SHIFTING MINDSETS

Banks tend not to be seen as climate change pioneers, but as extreme weather events continue to undermine economic stability, real change is afoot. Increasingly banks are shrugging off their conservative image and promoting new developments in sustainable and green finance.

As FMO we invest in many financial institutions and we work in partnership with them to achieve better environmental, social and governance (ESG) standards. This involves developing a social and environmental management system (ESMS), which ensures that risks are identified, assessed and addressed. This is often the first step on their sustainability path.

Banks are becoming more aware of the role they have in financing the transition to a green economy and the opportunity it presents. We have asked thee longs-standing relationships from Costa Rica and Paraguay to share their views on the importance of growing a green portfolio.

About Banco Promerica de Costa Rica

Banco Promerica de Costa Rica, S.A. is a universal bank in Costa Rica, owned by the Promerica Financial Group, a long-standing client of FMO. Promerica is the 4th largest privately-owned bank in Costa Rica.

Michelle Espinach Sustainable Bank Manager at Banco Promerica de Costa Rica

Green Lending has given Grupo Promerica a competitive edge, a differentiation and it is excellent for business. The savings clients achieve from the new technology pay for the loan and some even provide a surplus for the client. As a result this portfolio has a much lower past due and default rate than the rest of our portfolios. Grupo Promerica currently has a green portfolio of 274 MM in the 9 countries where it operates. FMO has been our strategic partner, not only by providing long-term funds but also the technical assistance needed to build capacity within the banks.

In 2010, FMO provided ESG assistance to three banks in the group and these banks cascaded the learning to the rest of the banks of the group: this was very important since ESG is the basis for all sustainable strategies. Two years later, FMO helped us organize a workshop in Costa Rica to provide peer learning and develop a plan for the implementation of green loans in five of the Promerica Group banks. In 2017, a team of people from five of the Promerica Group's banks travelled to the Netherlands for a Sustainable Banking Journey, to discover more about sustainability and learn from banks such as Triodos and ASN. Following this event, Ecuador and Costa Rica developed a green account for sustainable clients that want their savings invested in green projects. These experiences have been invaluable in encouraging and providing ideas on the “how” and also the “why” became clearer to us: “we need to be bankers for a better world”.

In Costa Rica, construction is the second largest CO2 emitter. Our idea is to change the way construction is done by offering incentives through the value chain. With the help of FMO's financing we were able to provide a lower rate to developers that would provide green certification for their projects, and allowing for them to cover the certification costs. The homeowners will receive efficient units with lower utility costs that provide them with a better cash flow. Through the financing of these mortgages, the bank can build a portfolio that in the future can be used to issue green bonds.

Ecuador has joined Costa Rica in convincing developers to adopt green certified projects, and we both agree that it has to be sold as good business for the developer. The key elements are: 1) Show that if you begin in the design phase, green building does not increase construction costs 2) Provide incentives in the financial products offered through the value chain until it becomes a new normal in the country.

The COVID-19 crisis has been a very hard lesson for all of us, but it has also been an opportunity to understand the coming climate crisis and its even worse effects. Banks are agents of change and we need to guide our clients towards sustainable practices. ESG is key to starting conversations with clients and identifying risks, but it is also an opportunity to help the client mitigate and adapt, as well as become more resilient. The funds are available, we just need to strengthen partnerships to achieve the goals and lead the way.

Sebastien Lahaie Vice President of Sudameris Bank and CEO of Abbeyfield Group.

About Sudameris

Sudameris is a universal bank with 10% market share (rank #4) in the Paraguayan banking sector, focusing on corporates and SMEs active primarily in the agriculture, industry, commerce and cattle sectors.

Sudameris has been on the sustainability path for the best part of the past 10 years. After we first came into contact with this concept through the IFC, it was at first perceived as a substantial constraint, because we refused to enter into agreement that stipulated sustainability clauses. We did not understand or were not precise enough. It was crucial for us to be able to explain both internally and to our clients these guidelines and how they would evolve over time.

The turning point came when Sudameris first started to work with FMO and its flexible, evolving guidelines. We had finally found a partner that recognized the concept was good, but also recognized that time and training were needed to ensure a successful and long-lasting implementation. It is now at the core of our beliefs, including risk analysis, and it is a value that is also now shared by our clients thanks to the pragmatic approach of both the bank and FMO.

