Impak Battles, an ImpactAlpha series with impak, a Montreal-based impact ratings agency, assesses the positive and negative impact of corporate operations. Each month, the agency uses its impak Score rating methodology in a head-to-head assessment of two representative companies. Earlier editions: Nestlé vs. Danone, Engie vs. Enel and Novartis vs Sanofi. Next up: A comparison of the two French banks. Face-off!
Banks have been highly affected by the market breakdown sparked by the COVID crisis. They’ve also had an important role to play in the economic recovery, providing a lifeline to the real economy and businesses that suffered.
Considering the loss of capital experienced, however, the banking system as a whole will have to reinvent itself. Let’s hope that it will be in a more sustainable way, given that any green or responsible recovery plan will have to include banks as well.
With this in mind, Impak has scrutinized the 2018 Impak Score of two major banks: the French Crédit Agricole and BNP Paribas. Can impact practices give us a hint about their own recovery? One dollar invested in a company with a comparatively higher score will have more chances of generating a positive impact than one dollar invested in a company with a comparatively lower score.
Data are based on both companies’ 2018 public financial and extra-financial statements, compiled using impak’s rating methodology and aligned with the Impact Management Project framework. The methodology follows the IMP classification: A (act to avoid Harm), B (benefit stakeholders), C (contribute to solutions) and Z (does or may cause harm).
Crédit Agricole branches all over the world donated €70 million to solidarity funds to help their respective countries during the COVID crisis. The group also set up a €20 million Solidarity Fund for the Elderly to cover medical devices and equipment—Crédit Agricole’s CEO and deputy donated half of their compensation to it. Other support measures include a six-month moratorium on loan repayments, a 0% state-guaranteed loan without fees for farmers, and a €210 million cooperative support mechanism for multi-risk insurance policyholders that suffered business interruptions.
BNP Paribas donated €55 million throughout 30 countries for direct support to local hospitals and vulnerable populations. Some examples of the support include providing screening tests and supporting NGOs that help refugees, low-income families and victims of domestic violence. These donations also supported the implementation of special programs for social businesses and microfinance institutions with a vulnerable clientele. The bank has also helped develop a new financial tool – Covid-19 response bonds – and supported its clients to issue over $59 billion of these bonds in 2020.
Crédit Agricole: 18/500 *Winner*
Crédit Agricole has four material positive impacts for a total of 1% of its activities dedicated to solving at least one of the U.N. Sustainable Development Goals. More than half (0.57%) relates to the financing of the energy transition (SDG No. 13: Climate action) through various financial tools: interest-free eco-loans, green bonds, partnerships (Engie) and investments (Unifergie). The second most important positive impact, representing 0.02% of its activities, is the access to financial services for the poor and vulnerable provided by Crédit Agricole’s basic bank account EKO.
BNP Paribas: 0/500
BNP Paribas has zero points for material positive impacts, but this does not mean it has no positive impacts. The company has three, but given the low percentage of activities they represent, the lack of disclosure and the Z on negative impacts (which affects the total positive impact score, see notes), the positive impact score is zero.
Through investments in social companies totaling €885.1 million in 2018, BNP Paribas helped to increase responsible and impact finance (SDG No.17: Partnerships for the goals). This positive impact is the biggest one identified and represents 0.06% of its activities. The two other non-material positive impacts can be linked respectively to access to financial services for the poor and vulnerable, with 0.02% (SDG No. 1: No poverty), and to SDG No. 8: Decent work and growth, thanks to the bank’s commitment to microfinance institutions, totaling 0.01% of its activities.
Negative impact mitigation
Crédit Agricole: 39/300
Out of nine material negative impacts identified, three are rated Z (which means that the impact does or may cause harm, because of recent convictions. One was due to discrimination against a woman employee with respect to gender pay gap. Another Z was given for Crédit Agricole Guadeloupe’s conviction for mental harassment. Regarding the mitigation activities following this conviction, initiatives were implemented, but they are too vague for us to understand their effectiveness or efficiency. Crédit Agricole being part of the list of systemically important banks, the last Z is due to a conviction by the European Central Bank over irregularities in the way it declared its 2018 Common Equity Tier 1. Noteworthy, the bank has €2.75 billion of total assets invested that are covered with environmental, social or governance criteria.
BNP Paribas: 69/300 *Winner*
In contrast with Crédit Agricole, BNP Paribas has eight material negative impacts, but only one Z due to a conviction in 2017 for “unsafe and unsound practices on foreign exchange market” (SDG No. 16: Peace, justice and strong institutions). In 2017, 96.1% of employees received training related to financial industries’ laws and regulations. There is however not enough information on the offered training to assess its efficiency. It is also important to note that there’s an on-going trial regarding the bank’s participation in the Darfur conflict. Finally, in comparison with Crédit Agricole, BNP Paribas has €36.8 billion euros of total assets invested that are covered with environmental, social or governance criteria.
Crédit Agricole: 102/200 *Winner*
BNP Paribas: 95/200
The governance sub-scores are tight, but what differentiates the two companies the most can be explained in one word: intentionality. Crédit Agricole has partly analyzed its value chain to increase positive impacts and reduce negative ones, whereas BNP Paribas did not. This means Crédit Agricole slightly better assesses the risks related to the impacts it generates.
The Winner: BNP Paribas (Impak score: 164/1000)
The current social and environmental events happening worldwide bring a new importance to the importance of banking. Climate change, which exacerbates social inequalities, is the biggest negative impact for banks, but also an opportunity to do good on a massive scale. The COVID crisis has enhanced this opportunity as banks are key actors in the different countries’ recovery plans, in which some countries have been bold enough to attach climate and social targets. The sector’s biggest liability could become its strongest asset if rightfully managed and in a timely fashion.
It should be said that both companies count a few other potential positive impacts that were not taken into account because of a lack of information or because they represent less than 0,01% of the company’s total activities.
Note that according to our methodology, the level of penalties in case of a Z is based on 3 different factors: the type of Z (does cause harm or may cause harm), the repetition of the Z throughout time, and, only in the case of a Z ”does cause harm”, whether or not corrective actions have been implemented.
Two positive impacts can overlap—for example, if the same product is certified Fair Trade AND Organic. The percentages of activities linked to these impacts are therefore not cumulative.
Duration is the timeframe for which the stakeholder experiences the outcome, and Depth is what is defined as the degree of change for the beneficiaries. Both relate to the How Much dimension, one of the 5 dimensions defined by the IMP.