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Lindsey Hall: I'm Lindsey Hall, Head of thought leadership at S&P Global Sustainable1.   

Esther Whieldon: And I'm Esther Whieldon, a senior writer on the Sustainable1 Thought Leadership Team   

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Lindsey Hall: That sound you just heard is the sound of springtime in Paris. And in today's episode, we're wisting you off to Paris to hear about the S&P Global Sustainable1 Summit in the City of Light. 

Esther Whieldon: Corporates, investors, analysts and academics gathered in Paris on May 10 to discuss sustainability themes ranging from biodiversity to climate risk to net Zero and the energy transition. 

Lindsey Hall: And I got to be there on the ground alongside my colleague, Jennifer Laidlaw, who's the senior writer on the Sustainable1 Thought Leadership team with us and is based in Paris. Hi Jen. 

Jennifer Laidlaw: Hey Lindsey. Hi Esther.  

Esther Whieldon: Now Lindsey, if I understand correctly, this wasn't your first time in Paris.

Lindsey Hall: No, definitely not. So right out of college, I actually lived in Paris as Au pair for 2 little French boys. Basically, I was a any chasing around a 4 and a 6-year old and trying to learn the language. One of my favorite things about living there was living on the top floor of this building. And if I stood on a chair and poked my head out the window in the ceiling I could just see the Eiffel Tower.

Esther Whieldon: Well, so what was it like this time then? Did you have a nice view from your hotel room?

Lindsey Hall: I did. I had a much better view this time around. And at the conference, there was a big emphasis on biodiversity and the importance of taking nature into account when transitioning to a low-carbon economy. We also heard about making the transition as just and fair as possible. One thing discussed was adapting to a changing climate in a way that addresses the social implications for the whole population. 

So Jennifer, I'd love to hear what were your takeaways from the event?

Jennifer Laidlaw: I was really struck by the international nature of conversations, that sustainability is really something that's global. We heard from Su Lloyd, who is Vice Chair of the International Sustainability Standards Board. The Board soon to be released climate disclosure status will have a global reach. She also brought home the idea that we can't approach sustainability in silos and that sustainability goals need to be integrated. 

One topic I found particularly interesting with the panel on the challenges of the energy transition. And I wanted to dig a little deeper into some of the topics that were discussed. So afterwards, I spoke to one of the participants, Olivier Musset, who is Global Head of Energy at the investment banking division of large french bank Société Générale. Here's our conversation.

Okay. Well, thank you very much for agreeing to take back in the ESG insider podcast. I just get some idea from you in the beginning what Société Générale is actually doing in terms of the energy transition.

Olivier Musset: Yes. Thank you. It's a very large question because we do actually a lot and I'm a strong believer when it comes to the energy solution, it comes through a real economy. And the role of the bank is really to finance the economy. That's the reason why I really do believe that we have a role to play. And even more so because we have always been very strong in Energy Finance. 

And one of the big item for the transition is to convert our energy mix. My bank role is actually as a project financier. And there is a lot to be done because what we see is a need for immense amount of CapEx, capital position to ensure that we convert heavy industry to low carbon solutions. Just to remember everybody about this amount of CapEx needed by 2030 by IEA, which is $4 trillion of in order to achieve the net-zero by 2050. So it's a lot of investment, 4x more than what we do today. So everybody will have to be committed actually to deliver more at Société Générale, we had committed to deploy and to contribute $120 billion from 2019 to 2022, and we have now resized this commitment up to $300 billion from 2022 million to 2025 million. It's just to show that there is an acceleration, but we want is really to be part of this acceleration to deliver more because we need more if we want to meet the target of the net Roby 2050.

Jennifer Laidlaw: Right, all this money, I mean, that's a lot of money, billion billion. What xactly, do you with this money, what projects are you investing in?

Olivier Musset: The backbone of the transition so far has been renewable. A lot of investments have been directed to renewables, which is now more and more mature industry. And we see actually more and more investment needed to build and commission more renewable projects. That's really the bulk. 

