Enlarging the impact of sustainable finance to support the climate change efforts
By Jean-Pierre SBRAIRE, Chief Financial Officer, TOTAL
The European Commission is expected to complete its regulation proposal regarding the financing of environ- mentally sustainable economic activities. It is essential that the energy sector, which holds a key role in transitioning to a more sustainable global energy mix, remains able to finance its activities. The transition to a low-carbon economy will not succeed if the energy industry is financially restrained from contributing to the joint effort.
Natural gas, a key component in the energy transition mix
Total is an energy major committed to sup- plying to as many people as possible, a more affordable, more available and cleaner energy. The energy transition leads to a growing role for both natural gas (in particular LNG) and electricity (mainly from renewables) in the energy mix.
Yet, around 60% of the energy consumption currently relies on petroleum and gas products and there is no doubt that the economy will continue to depend on affordable petroleum and gas energy products during the transition phase in the coming decades.
Total strongly believes that natural gas, which is expected to become the second largest fuel by 2030, will be at the core of a successful energy tran- sition. On the one hand, electricity produced from natural gas cuts CO2 emissions by half compared to electricity produced from coal. On the other hand gas ensures permanent availability by compensating for the intermittence of renewable energy power generation.
Total developed an ambitious investment program in low-carbon electricity and will invest $1.5 -$2 billion per year in the coming years in this business or 10% of overall capital investment.
This strategy for electricity and natural gas contributes to the Group’s ambition to reduce the carbon intensity of the energy products used by our customers by 15% between 2015 and 2030.
How a large-scale energy transition to a low-carbon economy will be financed is paramount. Supporting and financing transition energy investments, including investments in renewables and natural gas, is key.
Various financial instruments have recently emerged helping sustainable finance meet its goals
Green financial instruments such as Green bonds as defined by the ICMA principles represent the cornerstone of sustainable finance today. Such instruments with highly restricted use of proceeds do not, in our view, support a holistic approach to the energy transition.
Though progressing, the amount of issuance proceeds allocated to climate change mitigation projects have remained marginal compared to the global volumes of bond issuance in 2018. Moreover, the energy industry, including majors, are likely to face criticism for “greenwashing” as they raise bonds under this format. As the debate on these instruments went on, different labels appeared in the market (Climate, Blue, Social, Sustainable bonds, etc.), but they all remained too restrictive as they apply the same concept.
We believe green financing needs to fit into a wider solution integrating other energy sources than renewables to the extent that they efficiently contribute to cutting GHG emissions. Innovative instruments have emerged in the last few months, paving the way for wider- encompassing forms of sustainable financing.
Recent “Transition” bonds were welcomed by the climate-focused investor community as relevant tools to support (large) companies in their energy transition strategies (and not only to finance a defined subset of projects / energy sources), all the while leaving issuers with the flexibility as to where to best invest proceeds to achieve their transition.
Such a push to enlarge the impact of sus- tainable finance will benefit both systemic players already engaged in the energy tran- sition, such as Total, and climate-focused investors and financial institutions with broader investment opportunities to support the climate change effort.
Climate change targets will not be reached if regulation precludes the energy industry from financing its transition
The EU is committed to being a leader in the global climate change initiative. It is setting up a framework to enable sustainable finance to fulfil its crucial role in the energy transition. The EU Commission intends to entice public and private investments to serve this goal. However more clarity is needed to ensure that the private energy sector will be able to par- ticipate in this immense task.
Total is arguing strongly in favour of inclusive standards for the financing of sustainable development in order to ensure that this pivotal industry is able to play its role and contribute to the objective. The taxonomy and benchmark references that the EU will enforce should not be static but should, to the contrary, allow the financing of decarbonisation investments and help the industry implement and achieve a virtuous trajectory.
Responsible energy companies are part of the solution and are willing to act. Full access to public and private financing is also key to enhance global competitiveness of the European energy industry. It is by leveraging all expertise and investment capabilities between energy participants and financial markets that we will be able to successfully address the climate change challenge.
