Embrace complexity now, for the climate

Whether it is in the Paris Accord, in the subsequent COP meetings or in the multiplicity of scenarios run by multilateral organizations and agencies there is a strong consensus that our efforts to contain climate damage will reach a peak of urgency around the year 2050. However, for our planet to limit climate damage and achieve the goals that have been set for 2050 (the so-called net-zero target year) it also means that much of what is being developed needs to be up and running well before that; that a large swath of the solutions need to be in implementation and execution by the year 2030 or sooner.  This is indeed a most critical decade.

While I am generally an optimist, I am also one that is in daily contact with a wide scope of clients, industries and technologies.  I believe that we are witnessing an acceleration consistent with this urgency.  There are several indicators that drive my cautious optimism.

First, it is the pace of technological innovation. There have been more technological developments in the clean energy space in the last 15 years than in the fifty years before that.  There is no sign that this is slowing down, quite on the contrary. Our renewables finance activity has moved from a handful of countries twenty years ago to having financed today projects in some 35 countries, from wind farms populated by modest 2-3MW turbines to fields with 13MW monsters as we work our way up to 16MW, 18MW and even larger turbines; we have moved from onshore to offshore, and now from offshore to floating offshore; in both wind and solar; many of our renewable projects now include associated battery storage as we address network stability and intermittency, in other projects we finance renewable power used to generate the green hydrogen that will then be used to power cars, trucks or be blended into pipelines to feed power generation, or perhaps this hydrogen may serve as an alternative fuel for industries looking to reduce their emissions, like refining, mining and smelting.  And this is just in our energy sector.  We can easily draw similar parallels in the metals and infrastructure sectors.

A second encouraging example of the acceleration of the reckoning with a 2030 milestone is the material step-up we have seen in the CSR and ESG communications by corporates and financial institutions alike.  Today taking a corporate position and a proactive policy on climate change is a “must” and not an option for any Board of Directors or Corporate “C” suites.  And once it is publicly communicated it creates accountability, responsibility and requires corporate action.  We at Societe Generale have experienced this, not only in our own communication which have been significant and detailed, but also as we actively accompany our clients with green and social bonds issuance, sustainability linked bonds and loans, advice on ESG ratings and the like.

And it is not just corporate action, which is already hugely important.  Little by little more and more cities, states and countries, no doubt under the grassroots pressure of their populations, are taking visible commitments of achieving net-zero targets by certain dates.  

A third source for optimism, to me, is the involvement of young professionals.  As I told a group of HEC university students a few weeks ago my generation has been more part of the problem than of the solution.  And today’s college graduates and young professionals will be charged with inverting this in the coming two decades.  When today’s 30-something professional is contemplating the end of his or her career we will be well into the 2050s and we will know how the world did.  From what I can see today, this generation is rearing to go and get the job done.

The changes that the world is facing are certainly technological and industrial, but they are also behavioral.  It is about getting used to driving a car that makes no noise and has a limited range (for now), or running appliances in the middle of the night when power demand is lower, or taking public transportation when available, or even (for some) changing how we consume the animal protein that we so enjoy but that may have a significant carbon footprint.  If there is one silver lining in the horror that has been the covid-19 pandemic it must be our common demonstrated ability to adapt incredibly quickly to extreme circumstances when we absolutely have to.

The International Energy Agency has just published the world’s first cost effective pathway scenario on how to transition to a Net zero energy system by 2050.  Their scenario is encouraging and daunting at the same time as it outlines a complete transformation of the global energy system. To achieve this goal, we will not only need to massively deploy all available clean energy technologies (many of which may not yet exist or are not yet ready for industrialization) and continue making leaps in clean energy innovation, but we will also need sustained participation from citizens with behavioral changes.

I have discussed the concepts of technological evolutions and where, in my opinion, we have reason for cautious optimism on the energy transition and climate change as we enter this most important decade.  In a sense, we are fortunate that as we face these historic challenges we are also living in a time of wondrous creativity and technological innovation as well as a time of substantial market liquidity and capital availability; with a specific appetite for assets in these sectors as financial investors move with the times.   Creativity, technology and available capital make for a welcomed combination just when our world needs it most.

We at Societe Generale intend to remain a leading player in all topics relating to the energy transition, renewable and clean energies and sustainable and positive impact finance in all markets.  Being a global leader in this space is all about accelerating the energy transition, meeting the challenges of climate change, understanding thoroughly the countries in which we operate and, to put it simply, embracing complexity.  It is all about assisting our clients deliver on their vision and their projects, wherever these may be located.