to €200 billion in the 2018-2025 period. We want to finance the future.
This indicator is for large corporations, what tool do you have for small and medium-sized companies?
BBVA's carbon footprint calculation app; we were the first in Spain to offer this service to SMEs and individual users. It measures the most relevant part of the carbon footprint, such as land transport or electricity consumption, but it is a tool that is in a process of continuous sophistication and will continue to incorporate more data. It already exists; the key is to collect and organize it.
Data, technology, and digitalization are great drivers of sustainable finance; together with people, they are the main ingredients to drive the sustainability agenda.
On the web page of this tool, they open with this question to the businessman: "Do you know that reducing emissions means savings? Is the sustainability-profitability trade-off starting to become clear?
When talk of climate change first started, it seemed that it was going to be a cost for companies and individuals. What has been discovered in recent years is that being economically sustainable and being profitable go hand in hand.
Photo: BBVA's mobile app allows you to calculate your personal carbon footprint by analyzing your electricity, gas and fuel consumption. Credits: BBVA.
It can be seen in an everyday example: a family living more sustainably is going to do so more cheaply and efficiently. It is also understood with technological investment in innovation: electric cars are now only marginally more expensive, although the net present value is already cheaper; the initial investment is rewarded.
If you are a company, this will also happen: shareholders will want more shares; banks will want to finance you more cheaply; workers will want to work with you; and consumers will opt for your products and services. Working on sustainability is an extraordinarily profitable virtuous circle.
It is clear that being sustainable implies an economic benefit. If we turn the phrase into a negative, as the European Central Bank itself predicts, not being sustainable implies a risk to financial stability, particularly for banks exposed to bankrupt companies. What are these risks?
In the face of the impact of climate change, in finance there are physical risks and transition risks, which stem from overdue policies to reduce carbon emissions.
The latter are very clear. An electric company that is constantly producing with coal is going to be out of the market and has a huge transition risk. Its standard assets will cease to have value and become stranded assets. Banks lend in the form of debt, so we must be very careful with companies with solvency problems and pay attention to these transition risks.
"Working on sustainability is an extraordinarily profitable virtuous circle"
In the case of physical risks [companies located in areas exposed to extreme weather events due to climate change], I think we need to look at them with more scientific knowledge and not trivialize them. The issue of climate change is extremely serious, but I think that in this aspect it is not yet so relevant for banks when it comes to, for example, financing housing or infrastructure.
We have pointed to different industries and each one has its idiosyncrasies, but so does each country. How do you address the climate challenge and the transformation of companies at this level?
This is critical. Until a few years ago, environmental issues historically had a clear local component; for example, a pollution incident affecting a particular city area or factory. Countries that could afford it were concerned about it.
Now we know that climate change is absolutely global: if in Europe we produce electricity with renewable energy, but in India or Latin America they are still burning coal, it's useless.
"We know that climate change is global: if in Europe we use renewable energy, but in India or Latin America they pollute, it's useless."
Therefore, this is a global effort and the developed countries, which have benefited the most from the Industrial Revolution, must help the most disadvantaged countries, which have fewer resources, and which will generally be more affected by climate change.
How can richer countries and a bank like BBVA offer support?
On the one hand, with government money. The more developed countries must become aware, and they must do it in a more generous way than they have done so far.
On the other hand, with private money, which must be directed in the form of debt to emerging markets where the opportunity is most pressing and urgent. The good news is that these countries are very rich in some of the resources with which energy is produced in a more sustainable way, and they also have a high demand close by. For example, in solar energy, Mexico and Turkey stand out, and have very close demand from the US and Europe respectively.
The job of a bank like BBVA, a leader in countries such as Mexico, Colombia, and Turkey, is to channel money to where the companies of value for these emerging markets are. It is convenient and beneficial for them to invest in technological and industrial breakthroughs: the region that bets on a new technology creates the know-how, the factories and generates employment. Turning our backs on this is a big mistake. Our role as banks is challenging and exciting.
All of this addresses the role of companies from a global perspective. If we think from the point of view of an individual customer, what impact will it have on him if his bank is committed to sustainability?
A person has many sides: he is a consumer, a potential employee, a potential investor of his money and a voter. We have made a huge commitment to explaining the importance of sustainability, because raising public awareness is what is really going to make this happen. First you start by adapting your consumption habits, at home, in your car; but then it has an impact on the company you want to work for and the party you vote for if it has sustainable policies in line with your own.
Photo: Javier Rodríguez during his participation in the Money20/20 global fintech event. Credits: Money20/20.
At the end of the day, a bank is a business and is driven by profit: we also need people to be interested in our products and services. For example, as a result of the carbon footprint app, many users have become customers and have ended up asking for a car loan or other service. But it all started with sustainability.
At the employee level, we also work to raise awareness of the relevance of environmental issues. We are a company with more than 110,000 employees, including bank managers, who are actively listened to by customers. It is vital to lead by example.
Against this backdrop, we should conclude with two key questions. First, what do you consider to be a sustainable company?
A company that has the highest standards in its activity in terms of environmental, social (inequality, gender, social, racial, sexual orientation) and governance aspects; meets these ESG criteria strictly and gives them equal weight; and therefore, makes shareholders, regulators, consumers and employees bet on it. With these premises, it is a company that will be around decades from now because it is sustainable and has been able to sustain itself.
Finally, what would you say to those companies that are not yet committed to sustainability and, in addition, may be engaging in greenwashing?
The standards, along with new transparency regulations, will result in increased scrutiny and reduce the risk of greenwashing. We started with the Green Bond Principles, and now we have more developed and robust frameworks for third-party verification and transparency.
In our case, our leadership in the Dow Jones Sustainability Index, our membership in the MCSC and all our initiatives speak to how we have positioned ourselves. If you type 'banking and sustainability' or related terms in the Google search engine, the first result you get back in most cases is the BBVA website.
"This is not like when you make the best cell phone, and you want it to be unique in the market; we are eager for everyone to follow our lead and commit to sustainability."
It is a very particular competitive advantage: this is not like when you manufacture the best cell phone, and you want it to be unique in the market; we want everyone to follow our lead and commit to sustainability. If BBVA behaves in a very sustainable way but the rest of the banks, companies and sectors do not follow us, it is useless because climate change must be tackled by all of us.
I say this vehemently: I believe that companies, in any sector, that do not follow this course and are left behind will go bankrupt and out of business.
Published by OPINNO © 2022 MIT TECHNOLOGY REVIEW spanish edition