How do you define “transition finance” internally?

La Banque Postale (“LBP”) is committed to support all of its customers in the ecological transition. In 2021, LBP set up a strategic plan—Horizon 2030—to make its banking/insurance business model evolve towards a just transition. A new central purpose was defined:

“Because it was born with a civic vocation, La Banque Postale is convinced that there is no creation of sustainable value without sharing, no economic dynamism without vitality of the territories, no sustainable development without respect for global limits.”

The “Citizen Engagement Department” was created. It is managed by the Chief Sustainability Officer, who is responsible for all sustainability issues (in the meantime, focus is mainly made on climate, biodiversity and social issues).

The role of this Department is to put the Just Transition into action. Its missions consist in building an innovative and differentiating offer, setting the best standards in terms of social responsibility and enabling employees to be actors of the just transition on a daily basis.

In February 2022, LBP entered a new phase of its transformation by becoming a missionled company. It confirms LBP’s commitment to ensure a just transition by including social and environmental targets at the heart of its governance. This approach is in line with La Poste Group’s commitment, as it also became a mission-led company in June 2021.

What strategy did you develop for Transition Finance-related goals?

To develop transition finance goals, LBP has set up products and tools to support all its customers in the ecological transition. For instance, its main commercial offers are:

– Green Loans: LBP offers the French local authorities and companies access to green dedicated project finance solutions. The green loans enable them to have access to a green project finance solution that is aligned with the EU taxonomy.

– Positive incentive loans: LBP offers bilateral or syndicated loans which include ESG criteria that can impact the credit rating. Once the loan is granted, the company has to communicate the ESG criteria accordingly to the documentation.

– The Green Range offer: dedicated to individuals, this product range provides home financing solutions (energy efficiency renovations with the zero-percent eco-loan and the “green works” loan) and eco-mobility (personal loan for a green vehicle).

To measure the impact of its activities on environmental, societal and territorial dimensions, LBP is currently developing an unprecedented proprietary indicator, the Impact Weighting Factor. It will be taken into account in the Bank’s decisions to grant loans and will enable customers to channel their savings towards more sustainable investment solutions.

LBP is also investing in the international community to address climate and biodiversity challenges.

LBP has bees involved for several years in the fight against climate change.

– In 2015, it launched its first “Carbon Fund” to take concrete action to mitigate its GHGs emissions. The Carbon Fund is an internal mechanism that monetizes LBP’s carbon footprint and allows to finance internal decarbonization projects but also to finance external off-settings programs.

– In 2018, LBP achieved carbon neutrality within its operating scope.

– In 2021, LBP set itself the goal of reducing its net emissions to zero for all its banking activities by 2040, or ten years before the deadline set by the Paris Agreement. To facilitate the net-zero journey, LBP is working on decarbonization trajectories and set up of sectorial policies.

In terms of sectoral policies, LBP started with fossil fuels. In October 2021, LBP introduced a self-imposed ban on financing the coal as well as the oil and gas sectors beyond 2030, except for companies that adopt a plan before 2030 to withdraw completely from these sectors by 2040. LBP keeps working on sectoral policies on other carbo-intensive sectors as well as on a biodiversity.

In terms of decarbonization pathways, LBP started a few years ago to work on methodologies based on the Science Based Targets to measure its climate-related exposure. In October 2021, the SBTi validated its decarbonization pathways for several asset classes (Mortgages, Corporate Real Estate, Corporate Loans, Listed equities and bonds, Project finance (Electricity generation)).

In the frame of its commitment within the NZBA, LBP set up targets with a 2030 intermediary target for several carbon-intensive sectors: Mortgages, Corporate Real Estate, Cement, Aviation, Automotive.

LBP is already 1.5°C aligned in the coal sector (no more exposure based on B5 Nace Code) and in electricity generation (LBP is only financing project based on renewables).

In parallel, the Climate and Environmental Risk Department monitors several ESG indicators. Transition risk is monitored through the level of alignment with the SBT decarbonization trajectory, the carbon intensity and temperature of portfolios, the eligibility rate for the European Green Taxonomy and sectoral exposures analysis. The Risk Department also makes stress-tests on climate related issues. These stress-test are mandatory and are addressed to the French Regulator.

What targets have you set/are you developing?

