PFI Project Finance and COP21 Roundtable 2016

Welcome to the Thomson Reuters Project Finance International Project Finance and COP21 roundtable, sponsored by HSBC. The discussion was held at the Reuters building in Canary Wharf in London in late May before a packed audience, showing the level of interest in the topic.

COP21, the 21st conference of the parties, was the UN backed climate change conference held in Paris last December. Whilst not legally binding on nation states, as was the Kyoto conference in December 1997, COP21 requires countries to publish their own national plans for combatting climate change. In April, 171 countries signed the agreement.

The roundtable attracted a very interesting selection of speakers from various aspects of the capital markets – from bankers, institutional investors, equity providers, lawyers and policy makers. All had their own unique views on how the capital markets will develop over time as the impact of COP21 kicks in.

There was a general feeling that there is plenty to do, plenty of deals to fund and plenty of finance available. However, matching the right projects to the right finance is another matter. Plenty of projects do not fit the right risk criteria and some forms of finance do not fit the projects which need cash – whether due to technology risk, size and scale or other factors.

There will be plenty of renewable projects requiring finance as we move from the 2020 climate change vision to COP21. But as time goes on the nature of the projects will change, with increasing interest in areas such as energy efficiency and smart cities. And there will be a growing focus on the large global CO2 emitters such as China and India.

Graham Smith, a director of project and export finance at HSBC, said: “What the UK and Europe can do in terms of moving that dial is going to be small, simply because of the amount of carbon emissions we’re producing.” European participants at COP21 are “talking a lot about this idea of trying to mobilise capital and trying to get it into the developing markets. That’s where the banks are going to have the biggest challenge and the investors too. They need to follow if it’s going to happen,” he added.

Smith said there are some “very interesting things happening if you look at the BRICS Bank, if you look at the Asian Infrastructure Investment Bank, if you look at the Silk Road Fund.” Closer to home there are initiatives such as the Green Climate Fund and the Catalytic Finance Initiative.

The discussion was wide ranging, touching on current investment topics. Stephen Lilley form Greencoat Capital spelt out how it runs its wind project investment vehicle while Ian Berry from Aviva and John Mayhew from M&G gave an institutional investment perspective on the sector. Raphael Lance from Mirova gave a Europe wide assessment of the climate change investment area while Evan Stergoulis from Watson Farley highlighted new technologies.

Rod Morrison, Editor, PFI