Since 2015 and the Climate Change Conference in Paris (COP21), the financial sector has been subject to special attention from the legislator, which has strengthened the connection between financial and climate-related issues. In particular, this is reflected in increased regulatory changes applicable to sustainable finance, such as the TCFD (Task Force on Climate-related Financial Disclosures) initiative mandated by the Financial Security Board on transparency recommendations with respect to investors, and the European Commission’s action plan on sustainable finance.
In light of the acceleration of climate change, underscored in the most recent report by the Intergovernmental Panel on Climate Change (IPCC), and as announced in the Katowice Commitment with four other banks during the COP 24 in Poland , Societe Generale shares the goal set out in the Paris Agreement to require financial flows to be in line with “a trend towards lower greenhouse gas emissions and greater resilience to climate change”.
As from 2015, Societe Generale has committed to strive to put the Bank’s action on course to achieve the scenario whereby global warming is limited to 2°C by 2020. With this commitment, the Group aims to implement governance, risk management and risk monitoring tools to enable it to respond in the most appropriate way to a carbon-free economy resilient to the effects of climate change. By the end of 2018, with two years in advance, Societe Generale reached the goal of limiting to 19% its coal-fuelled part of its financed energy mix for power production.
In addition, the Group is committed to progressively reduce to zero its exposure to the thermal coal sector, at the latest in 2030 for companies with thermal coal assets located in EU or OECD countries and 2040 elsewhere.
The Group will henceforth no longer offer products and services, with the exception of those exclusively dedicated to the energy transition, to the following companies:
- Companies generating over 25% of their revenues in the thermal coal sector and which do not have a credible exit strategy from the coal sector;
- Companies developing new mining, power plant or infrastructure projects related to thermal coal.
In so doing, the Group seeks to position itself as one of the key players in the fight against climate change, by supporting clients with their energy transition.
In 2019, Societe Generale intensified its action in the construction of a sustainable and climate-resilient future by signing the Principles for Responsible Banking and joining the Collective Commitment on Climate. As a demonstration of this commitment, the Bank commits to raising €120 billion to the energy transition between 2019 and 2023.
RobecoSAM's 2019 annual sustainability ranking is recognition of the Bank's success in incorporating CSR policy into the Group's strategy. Societe Generale was ranked 1st place worldwide on environmental topics and in 6th place in Europe for all ESG (Environmental, Social and Governance) matters, out of the 175 banks analysed.
The climate strategy has thus been structured around risk management and opportunities related to climate change, as well as managing the climate impact of the Group’s proprietary activities.
For further information:
Visit the long-standing environment & social commitments section
Read the new commitments regarding thermic coal
Climate disclosure : Societe Generale’s TCFD Report
Sector policy on coal (2019)
Acting responsibly for the climate
French Business Climate Pledge
Banks & Climate – French banks are spearheading green and responsible finance
Frédéric Oudéa explains the importance of signing the Principles for Responsible Banking
Societe Generale is proud to be a Founding Signatory of the Principles for Responsible Banking, committing to strategically align its business with the Sustainable Development Goals set by the United Nations and the Paris Agreement on Climate Change. The six Principles are supported by a strong implementation framework that defines clear lines of accountability and requires each bank to set, publish and work towards ambitious targets.
A governance framework set via climate related risk management
Risks associated with climate change do not represent a new risk category, but rather an aggravating factor for the types of risks already existing in the Bank’s risk management system (credit and operational risks, risk related to insurance activities, etc.).
Since 2017, CORISQ (a General Management Committee that defines the Group’s risk strategy) has been informed about the risks associated with climate change. In defining credit risk appetite, CORISQ relies on the expertise of the CSR Department, which issues an opinion on environmental challenges for the business sectors concerned (for example the oil and gas sector, renewable energies, or the automotive sector).
In 2017, a mechanism for measuring the impact of a scenario related to the materialisation of climate change-related risks was integrated into the risk mapping presented to the Board of Directors’ Risk Committee.
The Climate CORISQ meeting of October 2018 strengthened governance with a view to increasing the credit risk management capacity in the appropriation of climate challenges. This same Committee has set itself the goal of:
- defining and maintaining benchmark scenarios, and has gradually been integrating a climate vulnerability assessment for each client in the sectors sensitive to transition risks;
- approving credit policy guidelines for portfolios sensitive to environmental challenges and policies that do not have dedicated supervision.
Risk management and the seizing of climate opportunities
In terms of opportunities for the Bank, with respect to supporting the growth of certain clients, plans to improve production facilities or energy transport (such as transport/mobility infrastructures), the Group has prompted the deployment of expertise in several segments. The result is leading commercial positions.
In 2018, Societe Generale extended its scope of intervention with the acquisition of the French Fintech Lumo, a pioneering crowdfunding platform dedicated to renewable energies. Since its creation, Lumo has collected funds from thousands of individual investors for the benefit of some 40 wind, photovoltaic and hydraulic energy projects that will produce more than 260 million kWh of green electricity every year, equal to the annual consumption of nearly 100,000 households.
With this acquisition, the Bank has strengthened its ability to serve its major energy clients by offering them a crowdfunding solution to develop their projects, as required by the French government's Renewable Energy Liberation Plan, which is part of the Climate Plan.
Evaluation of transition risks
The approach adopted to measure the additional credit risk due to the transition risk corresponds to a vulnerability indicator defined during the annual renewal of internal ratings. The quantification method is inspired by that developed by the United Nations Environment Programme Finance Initiative (UNEP-FI), to which Societe Generale has contributed alongside 15 international banks.
