ALF 2023 National Convention reveals sector attentive to Green Investment

National Convention of the Portuguese Association of Leasing, Factoring and Renting brought together 120 participants from national and European financial institutions and Portuguese entities linked to investment. Banks foresee the end of credits to non-sustainable investments and affirm themselves as green as the investment they support.

"We are what we finance". The allocation of banking resources according to ESG (environmental, social and governance) criteria was thus summarized by João Nuno Palma, vice-president of the Executive Committee of Millennium BCP and one of the five speakers at the final panel of the National Convention of the Portuguese Association of Leasing, Factoring and Renting (ALF). "There has to be redirection of financial resources to sustainable activities. We are already introducing ESG factors in the risk analysis that limit the financing of non-sustainable activities. Financial institutions are aware that if they finance non-sustainable activities, they themselves will become non-sustainable", says the director of the Portuguese bank, which is committed to reducing financing for coal-related activities.

"We are at a turning point", says Nuno Lacasta, president of the Portuguese Environment Agency. In reference to the legislative proposal for the Voluntary Carbon Market (a measure to mitigate greenhouse gas emissions) made public by the government in mid-March, he says that "coincidentally, or perhaps not", the last two months have seen a lot of activity around sustainable financing.

Throughout the ALF National Convention appeals were heard from entities such as the Bank of Portugal and IAPMEI for the financial sector and even public bodies to collaborate in this transition of clients to strategies in line with ESG criteria. Andrés Baltar, Board Member of Novo Banco, assumes that "SMEs are still much further behind than large companies". Therefore, he emphasizes, institutions are available to finance companies committed to the transition to sustainable activity.

The "green" strategy of specialized financing has impacts in several scenarios, highlights Luís Augusto, president of ALF. An example of this is the incorporation of Leasing in the life cycle of equipment, in favor of reducing the level of waste. Factoring and confirming, in turn, support investments in line with ESG requirements, while Renting, taking advantage of the growth in the supply of electrified models from various brands, is increasingly directing customers towards environmentally friendly vehicles.

Despite the energy invested by specialized financing in the transition to an ideally perennial world, all clients cannot be required to comply with the same level of strict rules, warns Ana Jantarada João, responsible for BNP Paribas Portugal. In the case of Factoring and Renting, for example, "banks have to act as advisors throughout the process" and "cease to be simply facilitators of access to credit. They must also become consultants, with specialized teams, in order to accompany clients", urges Ana João. This requires that institutions invest in training their teams, because "unfortunately universities are not yet training staff specialized in these topics, so we have to train inhouse", namely risk assessment. Following the same logic that determines that a group is only as strong as its weakest element, the BNP Paribas representative says that "we are as green as our clients are green". Looking ahead, banks have a rating framework indexed to the level of emissions of the businesses they finance. The banks themselves will tend to put pressure on clients to transition in order to ensure the balance of the green asset ratio and the rating.

The logic will extend to the financing of mobility, and may lead to the restriction of credit to non-electrified vehicles, says Pedro Barreto, Board Member at BPI. Here too, it is up to the specialized financing institutions to educate the client. The industry adds the advantage of allowing fine screening of the investment, knowing what specific product it is intended for. Taking the training to the client's client level, and to the client's supplier, to fine tune sustainability levels, is a challenge for financial institutions, which will have to add new consultants to their teams, considers Pedro Barreto.

At BPI, for example, a sustainability accelerator was created a year ago, which was associated with a road show throughout the country with clarification sessions on reindustrialization, energy costs, social and governance issues. About the transition to sustainability, he says that "the process is very demanding and every day new information for companies comes to light".

Large companies are already following this path, "super-attentive" to ESG criteria, adds Amílcar Lourenço, Board Member at Santander Bank. However, SMEs - which, as recalled Luís Guerreiro, president of IAPMEI, represent 99% of the Portuguese business fabric - are still in an embrionary phase. "SMEs are still not very sensitive, because they don't know how to do it, they don't have support and incentives," warns Santander's Board member. Industries such as agriculture and plastic may not be immediately ready for green financing, but rather for a phase of financial support for the transition. "The goal is not to leave customers behind and to support them in the transition. Our obligation as banks is to support customers in processes that make them greener."

A financial effort towards the zero carbon goal of the economy that, as mentioned in this gathering promoted by ALF, is estimated to amount to 20 billion euros annually.

FIRST QUARTER REINFORCES THE ROLE OF SPECIALIZED FINANCING IN PORTUGAL

With the generalized recovery in the leasing, factoring and renting sectors consolidated in 2022, the first quarter is further increasing the weight of specialized financing in the Portuguese economy, explains Luís Augusto, president of ALF. Special note to factoring and confirming, which "in Portugal has a very relevant weight in GDP, only behind Belgium and Spain," explains Luís Augusto. The manager ensures that ALF members are following the transition, with renting production increasingly focused on electrified vehicles, and, in leasing, preparing for the potential brought by expansive housing policies - including the 2.7 billion from the PRR that will be allocated to housing construction.

On the corporate side, the road is still long, but the movement is already underway. Luís Guerreiro, IAPMEI's president, highlights the transition occurred in the last decades, which led the environmental aspect, which used to be the last chapter of business plans, to become the first step and a sine qua non condition for project approval. However, there is still a long way to go for Portuguese companies, stresses the president of IAPMEI, based on data from a survey within the scope of the first report of the Sustainable Development Objectives (SDO) Observatory (promoted by Universidade Católica with the participation of IAPMEI, Fundação Francisco Manuel dos Santos, BPI and La Caixa Foundation). This document shows that among the SMEs, 20% identified sustainability as an intrinsic element of the business, 40% assume that the SDOs are not incorporated into their strategy, only 14.6% of SMEs are concerned with ESG criteria, and only 11.7% assume to publish non-financial reports. This reality shows a long way to go to comply with the European legislation that will be transposed to the Portuguese law in 2024, and that determines the preparation of sustainability reports by SMEs as of 2028.