By nature, banks are in close contact to all sectors of an economy. They also have the power to force change through their client base. However, with an ever-evolving world regarding access to private funding, alongside access to capital and debt markets, these changes need to be explained, nurtured and understood by the clients in order to be widely accepted.

In addition to the importance of promoting financial education, particularly in the retail sector, banks also have a duty to positively impact on the social and environment responsibility of its corporate clients. Through pragmatic criteria that permanently evolve by small increments, we can generate long-lasting positive change for our society as a whole.

Green lines are still in their infancy in Paraguay, as there still is some confusion and doubts about their purpose. Green lines are not intended to finance green projects that are non-viable: the project must be credit worthy. Then, if it also has a positive impact on the environment and society, it can fit in the Green Lines model.

However, we have had excellent feedback so far on the concept and the first Sudameris Green Lines are coming out, not only in agricultural projects, but also in industrial developments that use state-of-the-art technology to minimize their environmental footprints. Some clear examples are a cement factory using the cleanest processes currently available, the financing of electric and hybrid cars, the modernization of river barges to ensure the lowest emissions and the future financing of a massive reforestation project for a sustainable pulp factory.

Even though the Coronavirus has had a tremendous economic and social impact this year, it will remain a temporary problem. Sustainability, on the contrary, is a permanent issue that is not going away. We have to help provoke and sponsor changes to improve our environment beyond the short-term crisis that we are living in now.

To that extent, we notice that long-term projects, such as the reforestation project for example, are going ahead irrespective of the current health crisis. We therefore have to manage both the short-term crisis to the best of our ability, helping our healthy clients survive this pandemic, and at the same time, keep our eyes on the bigger picture, which is identifying and helping those projects that will have long-term positive impact for society as a whole.

Paraguay has so far been a lucky country, having plenty of arable land, plenty of underground fresh water and river-ways that have helped to sustain 95% of its GDP over the years, but the climate is changing, and Paraguay is not immune.

We notice that rainy months are fluctuating, both in volume and timing, affecting the timing of crops. The volumes are also more extreme: when it doesn’t rain, it is a drought, and when it rains it is flooding. This year we have had some freezing temperatures in late August: this has not happened for decades. We are also in a severe drought, which has brought the level of the river Paraguay to its lowest on record for the past 50 years. Climate is a challenge for an agricultural country such as Paraguay and we need to adapt fast.

About Banco BCT, Costa Rica

Banco BCT S.A. (BCT) is a regulated universal bank in Costa Rica. BCT focusses on the small and medium enterprises (SME) and corporate segments, principally active in the property, services, manufacturing and agroindustry sectors.

Álvaro Saborío de Rocafort Executive Vice President / CEO of Banco BCT

For more than 40 years Banco BCT has designed financial services and solutions for companies in diverse sectors. These companies seek competitive advantages through certifications, alignment with responsible corporate guidelines and efficiency, which is why we identified an opportunity by offering green lines that would allow us to support these companies in their business initiatives.

Our program has enabled us to provide green loans to our clients that have been certified by the Rain Forest Alliance as responsible environmental practice operations in agriculture. The application of our environmental and social risk analysis protocols has also been a tool our clients in specific industries have seen as an added value or guideline for compliance.

Amid all the COVID-19 turmoil, Costa Rican clients are still interested in sustainability. Clients in diverse industries are seeking efficiency in their operations through savings in energy and water for example. However, while there is interest in sustainability, the uncertainty of the economic recovery has put these investments on standby for the time being.

Greening the economy is a high priority target for Costa Rica. BCT has implemented greener practices in its operations, and we have reduced significantly the environmental impact of our direct operation. In our headquarters we have installed a solar plant that produces 40% of the energy required to operate our business. Water efficiency efforts have also been implemented in all our branches, reducing our water usage by more than 70%. In BCT we believe that we can drive change by promoting responsible initiatives among our clients that would allow them to reduce their environmental footprint as well. In the near future we hope to put our best efforts into placing more funds into the green sector. We continue to be accompanied and supported by FMO to achieve these objectives. Costa Rica has historically been recognized as a green country and we are committed to playing a part in achieving the country´s goals.

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