Financing ESG Transition

It has been two years since Trade Finance TV went on location to Amsterdam, covering the annual TXF Global Commodity Trade Finance event.

Over that time, the oil price plunged to a low that took WTI into negative territory (–US$39.55/bbl), and commodity prices have surged back up again, prompting much talk of whether we are on the cusp of another supercycle.

Covid-19 has dislocated supply chains and provenance of commodities is more important than ever, as investors and lenders prioritise those organisations committed to transforming their business models to align with environmental, social and governance (ESG) principles.

How has all of this reshaped the commodities ecosystem? Reputational risk – particularly that of not being ESG aligned – is something everyone in the market is focused on right now. In addition, how should those producers seeking to transition from “brown” to “green” be supported as they move towards net zero?

Joining us in our own Trade Finance TV Virtual studio to explain more about what this means, Trade Finance TV welcomes Deutsche Bank’s Sandra Primiero and Willem Calame from the Natural Resources Finance team. Do join us to hear their insights!

Participants

  • Sandra Primiero, Global Head of Natural Resources Finance, Deutsche Bank AG
  • Willem Calame, Head of Natural Resources Flow EMEA at Deutsche Bank

Presenter

  • Clarissa Dann, Editorial Director, Deutsche Bank

Transcript of interview

Clarissa Dann Welcome to Trade Finance TV –  I’m your presenter, Clarissa Dann and joining me in the studio today, from our natural resources group at Deutsche Bank are Sandra Primiero and Willem Calame. Welcome, Sandra and Willem.

Sandra Primiero Thank you very much, Clarissa, good to be here.

Willem Calame Thanks, Clarissa. Always good to talk to Trade Finance TV.

Clarissa Dann Sandra, you took over the natural resources team two years ago, but so much has happened since then. What are your thoughts?

Sandra Primiero We have seen that the world has changed more than we could have expected two years ago. We have seen two black swarm events last year; oil price crash and the pandemic. And we have also seen something quite positive. We have seen a lot of momentum on every discussion about ESG, sustainability, environmental awareness, which is so super important for all of us. But that has also changed the way we do business quite a lot already, and will certainly change it even more.

Clarissa Dann And Willem, what are your reflections?

Willem Calame I would add that the overall theme we have seen is that we as a bank and as the financial industry in the broader sense of the world, are rolling out an ESG agenda, and I think Deutsche Bank has clearly defined their own ESG goals, which we have seen on a deep dive recently, also in the media. It is clear for everybody that we are working on how to implement a more sustainable way of financing the commodity business.

Clarissa Dann There’s been a lot of talk and it came after the conference didn’t it, about, are we on the cusp of another commodity supercycle? Prices have been going up, but not in a sustained way. What do you think?

Sandra Primiero I have been speaking about that before, Clarissa, and then I was a clear promoter of no, we won’t see a supercycle, and since then we have seen all the prices climb up. Is that a sustainable price increase? Frankly, it’s difficult to say. What we see specifically in the oil industry is that with all the talk around ESG, people tend to reduce cap ax, which increases pressure on those who produce and also increases the price levels.

At the same time, there is a lot of uncertainty on the whole regulation, lawsuits, etc. concerning sustainability and what that will bring. So how fast will we see the transition from traditional commodities into renewable energy sources? And that still makes me cautious whether this price increase is really sustainable or if it is just being volatile, and the whole uncertainty reflected in the continued volatility of prices.

Clarissa Dann Willem, what do you think?

Willem Calame I don’t think that we will face a supercycle. We do have, maybe in two years time, there will definitely be a disconnect between supply and demand and it needs to rebalance. Definitely. There is currently a high price environment. We haven’t seen prices increase in so fast in the last decades, but I don’t think we will face a supercycle.

Clarissa Dann Let’s turn to the ESG transition journey. How is this playing out in the conversations you’re having with your clients?

