BNPP’s Pierre Rousseau on the Need to Adapt Finance for Sustainability and the Hurdles to Overcome

Lisbon-based Pierre C. Rousseau has a unique role and title at BNP Paribas, as Strategic Advisor Sustainable Business, a role he took up first in mid-2018 after a long and illustrious career in banking and financial markets with the bank and formerly with other leading French financial institutions, working in Europe, Japan and Asia for many years. Hubbis ‘met’ with him recently to hear how he is aiming to be at the cutting edge of helping the bank and all type of investment partners appreciate the longer-term vision of finance for impact and sustainability. To achieve the goals he and the bank set for this initiative requires the type of intellectual rigour that he so clearly demonstrates in his communication, but also a dogged determination to convert more and more disciples to the new reality that investing should always have a third element beyond risk and return, namely impact. This means throwing to some extent re-writing the book of investing and focusing on far longer-term horizons and investing in a more collaborative manner between private, public and foundation-type partners, all aligned with key goals of sustainability, but also of creating new business and incremental returns.

Pierre begins with a comment that he somewhat dislikes the combination of the words sustainable and finance. “Finance is an enabler; it is not sustainable in itself,” he says, “so we should be talking about finance for sustainability. There is pressure from multiple sources to move in this direction, but it is a relatively new idea, only a matter of a few years old actually. And it demands clarity as to what is green and what is not, what is sustainable and what is not sustainable. The result is we arrive at green bonds, green loans, then after that, we have seen the ESG-driven metrics being incorporated by more and more investors.”

The new normal

The result is that there is increasingly a new normal evolving, but he warns that we must be careful as articulating these things does not mean acting on these matters. Pierre says, for example, that there are many people, many enterprises that are themselves ‘doing the right thing’ without necessarily showing it through a green bond or through ESG or being branded sustainable.

“We have to realise that not everybody is on the right path, according to the taxonomy we have created about what is right or what is wrong. And beyond being on the right path, n the investment community, there is this idea that by following ESG guidelines, checking the boxes, they have achieved their goals in these areas, but actually, it is only the starting point; it is the new normal, and if you do not follow that, you will not be in the game going forward. Actually, we need to move further ahead, and realise that what is becoming more and more important is to demonstrate impact, to prove the positive.”

Finance as the enabler of transformation

And he explains that finance can indeed help achieve that transition from the old world to the new world. For some business sectors, it is relatively easier; for example, in the energy or automotive sectors, where they can transform to renewable energy from fossil fuels, from conventional to electric vehicles and so forth. And finance can help fund that transformation. But with many business sectors, it is not that simple, for example, in the food and agribusiness, the entire supply chain needs to be transformed.

Pierre observes that people’s minds have suddenly become laser-focused on these matters because of the Net-Zero 2050 initiative by the European Climate Foundation designed to tackle one of the biggest current global issues, climate change, and of course, then the related Paris Agreement. He says it is remarkable how many people and organisations globally have committed to this, even China, with its own target date of 2060.

The third element of investing – impact

But he ponders what this all actually means for finance for sustainability. The answer, he says, is that henceforth as well as considering risk and return, we need to consider a third factor in every instance, and that is impact; and that means we are essentially now creating finance solutions more than financial products, as we increasingly integrate outcome, or impact, into the decisions on whether to invest or not.

“That is the direction we are all heading in,” he reports. “And the next phase is that the pressure from so many quarters of society will likely be followed by regulatory change, as this transition involves solutions that require collaboration, and that in turn means increasingly putting public and private money together in what we call blended finance.”

A more collaborative effort ahead

He reports that thus far, many of these transition projects have been well designed by non-profit organisations. “The result is that more and more the private foundations are involved in this transition finance, bringing in what we call catalytic finance and that in turn means that we have new players involved who finance these transitions with loans, grants, and so forth.”

Data for measuring impact is also a vital ingredient in the mix. “Transparency is essential throughout,” he observes. “We need optimised data for the financial elements, but also for measuring the impact, the environmental and social elements. Without this, we cannot build trust.”