Then we talk about a lot of diversifications to provide low carbon solution. And there are many technologies which are in implementation, but not yet at scale. And here, I can put together a green hydrogen or blue hydrogen, I can mention the carbon capture sequestration as well. I can also mention the biogas battery storage as well. So you have a variety of technologies, which are there, which are not yet industrially tested at scale. And what we do for those technologies is really to advise developers to understand what will be the conditions for them to raise project finance money to build large-scale facilities. But we have not yet seen so many FIDs when it comes to this, I will say, top-notch scale that will be required to deliver economy of scale. 

Jennifer Laidlaw: Right, ok. I mean when you talk about scaling up, I mean, that's a huge question that we hear a lot about. And also the importance of like public-private partnerships, how much impairment when you're killing up when you're making these investments? How much of it is partnerships with the public sector?

Olivier Musset: I think it's really a key. When you look at what has been done so far to support the energy transition -- the underlying cash flow for 99% of the total is fully contracted cash flows. And I mean by that, that actually, the projects or the companies are not exposed to the merchant price. They have a fixed price or they are a mechanism by which they will not be exposed to change in pricing. And this is where you have actually a lot of support provided by governments, by a regulator in order to ensure that you provide stability over the long term for cash flow to be used to repay the debt. And this is in that sense that I see really this partnership. The government, the regulators have absolutely to provide stability in the regulatory regimes to provide developers with all comfort that they can deploy capital over a long period of time and get their money back.

Jennifer Laidlaw: What kind of financial products are in development to get to those billions and billions of dollars of investment that you want to make?

Olivier Musset: I will say on that front and back to my point about the real economy, I think for the bulk of what we do, there is no innovation in financial products. The innovation has been more on sustainability in loans, green and sustainable bonds, which are now available for companies in order to direct their investment toward greener investment. And that's fine, is that's actually getting to a size which is very visible because if you think about the green bond now it's more than $1 trillion of green bonds last year, which is more than 10% of the total capital markets. So it's actually quite huge relatively sharp period of time. 

When it comes to renewables when it comes to this new technology, I was mentioning, clearly, we are back to the traditional world. We are talking about a letter of credit. We are talking about project financing. That's really the world of yesterday, but it still applies because what we need is to finance CapEx, and this has proved to be the best way to do that.

Jennifer Laidlaw: Right. Okay. Okay. Great. Yes, you mentioned innovation, you mentioned, I mean, that's a very important thing. I mean what kind of physicians are new technologies playing in the investments that you make?

Olivier Musset: Innovation is crucial. Now when I look at innovation, I think we need also to define what we mean because sometimes we refer to innovation where I see scale up -- and I think it's what we have seen, if I take the example of renewables, we have seen a fantastic scale up. 

We had a turbine of, let's say, 1 to 2 megawatt 20 years ago. And now we are talking about 15MW at some point in time, maybe 20MW turbine for offshore wind in particular. So we can see that it's multiplied by almost 20x. So over a relatively short period of time. So innovation, clearly, I play a role. But what I see is really the effect of the scale-up. So we go step by step. 

Banks are not going to change their credit appetite for something which is not fully tested. It will be a recipe for disaster, this is not sustainable. So we have to apply our common due diligence and get certain that these type of projects are going to be commissioned. 

When it comes to new technologies, if I take hydrogen, if I take carbon capture, nobody can tell that they are new technologies. They have been used at many places, and they have proved to be highly reliable. The key item is that we need to scale up them. They are too small. If we have 10 megawatt, 100 megawatt green hydrogen projects is not enough when you see the total production, which has to be achieved over 10, 20 years, it doesn't work. But it's -- so we have to go to the gigawatt scale. And this is where we need a lot of progress step by step, innovation, for sure, and efficiency gain in order to reach that 1 gigawatt score. -- carbon capture, it's exactly the same. 

