Financing can help avert a 1.5°C rise in global warming
Image courtesy of SS studio photography / Shutterstock.com
If the financing of fossil fuel producers explains, in part, why we are witnessing a heating planet, perhaps financing is also the solution?
This is certainly the view of Olivier Ouazana, the chief international officer of Paris-based GreenFlex founded in 2009. The company combines data, equipment management and financing to help corporate clients manage their energy consumption.
In September 2017, GreenFlex was bought by French oil and gas company Total. Today the group is an employer of 550 workers, with 17 offices across Europe and with a turnover of over Euro 500m (£422m) in 2018.
GreenFlex was our Sustainability winner at the Leasing Life Awards 2019.
We asked Ouazana to offer us his perspective on current events, what climate change means for the leasing sector and to explain what GreenFlex is doing to meet the challenges.
According to the UN's Intergovernmental Panel on Climate Change, human industrial activity has generated an average increase of 1°C in global temperatures in comparison with its pre-industrial level.
The IPCC is concerned about the very real impacts on the planet from temperatures rising beyond 1.5°C, which it says could generate a chain of climate disasters with devastating effects on natural, managed and human systems.
This is not where we want to be and hopefully, there is a way to avoid it: with financing.
If we want to seriously reverse the current trend, we need to transform our industrial model in the next 10 to 20 years and promote a carbon-neutral industrial revolution.
Doing so - and studies suggest this is a realistic option - would require redirecting funds into investing, modernising, innovating and training people for a carbon-neutral tomorrow.
In the US, prominent voices are gathering around a unifying idea: The Green New Deal. The proposal is for the US to generate 100% of its electricity from renewable energy sources within 10 years, to optimise energy network, increase energy efficiency and transportation network etcetera.
In a separate development, more than 1,000 institutional investors in several countries have committed to withdrawing Euro 7,200bn in funds from fossil energy industries and reinvesting these funds into green energy projects.
Recently, the CEO of BlackRock, one of the world's largest fund managers, announced a major change in the company's investment policy. Larry Fink said in an open letter to his clients and to the CEOs of companies in which BlackRock invests: “We believe that sustainability should be our new standard for investing." He also added: "Probably the most important inference from my observations is I believe we are just beginning a major reallocation of capital”.
The intervention by BlackRock's CEO is linked to the risk of a carbon bubble, which has seen pressure build from people all around the world to transform our 'fossil fuel consumption' model to a 'carbon-neutral' model.
Leasing sector gets with the programme
Signs of change are also now noticeable in the leasing industry. Banks are showing a willingness to diversify their portfolio with more 'green/sustainable' projects and assets to finance. This change suggests they want to be active players in the transition that is coming but to do so they will need to have a better understanding than they currently do of the new assets they want to bring to fruition.
At GreenFlex, we think leasing can help foster frugality among our customers by tackling the efficiency of their activities.
In fact, leasing often enables the speedy replacement of assets that could be ageing, or which are no longer relevant to a process, use or technology.
Our approach is to leverage the main benefits of leasing to the maximum, by re-thinking the whole process of replacement. Greenflex experts question a number of things, including:
- The need and the use of equipment, to limit over-sizing and overconsumption of energy and inputs.
- The management of equipment and tools, during its use within our client’s premises, to optimise and maintain it as close as possible to its highest level of efficiency.
- The management of an equipment's second life, or end-of-life by refurbishing or ensuring the asset passes through a proper recycling scheme.
By deploying sustainable services, such as technical expertise and IT platforms in addition to leasing, it is clear that corporate financing can be a strong lever of frugality and effectiveness.
As a service provider we are convinced of its potential, but we are also aware that bankers are currently also thinking now about the best ways to integrate sustainable indicators in their operations.
In a positive step, some major European bankers have raised the possibility of promoting better rates of interest when financing a project designed to improve environmental efficiency.
What is beyond doubt is the need for funding to bring about the environmental, social and energy transition society is calling for.
For those of us working in asset finance, it is important to remember that while the numbers and the size of projects coming down the pipeline will be significant, solely being a leasing finance expert won't be enough. To be future-proof in this industry, you will need to be a technical expert who understands the detail of the project as well as an analyst who can expertly collect and interpret the data. This is the modus operandi of Greenflex and how we hope to meet the challenges and opportunities posed by climate change.
Olivier Ouazana is the chief international officer of GreenFlex