Financing a better future

Additionally, we need new tools and metrics for risk management because the transition brings with it more risk. “You might ask why,” he says. “And the answer is because we are coming from a linear economy to a disruptive economy. And for finance, we need to think about the future. We can no longer provide finance based on the past performance of companies and their management; it must be driven by future outcomes, future impact. And whilst we cannot predict that future, we can anticipate the future by creating certain scenarios.”

The natural result of all this, Pierre extrapolates, is that to achieve these transformative goals, the finance industry needs to change its approach, its way of thinking, and indeed its regulatory environment.

Integration of new elements to drive better business

“We are just at the outset of grasping and facing these challenges,” he says, “but there is also some time pressure too, due to the need to regenerate the earth and nature. And we are now entering in this mode of transition, financing the transformation with the integration of these new elements.”

The natural extension of this is to create solution-driven fund and investment tools integrating these goals and metrics. An example might be the Global Fund for Coral Reef, to finance conservation and to help generate business around it related to carbon reduction, biodiversity, sustainable fishing, sustainable tourism, sustainable aquaculture, sustainable sanitation, and so forth.

Creating a more resilient ecosystem

“The new ecosystem that through this type of initiative is being created will be resilient, not only ecologically speaking and from a social perspective, but also financially speaking,” he explains. “This is because then you have activities concerning conservation, and conservation can develop further activities which will be deployed. Through carbon reduction and greater biodiversity, we are creating new value, and this will potentially really transform some businesses.”

He offers another example in the form of agroforestry, where instead of cutting down trees, we cultivate numerous things under the trees. “This type of thinking is resulting in carbon reduction, biodiversity and producing annual returns of some 40% to 60%,” he reports. “But the first step is to finance the three- to seven-year transition before the operations can produce results. When you get there, it is sustainable and profitable and good for planet earth.”

Converting the wealth management community

Pierre then attempts to put all of these elements into a degree of focus for the wealth management community in Asia. “First, we need to communicate the idea that sustainability is not a cost, so it is about educating people, so they appreciate that carbon and nature are assets of value,” he explains. “If we start to value negatively and positively each of these elements, we will realise that the existing model that we have put in place in the last 100 years was flawed. Often money made in the shorter term may result in more money lost in the longer term.”

Additionally, and this will, he says, be helped by new regulation, people need to recognise there are ways of making an additional return by capturing carbon and by regenerating biodiversity.

“There are already some countries which are recognising the biodiversity credit, and interestingly they are often in emerging countries, for example, the most advanced in biodiversity credit is Mozambique, where they have vast reserves of nature that they want to preserve and also to monetise. But they don’t want to monetise it on the cheap – cutting down the forests, for example – they want to extract maximum value.”

Education and the longer-term vision

He extrapolates that for investors, education will help them look longer-term and see that they will achieve better financial results by doing so than just looking shorter-term. “There are more and more private banks which are now delving into these areas, the regulators are getting more interested, and change is afoot,” he reports.

He elaborates on this, saying that aside from the difficulty in working with the multiple stakeholders involved in a sustainable project, we have to overcome the historical limitations of a world dictated by the short term.

“For example, listed companies have quarterly obligations, yet all sustainable investments and “sustainability” itself are based on strategy and therefore focused on the long term,” he observes. “The banks, therefore, need to move from a world of banking products to a world of solutions, and this generates constraints internally as promoting a product to a client and finding a solution for a client requires a very different skill set.”

Pierre does, however, believe that despite the inevitable headwinds, the changes that are beginning to take place are irreversible. “People have seen the cost of inaction, there is greater alignment between politicians, regulators, society, and therefore finance will speed up the process. But it will not be easy; there are many hurdles, especially in casting off old ways of thinking and old practices. In Asia, for example, some of the larger family offices are taking these concepts on board and changing their culture and approach. So, it is happening, but it will also take time.”