The targets discussed above have been validated by the SBTi framework and were developed for several asset classes:

– For Mortgages and Corporate Real Estate portfolios: Emissions are calculated based on the SDA Real Estate Methodology as follows: (kWhef/m2 /year) × (corrective climate coefficient) × (energy consumption per source of energy) × (kgCO2 e/kWh) = kgCO2 /m²/year

– For Corporate loans, and Listed Equities and Bonds: LBP used the SBTi Temperature rating methodology (EOTS and ROTS where the temperature score at corporate level is weighted by investment and carbon intensity of the company (by revenue or enterprise value). This methodology has allowed LBP to define a Temperature rating at portfolio level and fix alignment trajectories.

– Project finance—Electricity generation: the bank used the SDA methodology to calculate the portfolio carbon intensity (gCO2 /kWh) as follow: intensity = (tCO2 e of the portolio)/(MWh of energy generated and attributed). As La Banque Postale only finances renewable energy, the intensity of the portfolio is 0 KCO2 e/kWh (Scope 1+2).

In the context of its commitment within the NZBA, LBP delivered some sectoral decarbonization trajectories. GHG emissions data expressed in physical intensity (sector-specific quantity of CO2 e/metric). These trajectories set intermediate targets for 2030.

Other targets include:

– Climate change features amongst the collective KPIs assigned by the board to all employees. These collective targets account for 10% of the variable remuneration.

– Two selected in-house commitments are being monitored under the strategic plan (quarterly monitoring): achieve a €2 billion financing target for green loans to local authorities in 2023 and a €3 billion financing commitment target for renewable energy projects in 2023.

What stakeholders did you need to engage with internally in order to get sufficient buy-in to make it feasible to meet your transition finance objectives?

Our strategy, sponsored by the CEO and the COMEX of LBP is based on a Just Transition, which means that the top management is engaged. This is the starting point and a key point to then engage all the company.

A part of this, each employee, including those on the COMEX, has incentives based on extra-financial objectives.

We created an ambassador network to diffuse and accelerate the integration of the just transition in the business.

To meet our objectives, we have also been developing sustainable services and financial products as already mentioned above.

In terms of the design of these services and products, we want to make sure that our high standards are exemplary and, as such, have been working with external stakeholders like NGOs (WWF) and consulting firms like Utopies or Carbone 4 to build our internal and external tools like our Green, Social and Sustainable Bonds Framework or our eco-design grid to qualify the sustainability of our products and services.

Were there challenges in terms of integrating the strategic transition finance-related decisions into ongoing business processes?

Our 2030 strategic plan aims for development based on the just transition and the current update of this plan makes this an even stronger mission-driven focus. This strategy is completely relevant to the strategy of our shareholder La Poste Group, whose social commitment is at the heart of its business model.

Developing the understanding and the culture of just transition among the different departments of LBP has been and remains one of the main challenges. As such, different training courses on climate change, sustainable finance and climate risks have been conducted. In addition, LBP aims to have a majority of its employees participating in the “Climate Fresk” programme and all employees interested are encouraged to become “Climate Fresk” animators.

Data is another important challenge: an ambitious ESG Data project is conducted to meet our objectives on that topic. It includes the Impact Weighing Factor project, which is an internal tool to measure the impact of its transactions and clients. These projects will be decisive in the integration of transition finance in the ongoing business.

Is there anything specific to your size, business model or geographic region which you’d like to highlight?

On its banking activities, LBP is mainly focused on France. Residential and Commercial Real Estate represent an important part of its balance sheet.

LBP mainly finances individuals, which is why the Impact Weighing Factor will also involve residential real estate and then contribute indirectly to the transition of that sector.

LBP is also a young bank, as it is only 16 years old and has developed from the beginning in a sustainable way and aims to be exemplary on that topic.

LBP also has a specific positioning as a citizen bank, part of the French public finance group, with a public service mission on a part of its activities.

Finally, its excellent ESG performances (1st bank according to Moody’s ESG Solutions) give LBP a strong legitimacy to support companies in their efforts towards transition.

Read more on La Bank Postale’s net-zero targets here.

This case study was originally published in the Net-Zero Banking Alliance Transition Finance Case Studies report (January 2023).

Disclaimer: NZBA shares case studies to promote member banks’ awareness of new approaches, tools, products, services, and transactions related to financing the transition to net zero. Featuring a case study naming a particular bank does not represent an endorsement of all actions from that bank.