Leading the energy transition
While other banks raced to established energy transition teams as the push to decarbonise intensified in 2021, one bank was already pulling ahead. For showing clear leadership in the issue that will define our times, Societe Generale is IFR’s Bank of the Year for Sustainability.
The critical role that the banking sector will play in helping to tackle the world’s biggest crisis was emphasised by the UN’s COP26 climate meeting in Glasgow in November, which underscored the urgency and magnitude of the energy transition.
Like many of its peers, Societe Generale had announcements ready to roll out before COP in October but unlike its peers it announced concrete near-term targets with teeth, and committed to align its financing portfolios with strict temperature trajectories set by the International Energy Agency.
While this will become increasingly common in 2022 as it is required by the Net Zero Banking Alliance and the broader US$130trn Glasgow Financial Alliance for Net Zero, SG’s early announcement marked a new stage in its climate strategy and a leadership bid in energy transition.
The bank's commitment to reduce its overall exposure to the oil and gas extraction sector by 10% by 2025 was one of the first by a global bank and SG also decided to stop financing onshore oil and gas extraction in the US.
The oil and gas target exceeds the IEA’s Sustainable Development Scenario, which aims to limit the global increase in temperature to 1.65 degrees Celsius by 2050, while the Paris Agreement seeks to limit the increase to 1.5 degrees in the same period.
“We have a responsibility to redirect our portfolio of activities at a pace that is consistent with the climate scenarios and with an ecological transition that is economically viable and socially inclusive,” Frederic Oudea, SG’s CEO said at the time.
SG has been disengaging from the coal sector for the last decade, and its industry-leading commitments to reduce its exposure to thermal coal to zero by 2030 in EU and OECD countries, and by 2040 elsewhere, are now bearing fruit.
The bank is also aiming to reduce the carbon intensity of its financing activities linked to electricity production by 18% by 2025 and 76% by 2040, compared with 2019 levels, an aim made credible by its strong coal policy, and is planning to release targets for other high-emitting sectors in coming months.
SG is also integrating biodiversity criteria throughout its sector policies and is one of six French banks to agree common goals in October to protect biodiversity and reduce reliance on unconventional hydrocarbons such as shale oil, shale gas and oil sands. The bank made commitments to biodiversity in 2014 – well before most other banks.
The appointment of Hacina Py as chief sustainability officer in October created waves in the bank as the position reports directly to general management, and the promotion from the business side reinforced the central role of ESG in the bank’s strategy.
Py has experience in corporate and structured finance and was previously global head of export finance before moving to head impact finance solutions in 2019. She is now tasked with embedding ESG in all of the bank’s processes and cutting SG’s own emissions by 50% between 2019 and 2030.
Although existing portfolios and exposures are important, Py believes it is more important to look forward. “The challenge now is to decide how you want to do origination. The important thing is the new deals we are going to generate from here,” she said.
SG’s renewed commitment to contribute €120bn of financing for energy transition projects by 2023 has been blazing a trail for renewable energy globally as decarbonisation moves into a second broader phase after the power sector’s initial switch from coal to renewables.
SG has long been an energy bank with deep expertise in project financing and it is now leading renewable energy financings across the globe, from floating solar power projects in Asia to integrated battery and solar projects in Latin America and North America, with a clear strategy to advise and finance clients’ energy transition.
The ability to act across geographies is a plus for SG as the post-COP26 narrative turns to channelling finance to developing countries. SG has a presence in 18 African countries and aims to strengthen sustainable development across the continent with its "Grow with Africa" programme.
“We have all the contacts and capacity to be a significant leader in the energy transition. We have quite a nice record of financing infrastructure across various jurisdictions,” Py said.
This unique experience gives SG a very different narrative to its peers and gives its advisory and financing proposals an edge with new highly technical solutions to climate change.
The bank is particularly well placed to support the development of new clean energy technologies, as the market moves from commoditised renewables into areas like hydrogen and integrated projects like steel and carbon capture and storage.
SG was financial adviser on the €2.5bn H2 Green Steel project in Sweden, the first large-scale steel producer based on a fossil fuel-free manufacturing process, and structured the €1.5bn clean hydrogen infrastructure fund, which is the first equity fund for hydrogen industry development. It also worked on the €97.3m IPO for Hydrogen Refueling Solutions, the largest IPO ever on Euronext Growth Paris.
“We’re particularly pleased about the financial advisory side because that’s where we’re really adding value to energy transition,” said Allan Baker, global head of power advisory and project finance. “We’ve seen a number of false dawns but I think now we are on the cusp of a genuine hydrogen revolution."
SG is a member of the Hydrogen Council and the Japanese Hydrogen Association, and a co-leader of the Steel Climate-Aligned Finance Working Group. It is also working with the UK government’s CCUS Council on carbon capture, usage and storage.
SG people say its leading position in considering sustainability has been 20 years in the making. The resulting joined up thinking, they say, gives the bank flexibility to follow its clients’ changing business models as new alliances are forged across sectors and complex new value chains are created that require cooperation across the whole bank.
“There has been very strong encouragement from the top of the bank – from the CEO downwards – to look for opportunities to work together across boundaries that maybe previously we would have considered somewhat sacrosanct,” Baker said. “You can’t advise on a green steel project or a hydrogen project unless you can bring all the different bits of the value chain together in a fairly seamless way.”
For example, as the car industry transforms, SG is banking the whole value chain from metals and minerals to battery factories, manufacturing, electric vehicles, charging infrastructure and metals and battery recycling, and is playing a similar role in other industries, including shipping.
“Along the chain we can play a role, which I think is where the added value lies in the current phase, and I have to say it’s quite exciting for us,” Py said.
As sustainable finance blossomed in 2021, SG was active across the board. It offered a full suite of ESG-labelled debt, including green, social, sustainable and sustainability-linked loans and bonds, but is also active in the rapidly growing ESG equity markets and has a wide range of structured and investment products.
SG is one of the few banks with a research and development team focused on creating products based on positive impact-based models to bridge the funding gap for the UN’s goals on global environmental and social challenges, including access to energy, energy efficiency, sustainable cities and smart agriculture. The bank's strong social focus produced landmark social ABS deals in 2021 for South Korea’s Shinhan Card and Lotte Card.
SG is also leading in sustainability-linked trade financing and is creating structured notes with positive biodiversity impacts in areas including mangroves, coral preservation and forestry.
Other investment products range from ESG index solutions to positive impact notes, repacks of green or social bonds and fast-growing sustainability-linked derivatives as well as ESG ETFs, active equity strategies and impact funds.
The bank was active on its own behalf in 2021 and issued its first public social positive impact bond for €1bn in late November which followed a €1.5bn green covered bond. SG has been issuing positive impact bonds since 2015.
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