Sandra Primiero It has an impact on all clients. Last year I still had a couple of client meetings where clients said that interesting topics does not really impact us. You will not find such a client today, at least not in our portfolio. Some are already super advanced on what they implement; the most ambitious one being carbon neutral by 2025. Others say, ‘yes, we want to be carbon neutral by 2050,’ and we try to put a bit of pressure on them and challenge them on whether they can’t be a bit more ambitious. And it is really a topic for upstream, midstream traders – whatever you do, you have different areas where you can change, but it is certainly a topic for everyone; be it in the energy sector in oil and gas, or be it also in the metals and mining side.

Clarissa Dann Willem, what are your thoughts?

Willem Calame I definitely agree that banks but also investors will definitely look at the agenda that is being rolled out by the various corporates investing in either the bank side, on the equity side, or both sides. If you don’t have an agenda there, I think liquidity will become a discussion point in the near future. From my perspective of the carbon emissions, I do think that the carbon pricing mechanism will alter the cost structures of companies, and it will also alter the competitive landscape.

I think that in some portfolios, globally, we have a couple of examples where clients are really using the competitive edge, so you should not be afraid. You could also be very sustainable if you take it from a point of view of, ‘what can be profitable going forward, if you are playing ahead of the game on the ESG agenda?’

Clarissa Dann So are we saying that those companies in transition are very attractive to investors, because they’re on a good journey? Is that what you’re seeing?

Willem Calame Yes, I do think from a strategic point of view, those corporates out there that do get it right, will be more favorable in the end, because there is a lot of scrutiny from society, NGOs, etc. of what we are doing as a financial industry, but certainly also on what the corporates are doing. I’ve seen an article recently on a lot of the major oil producers, so there definitely is a focus on this particular point.

Clarissa Dann We’ve all read reports from the International Energy Agency of how much electricity the world will go on needing, so are we absolutely sure that we can get away from fossil fuels by 2030 or even by 2050? How do you see us getting there?

Sandra Primiero First of all, it means a lot of investments. All the companies, they need to decide, ‘OK, which type of energy do I want to promote? Is it biofuels? Well, then you have to deforest a lot of forests. Is it solar or wind where you then also need to really have a close eye on where do you source the raw materials.’

So it will be a super challenging journey, but it is a journey and we all need to go it together in a very decisive way. And then we’ll also learn on the path. To date we don’t know where we will be in five, 10 or 20 years, but I’m really hopeful and optimistic that we can achieve this carbon neutrality by 2050.

Willem Calame I do think there is an issue with so many people now jumping on ESG. So many people have an idea about it. We really need to be careful maneuvering around that and that we do this right as an industry, altogether. From our side, we are carefully discussing with the main clients. They all have the same sort of answers; they are looking and deep diving in it.

But how you really do it, how you monitor it? Is it really sustainable for everybody in the broader sense of the word? Because it’s not only carbon emissions that we look at, it’s a broader package that we take care of within the ESG angle, and it is a very difficult play – everybody looks into it. It’s new, but there is a danger that you do it maybe a bit too quick just for having this ESG sort of label on it.

Clarissa Dann 2030 and 2050 seems some time away. Let’s look at the next two years. How do you see that shaping up?

Sandra Primiero My personal hope is that we will see continued progress on this ESG transition without seeing the same super bumpy ride on oil prices, without seeing overreactions, but us all really working for our globe with the same target.

Clarissa Dann Sandra, Willem, it’s been really great to talk to you and thanks for coming into the studio.

Sandra Primiero Thanks for having us, Clarissa.

Willem Calame Thank you, Clarissa.

Clarissa Dann I’d like to thank Sandra and Willem for joining us today, and of course, all of you for watching. To catch up on our other episodes of Trade Finance TV, visit, TRADEFINANCETV.NET.

Published on June 10, 2021

Share this Article

LinkedIn

Leave a Reply

Your email address will not be published. Required fields are marked *