Q&A: sustainable finance bears fruit

Corbet: Thank you both for joining us. If we could start by me asking what motivates your focus on the transition to net zero?

Baudry: We know energy demand is on the rise. We know the world is on an unsustainable path with temperatures 1.1 degree Celsius higher than to that pre-industrial period. We know the expectations of society around energy companies have changed.

On one level, this is quite an existential issue for an energy group. On another, what we’ve seen over the last two or three years is energy companies like BP have to own the problem, have to be part of the transition, and have to play a part in providing the solution.

“At ANZ, we recognised early on climate change and the transition to net zero would eventually affect every person and every business across the globe.” – Mark Whelan

We’ve set out a net-zero ambition and we're now making concrete investments in service of that. We have changed our capital frame to do that, and we have moved to being an integrated energy company so we can effectively bring multiple energy sources to our customers - fossil and renewable.

The response has been excellent. Certainly, our staff have welcomed it. Our customers are on their own transition path. They have been extremely clear that they have set out their own net-zero ambitions.

We all know - companies, customers, funding partners and governments - this is an uncharted pathway and therefore the response has been, ‘well, very good, but how do we move from ambition and net-zero targets to a concrete solution?’.

Now, with our stake in the Asian Renewable Energy Hub (AREH) in the Pilbara, we are able to effectively move toward producing clean energy from renewable sources. And we are able to offer customers a number of decarbonisation pathways.

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Whelan: At ANZ, we recognised early on climate change and the transition to net zero would eventually affect every person and every business across the globe. What comes with that are risks and opportunities we're going to have to assist our customers with. As a major financial institution, we've got a responsibility to understand how that will affect our customers and how we will help our customers in that transition.

The second thing I'd say is all of our stakeholders - our shareholders, staff, customers, regulators - they want to see the bank actively involved in the transition. They want to see that we are practically providing solutions and opportunities for our customers to be involved in the transition. That's really important.

And finally, there's significant financial opportunities in this for the bank and for our shareholders. Helping create, a clean, affordable and reliable energy will require somewhere in the order of $US150 trillion over the next several years. And we think there's opportunities to provide advice, products and finance to our customers on this journey.

Baudry: It will take companies with the capability, the will and the investment capability to actually replan that energy system. At BP, what we have noticed is we have the opportunity to not just own the problem but be part of the solution.

What we have done in over 100 years of operations right here in Australia is develop really complex energy projects, operated assets, built value chains, constructed deep partnerships with customers founded on trust and mutual benefits.

What BP is able to do is effectively play across that spectrum, that entire value chain, starting from the customer needs at one end, because they are trying to decarbonise themselves in order to win in their own marketplace, and at the other end bringing multi-energy projects that will be able to meet those customer needs. We're in the middle of this.

Whelan: When we talk to our customers, we're focussed on understanding their position as it is today and where they're heading and how we can harness this significant opportunity. We’re seeking to understand, not direct.

The other thing we're doing to help is we've set ourselves a target. We want to facilitate $A50 billion by 2025 in lower emissions funding for our customers. And the good thing about that is it will probably hit our target ahead of schedule.

That’s mainly been in sustainability linked bonds and loans, but we're also now starting to put new products out to market - guarantees, trade finance and the like.

And what we're seeing is many of our customers in their own supply chain are asking their partners and customers to come on the journey. And we're able to fund that.

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Corbet: Mark, you've recently returned from Europe where you met with ANZ customers, investors and also some of the regulators. What were your key lessons from the trip?

Whelan: The first thing was there is an expectation Australia is going to be at the forefront of this transition and many of our customers want to participate in that.

The second thing is, even with recent issues in Europe and what that's done to energy prices, you would think there may have been a weakening in the approach to the transition. If anything, it's completely the opposite. I'm seeing a doubling down from all of those stakeholders in the transition. And I think that's a positive.

There’s a lot of short-term pain with pricing as we're seeing at the moment and sources of energy, particularly in Europe. But the short term is not going to get in the way of the medium to longer term. And if anything, I think you're going to see significantly more investment in renewables at a much faster rate than what we'd anticipated.

That in itself is going to promote pretty significant opportunities for our customers and therefore ourselves.

There's no doubt in Australia we're rich in minerals. What came through loud and clear from Europe is there are many customers that want to help Australia in that space.

