Commodity trade finance house of the year: Societe Generale
Energy Risk Awards 2024: Bank’s financing helps secure strategic commodities and boost sustainability
Societe Generale, winner of Energy Risk’s 2024 Commodity trade finance house of the year award, has provided much-needed support to the commodity sector over the last year. The French bank took lead roles in several key financings that helped secure ongoing supplies of strategic commodities to Europe, enabled companies to better manage volatility and encouraged greater sustainability.
Russia’s invasion of Ukraine in February 2022 upended natural gas supply routes to Europe, forcing many countries to seek alternative sources to Russian pipeline gas. The forging of new supply lines required fast and innovative financing. Societe Generale stepped in quickly, underwriting and arranging a ground-breaking German government-backed loan to commodity trader Trafigura in 2022. Since then, it has participated in several more deals backed by export credit agencies (ECAs) for trading houses including Mercuria and Vitol.
These deals show the growing role commodity traders and ECAs are playing in enabling the continued flow of strategic commodities into Europe, says Alexis Christodoulou, global head of trade and sustainable commodity finance at Societe Generale.
“Many countries have adopted ECA schemes – some of them, such as Germany, did so pretty rapidly,” Christodoulou says. “As a bank, we have close ties to many ECAs so when we saw this shift, we informed our clients of the opportunity to get finance for long-term supply contracts. There was a real domino effect; once the first deal was out, many other ECAs facilitated such deals to secure the supply of strategic commodities.”
Sustainability loans have been another major area of activity for Societe Generale over the past 18 months. It took on sustainability-coordinator roles with a variety of major trading houses. The bank also added start-ups BeZero, a carbon project rating agency, and Regrow, which measures soil carbon sequestration to its Global Markets Incubator, an initiative designed to advance, test, deploy and expose firms’ products and services to Societe Generale’s clients and business network.
“Our strategy is to support the energy shift through supporting our clients to implement corporate key performance indicators (KPIs) by incorporating them into their financing facilities,” Christodoulou says. “These targets can be related to the wider company, or specific to the project being financed.”
He adds that Societe Generale also encourages clients to examine their entire business networks from suppliers to clients in order to raise standards and eradicate practices such as child labour. “With these KPIs in place, we ensure that the entire value chain is moving in the right direction. That’s how we encourage companies to commit. And companies can make it all public.”
Societe Generale has also integrated sustainability commitments into its agriculture trade finance deals. This includes setting KPIs and targets around climate change, land use and responsible sourcing for major agri trading companies via sustainability-linked loans.
Other financings the bank has been involved in within this sector included an $800 million annual syndicated loan to Ghana’s cocoa board. This finances the pre-export facility for cocoa bean purchases from farmers in the country, which is the world’s second-largest cocoa producer. This was a particularly challenging execution because the country defaulted on most of its overseas debt in December 2022 due to rising debt-servicing costs. However, Christodoulou adds that the structure of the facility was such that the lenders were comfortable with the assigned export contracts, which ensured the financing could be set up.
But Christodoulou points out the importance of remaining involved in financing such commodity industries, particularly during market volatility. “As people will have noticed when buying Easter eggs this year, cocoa prices have skyrocketed,” Christodoulou says. “There are many reasons for this, including weather conditions and deforestation.”
The bank’s efforts to support projects via financing, while also setting sustainability-linked targets will help the agri sector not just to navigate such short-term price movements, but also to tackle the longer-term challenge of the climate crisis, he says.
Part of this effort includes strengthening traceability for such commodities. “When our client buys from a cooperative, we need to ensure this cooperative has not bought from a deforestation zone,” Christodoulou says. “It must have commitments in place and ensure the supply chain is audited – for example, using satellite images to detect deforestation in this case, but also making sure farmers are getting paid a fair price for their crops. We have many more discussions on these topics than we used to even three years ago.”
And such conversations look set to become more frequent, as well as easier to navigate, as the bank encourages clients to re-examine sustainability commitments on an ongoing basis. Once KPIs are agreed, they are monitored, reviewed and updated to ensure clients keep raising standards throughout the supply chains in which they operate.
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