So it's a combination of all these small innovations, which might get us to deliver the net-zero. There are still areas where we are yet to see development. And I'd like to flag, for example, this is a solid oxide for electrolyzer. There is also the direct air capture, where we can see also great development or later. You have also the chemistry of carbon new oxide so-called green fuel, which is a fantastic area of innovations. 

If we can combine carbon dioxide with green hydrogen -- this is a fantastic goal. We capture the CO2 and we use it to produce fuel, green fuel. So I think there are still areas which are already a game changer and might give us the ability to deliver the net-zero. Let's be honest, we -- there is a slow start. We are not on the trajectory. And by 2030, we are unlikely to get there. But with this type of innovation, which are crucial, we might actually catch up and even take over in order to recoup the access we produce before 2030.

Jennifer Laidlaw: All right. And you were talking about risks, right? And maybe like banks, we're not going to take risks and things that they don't know about. I mean are you willing to take risk to invest in these kind of innovative products or projects that maybe you're not sure exactly if they're going to be successful or not.

Olivier Musset: What we are doing is a lot of due diligence. One example, which is something we finance, we advised actually and finance is the first ever floating offshore with projects, the province in the south of France. So we acted as advisers and lenders to these projects. It's not an easy one to tell your credit committee, guys. We are going to finance something, which is 100 meter high and it's floating with the forces of the wind or the rotation of the blades with the waves of the sea. You could say, guys, I know it's a bit crazy. -- we are not going to do that. I think through a lot of studies, a lot of due diligence, you get to a point that you can get comfortable that this is ready to work. 

First of all, they are very often prototype, smaller prototype, proving the technology. And then you were back to this scale-up discussion. Are we right in our scale-up design, and we manage actually on this specific one to get comfortable. And I'm pretty sure because there are now plenty of projects over the globe for other floating projects. I am pretty sure that banks are going to manage to get comfortable because developers are comfortable by themselves because they are going to invest their equities. They are going to invest their time and work. And I do believe that at the end of the day, we should deliver a new segment in the renewable industry, which is the floating offshore.

Jennifer Laidlaw: All right. Okay. I mean you mentioned that project, which is on the side of France. What other projects are you may be working on in different regions right in the world?

Olivier Musset: There's the one we are currently advising developer in the U.S. developing greenfield and their goal is actually to capture CO2 to produce renewable and launch processing of carbon dioxide and hydrogen in order to produce a variety of hydrocarbon. 

And so this type of thing is, I would say, in preparation. We have also a couple of projects on carbon capture. We have a couple of them in the U.K., in particular. We have green hydrogen project also being advised by us in Australia, in the U.S. or in Europe. So across the board, we are, I would say, at the stage of advisory. So a lot of studies, a lot of discussions, a lot of assessments to ensure that when we propose this type of opportunity to banks, banks are going to be able to cut approve these various technologies and projects. But when I look at them, we see that we really are already at the start. We are already at the start of a big wave of investment, but which probably coming later by 2028, 2030.

Jennifer Laidlaw: Obviously, with the economic situation at the moment, we have rising inflation, very difficult come. What impact do you think that, that is going to have on transition finance on the pure financing that you're doing?

Olivier Musset: Inflation is a big issue. It's a big issue for, I would say, all stakeholders. -- put yourself into the choice of a developer, you want to develop something and then suddenly, when you wake up, you had an estimate and your estimate is now a plus 20% compared to what you had in the past. It no longer works. It means that you have no longer projects. 

So it means that you have to come back to your contractor to renegotiate maybe some savings. You have to talk to your offtaker because you want to have a higher price for the product you products, you produce. You financier your bank is going to ask you for higher interest rate because this is the underlying index having raised. 

So a lot of features, which mean delays. -- is going to create, I think, for me, the point of convergence is for all this negotiation is time, you need time, so you need to rework on many aspects of your projects, and we are facing delays. 

We have not seen really a default because most of the time, the projects we finance have already locked lump-sum prices. And so they had actually the financing plans meeting their outstanding needs. But for new projects, clearly, what I see is unfortunately delays. Three years ago, nobody was thinking of an inflation higher than 2%. Now this time its gone. And clearly, we want to see sensibilitiesalysis, showing that whatever the project is going to be resilient to a high inflation senile.

