Clean technologies: how can they facilitate decarbonisation?

Welcome to this episode of Industries in Transition, a holistic look at the challenges, triumphs and lessons learned as businesses drive change to build a sustainable future. Companies across sectors that contribute the most to greenhouse gas emissions continue on their quest to transition to low carbon business models. In industries where decarbonisation is not only necessary but also capital-intensive, this can be a tall order. In addition, the path to sustainability can differ significantly from one company to another even within the same sector, and this includes investments in low carbon technologies. That's why transition finance or the financial mechanism designed to support companies in their transition journeys has emerged as an important and supporting pillar. So today on the show, in our first episode focused on the energy transition and related technologies, we will ask ourselves a tricky question. How are we tracking towards our 2050 net zero targets? The six sectors we have chosen to deep dive in, in our subsequent episodes are shipping, aviation, automotive, metals and mining, power and last but not least, oil and gas. I'm your host, Lisa Ordnagaus and I'm joined today by two standard-chartered experts. Ben Dali, global head of transition finance. Hi Ben, welcome to the show. Hi Lisa, great to see you. And Arnaud Bouillet, head of clean technology and environment M&A. Hi Arnaud, thanks for joining us. I deserve pleasure to be here. Ben, I always like to start with you because you're very good at painting a high-level picture for us. So if you had to summarize, what has the net zero journey looked like up to date for both standard-chartered and its clients across these different sectors? I think it's worth stepping back to 2021 when we made our net zero commitments. At that point in time, we started setting targets and we focused on three of our highest emitting sectors. But we didn't want to just set a target in a vacuum. The organization rallied around to think about what could we do to best support our clients in delivering against these targets. The most significant was committing to mobilise $300 billion in sustainable finance. We also had a reflection on the bankers and the capabilities we had from a product perspective. And that's very much where my transition finance team came from. One of the things that we did was to go to market and hire some experts in the areas that we felt our clients would be starting to explore. So these were things like carbon capture and storage, hydrogen, batteries, etc. And the purpose of this team was very much to complement the experience that the bank already had. We had a clean tech business. We also had an oil and gas business, metals and mining business. This bank strategy was very much to set targets that we felt were aspirational and very much encouraged our clients to decarbonise, but within a construct of support. So that's this $300 billion, but also the bank capabilities that the bank now has. You briefly mentioned a couple of technologies, carbon capture and storage, hydrogen, but clearly there's a vast spectrum of technologies in hard-to-abate sectors out there. So are there any ones that stand out to you that we should pay most attention to? I don't think you can look at the technologies and seek a silver bullet to decarbonise the global energy complex. What we're really looking to do is support the full evolution of the energy system. Now, within that, I think it's worth reflecting on what stand chart is. We're a corporate and investment bank. We're not a venture house. We've sort of excluded focusing on some of the really nascent, higher-risk new technologies and focus on areas that we think are both our balance sheet, but also our investment banking, some M&A capabilities can add most value. The real unlock has been batteries. If I had to spend a few minutes talking about why I think batteries are important, but also the role of standard charted in the battery value chain, hopefully it'll start to come to life a little bit. So one of the challenges or pushbacks from many commentators when they talk about the build out of renewables is the fact that the power is intermittent. So you've got solar when there's sun, you've got wind power when there's wind. When you add a battery power solution to a renewable solution, you automatically start getting a much more consistent power base. And I think that's been something that's really important. Increasingly across our lending book and also our M&A book, the development of this sort of battery value chain is really important. Why is standard chart invested so much time in this space? If you think for a moment about what a battery is, it is a series of core components. So things like lithium, cobalt, copper. And because of standard charts, emerging market nexus and with big exposure to places like Indonesia, Zambia, major copper producer and nickel producer respectively, we've had a really big role in both the upstream and the processing of these core battery materials. Interestingly, we're involved in both the sale manufacturing, we've done a number of gigafactory financings, and we've now also got our first mandates in end of life recycling, as well as battery storage transactions. This battery value chain is something that is a really big unlock to global decarbonisation, but also has a really big role for standard charted because of our industrial background but also the markets within which we operate. And I know coming to, we talked a lot about batteries and in subsequent episodes, we will actually delve deeper into that. Are there any other technologies that you see being real game changers? It's important to think about the use of power in the decarbonisation journey that we run. We consume energy through the use of electricity, in other words power, heat and transport. And the heat sector is very difficult to decarbonise, which leaves open the power and transport sector. Ben has touched on the transport sector with the electrification of vehicles, therefore the production of green electricity and the development of batteries to enable us to move about or store electricity when it's not being consumed. So the crunch of the decarbonisation journey that we run is really about producing green electrons. Haido has been around for a very long time. Back in the seventies, we've seen the premise of why, indeed, there being a solar revolution with some investment in research and development in the solar sector. Over the years, we've seen other technologies coming to the fore on short wind, offshore wind, Ben has touched on carbon capture and storage. I think for me what stands out is the extensive rollout of the solar electricity power production capacity that was initially stimulated by governmental support in Europe. But very quickly, China came into the fore, invested very heavily in production, bringing costs down. And we are now seeing solar electricity being rolled out very extensively not only in the West but in the East and in every other kind of jurisdictions around the world. You've touched on a very important point, which is the role governments and regulations actually play in the adoption of technologies. Tell us a bit more about that. We're going back probably in the 1980s with environmental concerns coming to the fore, a few European geographies and the US as well, Germany, Denmark, Spain in time. So a need but also an industry all opportunity to invest in the green power production. And that was initially done by way of revenue incentive, tax incentives or even grants to help the industry