Energy and commodities finance house of the year: Societe Generale

Energy Risk Awards 2020: Enabling the energy transition is at the heart of French bank’s commodities finance strategy

Federico Turegano, head of natural resources, energy and infrastructure

It is widely recognised that the global effort to tackle climate change will require massive investments in renewables and electric vehicles. What is less well appreciated is the vast amount of commodities, especially metals, that will be required to build these low-carbon technologies. 

Helping currently unsustainable commodities production transition to a low-carbon world is a key priority for Societe Generale, winner of this year’s Energy Risk Energy and commodities finance house of the year.

“We see three broad themes at work,” says Federico Turegano, the bank’s global head of natural resources, energy and infrastructure. “The first one is the energy transition, and not just renewable power, but also natural gas, which we believe is critical, as well as emerging technologies. The second theme is the metals that are associated with the energy transition, not just the lithium and cobalt that go into batteries, but also copper and aluminium. 

“The third is the need to accompany ‘transition industries’, such as metals and mining, in their effort to issue sustainable positive impact financing,” Turegano continues. “It may be easier to do a ‘green’ transaction for a cheese- or perfume-maker. But it is perhaps more important, albeit more challenging, to do so for an oil and gas or a metals and mining company.” 

Certainly, 2019 saw SocGen participate in landmark deals in renewable-energy power generation. One such example was France’s first offshore wind farm – acting as one of the three global bookrunners for the €2.3 billion (US$2.49 billion) financing package to allow EDF Renouvelables and Enbridge press ahead with the 480MW Saint-Nazaire project.

“We are one of the few banks globally active in renewables, so we are very keen to be a leader in our own country,” says Olivier Musset, Societe Generale’s global head of energy. That deal was innovative in that, because of the tight timetable to which the sponsors were working, an underwriting was the best solution for them. “This was a unique situation and we are very pleased to have helped our clients speed up the timeline and simplify the execution process,” he adds. 

France has been late to offshore wind, but the government has set a target to install 6.2GW of capacity by 2028. “We’re seeing many transactions coming to the market,” including in floating (as opposed to fixed-foundation) offshore wind farms, says Musset, a technology in which he expects France to take a leadership position.  

The bank has also been involved with smaller – but equally innovative – deals, including what is believed to be the first project financing of a hybrid solar and battery storage project, a $45 million deal to underwrite AES Distributed Energy’s 20MW solar plus 100MWh storage project in Kauai, Hawaii. “The project turns intermittent solar production into baseload power through the use of the batteries,” says Musset. 

However, large-scale batteries such as those used by the project are untested over long time periods. “A challenge here was understanding and getting comfortable with the deterioration rate of the storage capacity in these batteries,” Musset adds. “A thorough due diligence was undertaken and we used its conclusions to find the best appropriate risk allocation among stakeholders.”  

The dramatic increase in renewable energy capacity will require vast quantities of key metals – all of which will need to be produced sustainably. Societe Generale has been working with borrowers in energy-intensive sectors such as metals and mining to offer sustainability-linked loans, where the level of interest paid is linked to the borrower meeting certain social and/or environmental key performance indicators (KPIs). 

For example, SocGen acted as lead arranger and (alongside Natixis) sustainability co-ordinator for a five-year, $1.1 billion pre-export finance facility for Russian aluminium giant UC Rusal. The loan’s interest rate is linked to sales targets for Allow, Rusal’s low-carbon aluminium brand; carbon reductions; and reductions of fluoride emissions from aluminium production.  

It is important that such loans drive a transition in the business, says Turegano. “It is certainly not a question of making life easy for the clients. If they want to accrue the various benefits of these structures, including margins, they need to demonstrate that they are walking the walk,” he says. With Rusal, for example, meeting its KPIs involves continuing to increase the efficiency of its smelting and making certain capital expenditures. “Clients need to continue greening their businesses,” he adds. “We want companies to feel challenged, and to put procedures and plans in place that can eventually be verified.” 

Through its lending, the financial sector can be an important lever in encouraging companies to become more sustainable. But might the response to the Covid-19 pandemic, economic slowdown and collapsing prices of fossil fuels combine to undermine the case for corporate sustainability? Stephanie Clement de Givry, Societe Generale’s global head of metals and mining finance, thinks not. 

“These companies very much have their eyes on the long term,” she says. “Not all of them are moving at the same speed, but they are all moving in the same direction. There is no turning back; I even foresee an acceleration of this trend, with companies prioritising sustainability-linked capex.”