Investing in the environment. A flexible approach to financing environmental projects

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1 Investing in the environment A flexible approach to financing environmental projects

2 Leading the way The signing of the Paris Agreement at the COP21 United Nations conference on climate change will, in Barclays view, reinforce financial regulators interest in climate and carbon-pricing risk, and give further impetus to growing investor initiatives around portfolio decarbonisation. Without proper investment in clean energy infrastructure around the world, we will fail to achieve a reduction in carbon emissions and prevent climate change. The International Energy Agency estimated in October 2015 that to achieve this 2 degree pathway, there must be an annual investment in renewables which would need to grow by about US$520bn per year until US$328.9bn The total amount invested globally in clean energy in The 21st session of the Conference of the Parties (COP-21) to the United Nations Framework Convention on Climate Change (UNFCCC) in Paris is the latest in a series of annual meetings to address the policy implications of the emerging consensus on the science of climate change. The ultimate objective is to arrive at a credible path towards limiting greenhouse-gas emissions that will enable the world to restrict the increase in the average global temperature to no more than 2 C above pre-industrial levels. COP-21 also comes at a time when the economic and investment implications of climate change are attracting increasing attention. The International Energy Agency (IEA) has been modelling the impact of different climatepolicy scenarios on the energy sector for a number of years, but financial and regulatory authorities are now starting to consider the broader economic and financial ramifications of climate change, as demonstrated by recent interventions by the Bank of England regarding the risk climate change poses to financial stability. Read more in COP till you drop: Paris keeps 2 C door ajar Encouragingly, a report by Bloomberg highlighted that during 2015 the total global investment in clean energy rose to a new high of $328.9bn, up 4% on An increase of 30% in the commissioning of both wind and solar power developments helped to drive this trend, powered by the continued decrease in the cost of solar photovoltaics and the plunge in fossil fuel commodity prices. 1 Bloomberg New Energy Finance Clean Energy Investment, January of 6

3 A future of flexible finance The challenge now is ensuring finance frameworks put together by teams of banks and other investors remain flexible enough to cope with the unique pressures placed on green, sustainable projects. Over the past 10 years, Barclays has actively supported environmentally focused infrastructure and renewable energy projects. The bank has closed over 60 deals, mostly in the UK and Ireland, across wind, solar, waste-to-energy, biomass, transmission and small-scale renewables in the agricultural sector. This depth of experience in creating flexible, bespoke financial packages is particularly valuable in a sector which faces constant change, from government subsidies to local and EU regulations, governing construction or performance. In addition to ring-fenced project finance developments, we are also seeing corporate clients investing in renewable energy projects to support their own businesses. This means that a more flexible and integrated approach to finance is required, and the team at Barclays has the experience in the renewables sector to create bespoke solutions which can drive forward these important projects, says Christine Galeon, Head of Infrastructure and Project Finance. Barclays activities are guided by its Citizenship Plan which sets out five core aims to implement a global code of conduct, to reflect stakeholder considerations, to minimise risk to the economy and society, to be transparent in all its dealings and, notably, to manage the social, environmental and governance impacts. This commitment continues to ensure it retains a focus on working in partnership with other organisations to help drive forward key renewable infrastructure projects in Environmental sustainability for corporates Barclays has commissioned independent research into environmental sustainability issues affecting UK corporates. The most significant opportunity and also the greatest challenge is from energy and greenhouse gas management. This issue has been found to be prominent across all sectors, with a substantial increase in investment and technological development being seen to address it. Other major sustainability themes for corporates include air pollution, water usage and waste management. Motivation to invest in environmentally sustainable projects can come from a variety of factors. Primary drivers of action are from client demand and product innovation, the need for greater operational efficiency and also the increasingly important push factor of regulation. The corporate mindset is changing, demonstrated by increasing corporate sustainability budgets. Primary drivers of action are from client demand and product innovation. Sectors with high exposure to energy costs, volatile fossil-fuel prices and increasing carbon regulation are actively seeking sustainable solutions to help de-risk their business. Innovations in hybrid, electric and hydrogen vehicles in the automotive sector reflect the growing consumer demand for fuel and emissions-efficient transport. The food, drink and packaging sectors have seen increased focus on lowering food miles and building recyclability into their products. Case study Lookers PLC Renewable energy: solar/biomass Total debt: 2m Asset Finance Motoring towards a greener future Lookers is a North West based motor retail group with 150 dealerships throughout the UK. Heating, power and energy requirements across its network are not only a financial drain but place a firm dent in its green credentials. The group turned to Barclays for help in arranging 2m in Asset Finance to fund sustainable green initiatives over a relatively short payback period. This included a bespoke financial solution, based on the group s extensive property portfolio, to help it activate a five-year plan to install biomass heating and cooling systems across the group, and a standalone solar panel facility in Northern Ireland. The result is a cost-effective deal which has also helped the business to fulfil its green agenda. 3 of 6