Jennifer Laidlaw: All right. Okay, okay. And in terms of delays, I mean, does that change in any way your own plans, you were talking at the beginning about you doing that you want to invest by 2025. Is that going to impact your investment plans or not?

Olivier Musset: It's not going to help. But I think that we are so committed to deliver these various targets that we continue to feel extremely confident that we should be able to meet this target. There is also a bit of good news referring to, for example, the Inflation Reduction Act. This was a game changer at the time of the inflation. And it actually -- if you think about the name Inflation Reduction Act -- it means that these projects were no longer feasible in the U.S. and by the effect of this change of fiscal regime, they are back in the row and they can actually come to raise finance in a way which is sustainable.

Jennifer Laidlaw: You mentioned the inflation reduction act. You talked about project that you have in the U.S. What kind of impact is the Inflation Reduction ACt actually having on your financing activities in the U.S?

Olivier Musset: I would say what we see clearly is a wave of prospect. The activity is really booming in many directions. As of today, the IRA is not yet implemented. There is still a need for a series of decrees in order to make it applicable. And there is still a lot of question about the tax credit and the way it's going to work. So it's still in the making, but we are getting there.

But what I see is that in preparation of the implementation of the IRA is a lot of willingness to direct investments towards the U.S. because this is where you can get the higher return on projects by far because you have lands available. You have low sources of energies, the price of energies, you have actually the manpower. So you have an ecosystem which is highly favorable to launch this type of investment. So clearly, we see our American platform as being a growing platform.

Jennifer Laidlaw: In terms of the EU with its own Net-Zero Industrial Act, do you think -- is that going to boost the amount of financing that you're doing in as well on renewables and on clean tech and on other sectors?

Olivier Musset: We might see actually more investment, but I would not expect it to be in the same order of magnitude compared to what we see in the U.S. 

First of all, each time there is a new directive at the EU level. It has to be implemented locally in each European countries in a way, which is compliant with the directive. So we will see how it is implemented. So it will take time. 

Again, we are talking about something, which is not yet known as a matter of fact, whereas in the U.S., as of today, we see exactly the way it's going to shape. So this is why, as an investor, time is money. You want to go quick because you want to be a first comer in many of these sectors. So where you go, you go where you can get the best immediate return, which is clearly in the U.S. 

Jennifer Laidlaw: Right. Okay. Anything else, maybe you haven't touched upon that you think is important or you would like to add?

Olivier Musset: I would say the one thing that we have not touched base is also the fact that we invest a lot of time to train our people, so it's a change of mind, mindset. What you want is for people to be fully embarked into the journey because we have a commitment to be net-zero by 2050. So we will get there. I think it's a commitment, it's a commitment. So it's quite important also to embark all your staff, and they really understand that it's a common goal and that we are pretty committed to go that direction. 

We have set a couple of targets for 2025 for 2030 in terms of reduction of our upstream portfolio by 25%, also our Scope 3 exposure to upstream by 2030, minus 30%. So there is a lot of short-term commitment demonstrating that we mean what we say with short-term target.

Jennifer Laidlaw: Okay, fantastic. Well, thank you very much for joining us, I do appreciate it. Am I hope you enjoy the rest of the conference. 

Olivier Musset: Thank you very much.

Lindsey Hall: Well, thanks, Jennifer, for sitting down with Olivier and sharing your insights with us.

Jennifer Laidlaw: You're welcome, and there's more to come. I'll share some other conversations I had at the event with you in next week's episode.

Lindsey Hall: Yes, and we can swap notes about what we both learned. And to our listeners, we'll be back next week with more takeaways from the Paris event. 

Esther Whieldon: And after that, I'll be taking listeners to Singapore for the S&P Global Sustainable1 Summit is taking place on May 16. I'll be speaking the conference participants and will include a link to register for that event in our show notes in case you want to attend. So please stay tuned.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.   

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