kind of take off. That in time, low volume and further investments in the supply chain, which places like Germany and Denmark with very large companies, Siemens and others, Vesta benefited from. And the low volume up costs downs and eventually saw the roll out that we are seeing today. A lot of investment was also directed towards grid integration. Then I touched on the fact that a lot of those technologies produce electricity, which creates its own constraints and challenges on integration into our national grid systems. So a lot of efforts were put towards investments in that sector, but policy to enable the grid connection of those projects. And equally in the planning system back in the 80s, a lot of the grid companies or planning authorities, we are not necessarily familiar with the specifics of rolling out those technologies. And that's main amendments and education within the policy environment for grid integration and planning. And Ben, you talked earlier about battery storage, am I correct in assuming that that's probably the one technology that has shifted the needle the most, that has been the most significant breakthrough? And I come back to the fact that solving the decarbonisation or the evolution of the energy complex from a fossil fuel based solution to something that is more renewable and cleaner requires lots of different inputs. Batteries was probably quite thin three years ago. It's now a really big part of our respective business. We're involved in our first sustainable aviation fuel transaction at the moment, for example. We have looked at a number of hydrogen, green hydrogen, hydrogen derivative projects. That is a fuel type that is still materially out the money against fossil fuel, grey equivalents and it is struggling to get off the ground. I very much agree with Arnaud's view on solar. I think that has scaled brilliantly, not just in markets where there is some sort of concessional capital or government support, the uptake globally has been phenomenal. What we're really trying to do is to work with our clients, ascertain what is the best lever that they have to decarbonise and then make sure they've got access capital, access to advisory services to roll out. In your opening, you referenced a number of the hard-to-abate sectors or industries that the bank bank, so for example, the steel industry. That has a really challenged pathway to decarbonise. It's got a lot of embedded capital in its infrastructure, it will cost a lot to change this. People talk a lot about green steel to actually make green steel is a really complicated piece. You need a huge amount of green hydrogen. The world doesn't yet have a huge amount of green hydrogen. To keep your final product at a cost point that consumers can pay for, you've got a lot of challenges within it. We're looking to apply the appropriate decarbonisation metaphor for that industry. Again, just to continue the steel example, making sure we're supporting the development of a more formalised scrap industry, for example, is a really important part. Or using gas as a reductant rather than a metallurgical coal, again, is an important step. To bring that all together, I don't think there is a single answer to your question, Lisa, but we're very much working on an industry by industry basis seeking solutions. I know, perfect timing to bring you back in on the conversation. We talked about different sectors, different industries, being at different adoption levels of low carbon technologies. I'm sure there's also regional differences that are quite vast. From an M&A perspective, what are some of the differences in trends that you see? The M&A market in the infrastructure sector is very buoyant around the world. And that's principally because infrastructure has emerged as an asset class that provides investors of all types an opportunity to create value through the development of projects or through the long-term ownership of projects by way of effectively yield-seeking investors. So infrastructure sector, be it the transport of electricity or transport, social housing, power, hydrogen production is an asset class that has gone very extensively over the last three or four decades. We've seen a lot of activity in the US, in Europe, but increasingly also strong activity levels in Asia. India in particular, over the last decade or two, has been very, very buoyant. The Indian economy is a shooting off. And with that, this is a lot of investment in infrastructure, power generation, and the multiple other parts of Asia, China, of course, stands out. What we see within the M&A market is investors that have all the time developed very specific expertise in that asset class, in being able to de-risk projects or invest and provide gross capital or long-term capital as in when projects are fully structured. We see a lot of activity with very large investors that invest across the world with a global mandate. That capital tends to find its way where the best risk reward is available to them. That goes up and down, depending on economic cycles of different regions, but then equally on the more regional basis, you'll find pockets of capital that are more regional or even national in their investment outlook, possibly smaller investment tickets, which are playing a very significant role in the market. So, of course, with the franchise that STB has on a global basis, we're able to mobilize the pockets of capital that are more pertinent for our clients. Ben, what's your final verdict? Overall, are we making good progress towards our 2050 net zero targets? Thanks, Lisa. The bank obviously reports on an annual basis, strict progress against our 2050 targets, and generally it is encouraging. I think, though, the best way is to look at what's happening across the globe. Energy and power demand is still increasing year on year. How do we deliver that growth in a manner that is less reliant on fossil fuels today? The reason why this is such a critical part of the Stanshark story is a lot of this growth is happening, and a lot of this energy demand is coming from our high markets. So, India, Indonesia, across Southeast Asia, and into Africa, of course, are core growth energy demand markets. So, what we're really looking to do is not just think about our net zero targets today, but make sure that we're enabling the broader development of a lower carbon energy complex across our markets going forward. Listeners, we shall leave it here from our production team, and me. It's a big thank you to our experts for their insights, and don't forget to subscribe to our podcast channel, Industries in Transition by Standard Chartered for future episodes. I'm Lisa Wotner-Gaus, thanks for listening. Thank you for tuning in to Industries in Transition, brought to you by Standard Chartered. Standard Chartered has an important role to play in supporting its clients' sectors and markets to deliver net zero, but to do so in a manner that supports livelihoods and promotes sustainable economic growth. The bank currently provides financial services to clients, sectors and markets that contribute to greenhouse gas emissions, and is committed to net zero in its own operations by 2025 and in its finance emissions by 2050. Find out more at www.sb.com/en/about/sustainability. Supporting clients for over 170 years, Standard Chartered is on the ground in its footprint markets across Asia, Africa and the Middle East, developing real-world solutions to help clients and partners navigate complexity and unlock opportunity. Standard Chartered, driving commerce and prosperity whilst contributing to sustainable and inclusive growth across the world's most dynamic markets.