Australia has been part of the energy formula for the globe for a long, long time. The nature of the role is just going to change, going forward.

Corbet: Frédéric, do you think Australia can be a clean-energy powerhouse?

Baudry: I think it will be. I fundamentally believe it should be aspiring to be, and it will be, a renewable energy superpower.

Australia has natural, abundant renewable energy that can be developed at scale, it has world-class infrastructure, it has world-class human capabilities that have played a role in the energy and resource sectors and made them incredibly prosperous in this country.

It has a very strong, committed customer base that has announced publicly their commitment to decarbonise and need help on getting there.

When you combine that with what is naturally a very stable economy, one that has a cradle of financial institutions committed to green investment like ANZ, and the supplement of strong government support, what is there not to like? So we're really excited.

Corbet: A question for you both - why is collaboration so important in the transition to net zero?

Whelan: One of the things that became obvious to us as a bank very early on was no company would be able to do this by itself. Partnerships are going to be critical in this transition.

When you see the scale of the project that BP is undertaking in Australia, you can't do that (alone). You need different skills, you need different finance tools, you need different capabilities. Partnering with people is really important.

As an example, ANZ recently entered into a strategic partnership with Pollination, an advisory group which is already working with a number of our customers already. We see complementary skillsets in that partnership.

Baudry: I agree. For BP, it’s about building capabilities in each of our organisations to make those concrete investments come to fruition. And complementing and supplementing the capabilities that we have is really important.

There's a very high dose of humility that is required as we enter this, because it is uncharted, because there are trillions of dollars in investment required to plumb the energy system.

What we are doing in partnership, in collaboration with customers is to deeply understand their needs so we can give them energy in the form that they want, at the time and the place that they want it.

And more broadly, what we need to bring together is a coalition of the willing, working with customers, working with funding partners, working with governments, establishing a policy framework that enables Australia to meet its own environmental targets in a way that works for all parties.

Whelan: At ANZ, three years ago we started working with our top 100 largest institutional customers - which happened to also be some of the biggest emitters in the world - about what they were doing with their transition.

We wanted to understand how they were looking at the transition and where they saw the risk. What they were doing with regards to governance disclosures and the like. All so we could be part of providing support and solutions.

We then quickly moved on to, well, where are the opportunities, and what are the things we need to do to build capability internally, and how do we shift our own thinking internally from a traditional finance sense, and even a return sense? We're still on that journey to a degree but we're learning a lot from our customers.

But as I mentioned, the dialogue has move quickly from risk to opportunity and we're now pretty advanced in our thinking.

Momentum in the space is building. And it’s building because people are seeing real, practical examples of sustainable investment, like BP and AREH. The investment we're seeing, coming through governments and into other areas like in infrastructure, I think is critical. That makes it real.

I think we’ll see the motivation and the commitment continue to grow, and the momentum will come from these transactions that we're seeing because it's practical.

Corbet: What’s your advice for other companies who are looking to accelerate their net-zero plans or starting out on that journey?

Baudry: I think the first piece of advice is don’t wait. Deeply understand how the energy transition is going to affect your customers and your business. Then be very transparent about, not just your ambition, but the progress that you are making along that ambition.

Building partnerships, as we said, will be essential. Who are these partners that you want to build alliances with, that will bring complementary capabilities to your own?

We cannot take our eye off the fact that this will require considerable investment and therefore there is an obligation to perform while we transform. It cannot be an either-or conversation.

And finally, the energy transition is bigger than just business. It is an existential challenge to the planet, to society, and therefore we all have to develop plans that are not just about transitioning our business. But we have to very clearly articulate, for our stakeholders at large, what a just transition means.

Whelan: It’s important that we listen to our stakeholders - investors, staff, government and regulators. Find out what they're doing and why they're doing it. Be part of that conversation. You'll learn more if you listen.

Have open, transparent conversations and way around what the transition means - for shareholders, for returns, for customers.

It's important that we all understand this will be difficult. It's going to be many years. It will take many different directions and we need to be agile enough to respond.

We need to be talking clearly and on a regular basis around where we're at and what we need to do. This is an important thing for the planet, but it's also an exciting opportunity. For all of us.

Bronwyn Corbet is an Executive Director, Sustainable Finance at ANZ Institutional

This article was originally published on ANZ’s Institutional Insights website