4 Case study Cramlington Renewable Energy Developments Ltd Renewable energy: biomass Total debt: 141m Thinking big, locally Cramlington Renewable Energy Developments is a combined heat and power plant being built in Northumberland which, once completed in 2017, will supply energy and heat to two pharmaceutical companies. Surplus energy will also be added to the National Grid. The project will support a nearby pharmaceutical hub and create new jobs, reduce greenhouse emissions (the equivalent of taking 25,000 cars off the road) and provide green energy to local industry (the equivalent of supplying 52,000 homes). The plant will run on a combination of forest-derived biomass and clean recycled wood. A substantial portion of the biomass will be sourced under contracts with local forestry owners on both a fixed and floating price basis. Barclays teamed up with developer Estover Energy Ltd, sponsors John Laing Group and the UK Green Investment Bank plc as well as Danish export credit agency EKF to conduct market diligence and sensitivity analysis in order to provide a suitable financial structure. Barclays provided 90m in senior debt, 60% of which is backed up by an export credit guarantee from EKF. It also provided a 48m equity bridge loan, a 2.6m VAT facility as well as interest and foreign exchange hedging. A total of 48m of equity was also committed by John Laing Group and the UK Green Investment Bank. The result is one of the most complex biomass projects to reach financial close in the UK providing sustainable, clean energy that will serve to energise the local economy. The Cramlington plant promises to create local jobs, support an industry whose vitality is essential to the growth of the regional economy and help cut UK greenhouse gas emissions while promoting the country s adoption of green energy sources. Ed Northam, Head of Investment Banking, UK Green Investment Bank Green Finance initiatives from Barclays Green Bonds Green Bonds are fixed income securities which are designed to raise capital to finance low carbon projects. It s a market that has blossomed; total Green Bond issuance for 2015 was US$41.8bn. 1 Barclays Treasury department has expanded its Green Bonds portfolio across various investment grade issuers, from the European Investment Bank to KFW, the German government-owned development bank. As the Green Bonds market has matured, it has come under greater scrutiny from investors who want to ensure their feel-good investments are actually driving forward environmental projects. 1bn Barclays 2015 investment in Green Bonds. For Barclays, guaranteeing the authenticity of its environmentally focused financial products is a priority. We conduct a thorough due diligence process to establish the social and environmental credentials of any proposed investment portfolio, including engaging with issuers and the Climate Bonds Initiative, a not-for-profit organisation. As a result the offering has been well received. Last year Barclays reached its target of investing over 1bn in Green Bonds and is committed to investing another 1bn in 2016 as part of its liquid asset buffer. 1 Source: Climate Bond Initiative. 4 of 6

5 Innovation Finance Working in conjunction with the European Investment Fund (EIF), SMEs can take a loan via Barclays which benefits from a 50% guarantee from EIF. Barclays new Innovation Finance offering is targeted towards highgrowth and innovative businesses. The funding product is part of a wider commitment from the bank to support UK scale-ups through our high growth and entrepreneurs proposition a direct response to Britain s scale-up gap which will help the UK compete on the global stage. Businesses can qualify for this funding through innovation in the green space and the first two successful applicants have been such companies. One of these companies, NetThings, now has funding in place which will enable the trial of its new energy management system with a major hospitality group which runs national chains of pubs, restaurants, hotels and coffee shops. The new system, Click, enables cost-effective management of large estates of small commercial outlets where energy consumption is high and has the potential to deliver tangible savings by eliminating waste. Innovation Finance is supported by the lnnovfin SME Guarantee Facility, with the financial backing of the European Union under Horizon 2020 Financial Instruments and the European Fund for Strategic Investments (EFSI), set up under the Investment Plan for Europe. The purpose of EFSI is to help support financing and implementing productive investments in the European Union and to ensure increased access to financing. Asset Finance Asset Finance can be vital in helping to improve performance and enabling businesses to grow. It is also likely to be a key enabler in the transition to greener operations, such as more efficient manufacturing sites and green supply chains. Asset finance is also likely to be a key enabler in the transition to greener operations. Barclays team of Asset Finance specialists has supported a number of clients in the renewable energy sector, such as Lookers PLC, and can review individual business needs to offer bespoke solutions suited to particular business objectives. Barclays environmental experience Wind: arranged finance for 30 onshore wind projects and for the first three Offshore Transmission Operators (subsea power transmission cables) in the UK offshore wind sector. Solar: 13 solar PV portfolios financed. Biomass: three biomass plants financed in Waste: three waste projects financed to date. Agri-renewables: supported the financing of 12 projects across wind, solar, anaerobic digestion and hydro power. Conclusion Corporates may be at different stages in the development of a sustainability strategy; the first step, typically, is viewing sustainable investment as an opportunity, followed by development and innovation of sustainable supply chain, products and services to extract commercial value. Barclays welcomes the opportunity to support this strategy and build on our strong experience. We understand that our own focus on Citizenship is also critical for all our clients and stakeholders, including in the area of climate change and renewable project financing. Through building an environmental strategy and employing flexible, bespoke financing we aim to be a facilitator for investment in climate change as well as help drive our clients shareholder value. 5 of 6

6 Key takeaways The initiative announced by the Financial Stability Board at the COP means that the pressure on all companies to disclose their exposure to climate-change risks is set to intensify The challenge is to ensure financial frameworks are flexible enough to address current pressures in the sector and the huge investment needed to address climate change Corporates may be at different stages in the development of a sustainability strategy; the first step, typically, is viewing sustainable investment as an opportunity, followed by development and innovation of an appropriate strategy in discussion with your bank Barclays has been at the forefront of this area of expertise which is a natural fit with the bank s Citizenship and corporate objectives. Find out more about how Barclays can help with environmentally focused projects. Speak to your Relationship Director or call * barclays.com/corporatebanking *To maintain a high quality of service, your call may be monitored or recorded for training and security purposes. Calls to 0800 numbers are free of charge, when calling from a UK landline. Charges may apply when using a mobile phone or when calling from abroad. Lines are open from 8am to 6pm Monday to Friday. The views expressed by the author do not necessarily reflect the views of the Barclays Bank PLC Group nor should they be taken as statements of policy or intent of the Barclays Bank PLC Group. The Barclays Bank PLC Group takes no responsibility for the veracity of information contained in third-party articles and no warranties or undertakings of any kind whether express or implied, regarding the accuracy or completeness of the information is given. The Barclays Bank PLC Group takes no liability for the impact of any decisions made based on information contained and views expressed in this article. Barclays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No ). Registered in England. Registered number is with registered office at 1 Churchill Place, London E14 5HP. February BD of 6