When green is not quite so green

As to risks, he also observes that ‘greenwashing’ will be probably the biggest risk in the next three to five years. “People will grab these ideas and leverage them more as a means to make new business, but some will honestly not have an intention to make a genuinely strategic transformation,” he says. “And that is where transparency, data, measurement of the impact and all these areas are so important. And for finance providers, the addition of impact means greater emotion, so we need to be careful in the allocation of capital, careful not to rush into the wrong projects or opportunities. We must be mindful of investing where the impact is achievable and fully embedded into the equation.”

An agent of change, driven by genuine passion

Pierre also explains why he is so passionate about his role. “I have had a long career in banking and finance, and for the past three years, I have wanted to be part of the new wave of sustainability from a financial perspective. “We know that banks and the financial world must evolve in the face of the changing around them, around us all. Accordingly, we all agreed at the bank that I would take on this role.”

He elaborates on this comment, stating that he has three core missions. The first one is communicating to the clients and investors about these concepts. The second is to help create connectivity for the banks to a more sustainable ecosystem. And the third mission is to pilot some impact finance projects involving blended finance, which involves far greater collaboration, perhaps often working with partners who are subject to far less regulatory supervision than the banks themselves.

Building scale through experience

“As a result of these efforts, we are learning how to assemble these different parties more effectively and more rapidly,” he reports. He gives the example of a recent project in which the bank is working with five very different partners, including NGOs, foundations, the United Nations UNDP and a private asset manager. “At the same time, we are learning how to build scale,” he reports, “and that is important, as we cannot simply do lots of little projects, we have to work thinking about the planet, not at the scale of numerous micro projects.”

He draws the conversation to a close by remarking that global capital is not in short supply but that in order to mobilise that capital to focus on environmental and societal concerns, it will be necessary to reinvent traditional financing and to align the regulatory framework with the goals to be achieved.

“Finance is going to have to review its operating methods,” he concludes. “Finance functions in a bubble, on a fragmented basis, whilst the future is a collaborative endeavour. Finance must also integrate external factors on a more systematic basis. As I said earlier, today, we connect financial performance – returns - to the level of risk taken. Tomorrow, it will be necessary to assess the impact of investments in terms of the environment and other ESG criteria, which means being able to measure such factors and integrate big data. The issue is one of trust. The more transparency there is around the decisions made, the easier it will be to attract capital.”

And his very final word is that finance has an unprecedented opportunity to play a positive role for humanity and the planet. “I sincerely hope that in five years, sustainable finance will quite simply be a major component of the financial sector,” he states with both hope and also optimism.

Pierre C. Rousseau – a Snapshot

Lisbon based Pierre C. Rousseau, is Senior Strategic Advisor for BNP Paribas’ Sustainable Business. In that role, he develops and establishes collaborative relationships and partnerships with external entities from the public sector and in civil society. He also leads some innovative solutions to finance some sustainable transition initiatives.

His main interests are in Blended Finance and Impact Investing with a strong focus on the food supply chain transformation, nature and biodiversity preservation and regeneration, carbon capture, blue economy, plastic pollution and waste-to-circular economy. He is working and promoting the integration and the valuation of the externalities in the financial model. He strongly believes in the role of the science, technology and the digitalisation as key enablers for sustainability.

Prior to his current role, Pierre was Head of Global Markets and Financial Institutions Coverage for Asia Pacific from 2015 - 2019. Pierre joined BNP Paribas in 2006 as Head of Equities, Asia Pacific. He has more than three decades of experience across the financial services industry, two-thirds of which have been spent in Asia Pacific, in Singapore, Tokyo and Hong Kong.

Before joining BNP Paribas, he occupied several senior executive positions in stockbroking and banking in different international financial institutions. He was one of the pioneers of electronic trading in the 90’s on the Asian equity markets. He originally began his professional career in 1985 as a financial controller after attaining a degree in commercial engineering.

In addition to his professional life, Pierre has co-founded Nomad Plastic, a purpose-driven company in sustainable marine tourism and biodiversity conservation. He is also on the Advisory Board of several foundations and innovative purpose-driven companies developing profitable and sustainable activities.