A 2040 scenario analysis was conducted on the lending portfolio under an assumption of the identical extension of the loans and the non-adaptation of borrowers. The impact of a 2°C transition scenario compared with a scenario of no transition measures shows a low impact overall, but a concentrated impact on segments producing particularly high carbon emissions. These results are in line with those shared with other European and American banks.
The Group plans to roll out the assessment of the “climate vulnerability” indicator for clients in the following sectors: oil and gas, metals and mining, electric utilities, and transport. When a client is identified as vulnerable, the client relations manager must issue an opinion on the client’s ability to reduce this vulnerability.
Evaluation of physical risks
The Group also participated in works by the UNEP-FI to identify “physical” climate change risks . Contrary to transition risks, the methodology is not sufficiently developed to enable a valuation. However, it does shed light on the risk transfer mechanisms, distinguishing between extreme situations (tornadoes, floods, droughts) and incremental changes (rising sea levels, riverbank erosion, rising average temperatures).
This work on physical risks must be continued by improving our knowledge of the location of third-party clients’ assets and, ideally, their reliance on suppliers located in exposed regions (for example, South East Asia) or on at-risk commercial routes (ports, change of maritime routes). Societe Generale is continuing its methodological research.
For further informations:
Identification of physical climate change risks by UNEP-FI
Other climate change-related risks
The Group also has systems in place to manage other risks. This includes operational risks: compliance risks and liquidity risks incurred by climate risks, physical risks for branches, and E&S-related reputational risks.
Sector policies also play a role in controlling these risks.
Aligning the main climate-related sectors with a 2°C trajectory
To achieve this ambition, the Group is developing methodologies and tools measuring its lending portfolio's alignment with the objectives of the Paris Agreement.
As part of its corporate financing activity, the Group has for the past three years been evaluating the carbon footprint (indirect emissions) of its balance sheet commitments. In this regard, the transport and energy sectors appear to be the two sectors with the greatest impact (representing 79% of the carbon footprint of the Group’s balance sheet commitments).
In order to identify the alignment indicators and targets across a larger section of the portfolio, the Group is testing (in the pilot stage) an analysis methodology developed by the 2°C Investing Initiative (2DII). The main strength of this method is its use of detailed corporate data. Accordingly, it is possible to measure the discrepancy between the portfolio’s profile and the profile it should strive for (based on climate scenarios).
More specifically, the method measures the extent to which the Group's portfolio is aligned regarding the sectors most exposed to fossil fuel extraction (oil, gas and coal) for electricity generation, automotive production, and four other carbon-intensive sectors (namely steel, cement, aviation and maritime transport).
The sharing of best environmental practices
Within the UNEP-FI, the Group has contributed to developing a methodology enabling financial institutions to better understand the climate change risks of their activities.
As an active member of the European Banking Federation (EBF) and the French Banking Federation (FBF), Societe Generale acts to promote the appropriate regulation of sustainable finance in Europe. The Group supports the Commission’s legislative proposals on sustainable financing, based on its action plan for financing sustainable growth (see: https://www.ebf.eu/wp-content/uploads/2018/ 12/EBF_035239-EBF-key-messages-on-the-EP-draft-report-on-taxonomy. pdf).
The Group is also participating in a study by the French Association of Private Companies (AFEP) on the comparison of 2°C scenarios and in a different study by Entreprises pour l’Environnement (EpE) ZEN 2050 on the decarbonisation of the French economy by 2050.
For further informations:
Action plan of EBF and FBF to finance sustainable growth
CSR ambition in favor of energy transition
The objective, announced in 2017, of raising 100 billion euros in favor of the energy transition having been reached a year in advance, Societe Generale decided to continue its action with a new commitment of 120 billion euros in favor of the energy transition by 2023 (target achieved at 34% in 2019).
Reinforce Group’s E&S policies
The Bank committed in 2015 to reducing its coal-related activities and to put, by 2020, its exposures to thermal-coal on a trajectory compatible with a rise in temperature not exceeding 2 ° C (the scenario 2 ° C from the International Energy Agency - IEA). The objective of limiting the share of coal in its financed electric mix to 19% by the end of 2020 has been exceeded, having reached 16.3% by mid-2019. Societe Generale no longer participates in dedicated financing for coal-fired power plants or associated infrastructure, anywhere in the world since the 1st of January 2017. In addition, since 2015, the Group has no longer been involved in dedicated funding for the development of coal mines and associated infrastructure. Specific criteria for entering into contact with companies active in the coal sector have also been defined in dedicated sector policies.
In 2018, the Oil and Gas policy was updated. The Group has made commitments to only finance activities in this sector whose climate impacts are mitigated. In particular, Societe Generale no longer funds the production of oil from the oil sands anywhere in the world, and the production of oil in the Arctic. These commitments are also aimed at implementing or committing to implementing measures to limit continuous flaring and methane emissions. They also integrate, for companies using hydraulic fracturing techniques, the implementation of E&S best practices, in line with the golden rules of the IEA. "
Group’s reduction carbon footprint
Societe Generale's double commitment to reduce its greenhouse gas emissions by 25% per occupant and to increase the energy performance per occupant of its buildings by 25% in 2020 compared to 2014 was also achieved as early as December 2019, a year ahead of schedule.