Following Societe Generale's (SG) launch of a structured note linked to the Finvex Ethical Efficient Europe 30 Price index, the French bank's first positive impact finance product for retail investors in Italy, SRP spoke to Denis Childs (pictured), head of positive impact finance and environmental & social advisory at SG, about the bank's commitment to its environmental and social offering, how investor demand is changing and how to have an edge in an increasingly crowded part of the market.

SG has a dedicated banking team looking at social and environmental issues with responsibility for developing a range of products that responds to investors' needs. "This team is now in charge of the bank's positive impact finance initiatives and responsible for seeking business opportunities from a banking perspective and building a solutions-based offering," said Childs.

While the Green Bond Principles brought something new to socially responsible investing (SRI) in that investors could better understand what their investment was used for, "SG wants to go one step further in introducing the positive impact financial product structuring," said Childs. Positive impact is defined as any business having a positive effect on at least one of the three pillars of sustainable development (economic convergence, basic needs of the population and environment) with potential negative impacts mitigated.

The definition was proposed by SG to the United Nations Environment Programme Finance Initiative (UNEP FI) (which has 200 financial institutions, including banks, asset managers and insurance companies) at the end of 2014, and resulted in the launch of the positive impact initiative with its manifesto issued at the end of 2015 and the 'Principles for Positive Impact' at the beginning of 2017.

SG engagement with ESG goes back to 2012, when it started to assess financings booked that would meet with the definition of 'Positive Impact'. "The idea was to combine the global capabilities of our capital markets expertise with the wider activities of the SG group, and that's how the first €500m positive impact bond came to life."

This structured product gave access to investors to renewable energy project finance activities and was well received and highly rated, according to Childs. "On the back of that success, we gained momentum within the bank," said Childs. Since then, the amount of positive impact finance transactions booked at the bank has grown exponentially, reaching €2.2bn in 2016, according to Childs.

To reach these targets, it was decided to stop financing of coal-fired power or related infrastructure in 2016. "This aligns with our commitment to fight climate change by doubling the financing of renewable energy projects (€10bn) by 2020, reduce our coal portfolio by 14% and to bring down the coal share of our power portfolio to 19% by 2020," said Childs.

In 2015 and 2016, SG issued two climate-based positive impact bonds and the structuring team has already created over 30 green bond issues on behalf of clients including the French government, according to Childs. "The group has also developed positive impact structured notes for the French and Italian retail and high net worth individuals markets," he said.

The bank has developed sustainable investments which include vanilla products as well as customised solutions, such as structured products, and is now in a position to meet its clients' sustainable investment objectives through key services such as linking a wide range of issuers (sovereigns, supras, agencies, corporates) and investors (insurance companies, asset managers, etc.) in the realm of green bonds, or structuring tailor-made products.

In structured notes, SG has made a commitment to hold in its books an amount in positive impact finance assets (education, transportation, healthcare) equivalent to 100% of the nominal amount of such positive impact structured notes, as well as to monitor these assets through its E&S risk management process during the life of the products, according to Childs.

The initiative originated from a purely banking perspective but, because of the engagement and feedback from the asset management industry and retail investors, the bank was able to combine both views and respond to demand as opposed to bring products to market with a black box approach. "We want to achieve a sustainable development growth and build a track record that enables us to prove what we say," said Childs. "The key goal is to be transparent so that investors understand the nature of the products they are deploying in their portfolios. If you're impact driven, you have to be able to measure that impact and that's why our partnership with the UNEP FI is so important, as it provides a quality seal and recognition."

There are 170 structured products worth just under US$1bn linked to Finvex indices listed on the SRP database, of which 168 are live.

SG has 26 products linked to Finvex's indices including the Finvex Sustainable & Efficient Europe 30, Finvex's flagship index, launched in July 2011, and remains the most popular choice for investors; Ethical & Efficient Europe 30; Sustainable & Efficient World 30; Sector Efficient Europe 30; Ecofi SRI Europe PR Index; and Sustainable & Efficient USA 30 Index.

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