A growth in transactions on the renewable energy market

CIB recently publicised its intentions to achieve major growth: by the end of 2020, the bank will be doubling its total exposure to renewable energy, only to do so once again in 2023. The energy transition is taking place quickly. ABN AMRO's ambition is moving in the same direction, and the bank's exposure to renewable energy is growing rapidly. Rutger van Nouhuijs explains the bank's approach.

Rutger begins with an overview of current macro trends. He says, “On a global scale, we’re living in an era of massive population growth and increasing prosperity. As a result, the demand for energy and raw materials is constantly on the rise. Increased trade is also generating more and more transport operations. For decades, all these developments have been contributing to a huge increase in carbon emissions, which are at the root of global warming and rising sea levels. Statistics show that the hottest summers on record have for the most part occurred since 2000. The result is that we’re seriously endangering our planet’s health and resilience. In 2015, virtually all the countries in the world made commitments, enshrined in the Paris Agreement, to reduce carbon emissions. ABN AMRO, too, fully endorses those commitments.”

Goodbye to gas

In the Netherlands, the energy transition is coinciding with another important development which also necessitates an accelerated transition to renewable energy. Rutger explains, “For years, the Dutch have had the luxury of tapping into the giant Groningen natural gas field, at the centre of which is the village of Slochteren. Unfortunately, production has been the source of a growing number of problems. The government has now decided that we have to move away from natural gas if we’re to reduce carbon emissions. New-build homes which are currently under construction will no longer automatically be connected to the gas main. There’s also an enormous increase in the use of electric cars and transport services. But these obviously do require electricity. These developments, too, are fuelling the demand for renewable energy – be it wind, solar or hydraulic.

“Like the gas field which has been supplying the Dutch with energy for years, we’re now seeing that our geographical location in the North Sea is also very much to our advantage,” continues Rutger. “Offshore wind offers unprecedented opportunities for generating clean energy. Just think: we have the entire North Sea, aside from the actual waterways, at our disposal for building windmill farms, which will enable us to meet most of our future energy needs. This market is rapidly coming into its own, with more and more consortia collaborating on truly massive projects. Last year, for instance, Van Oord, Siemens and Tennet joined forces to open the Gemini windmill farm north of the West Frisian island of Ameland. ABN AMRO, too, is proud to have played a leading role in financing Gemini.”

Focus and growth

CIB has been a leading lender in the energy market for a very long time. Rutger says, “We’ve been an energy bank for many years now. We have teams in Europe, Asia and North America who are conducting more and more transactions with one another. They’re learning so much from these deals, and that means our expertise is growing by the day. I see it as a driving force for knowledge and know-how. What’s great is that we can instantly apply all our expertise for the benefit of other clients. It’s true that there’s a direct correlation between focus and growth. Partly as a result of the bank’s pioneering role, many of our clients are very involved in this area. That’s good for them, for society and for ABN AMRO.” 

Rutger continues, “As a bank, we’ll need more and more energy specialists – not just for our projects, but also for risk management. Just imagine the technical and project risks involved in financing a windmill farm, for example. Then you have to deal with questions like what type of wind turbines will be used and how much maintenance will they require. What happens if they fail to generate enough energy? Or what if the demand for energy develops in a way which differs from our initial calculations? This means you have to anticipate how great all these risks are and make contractual agreements based on those forecasts. And that requires an understanding of energy issues.”

Dilemmas: part of the transition

Rutger underlines the importance of actively involving clients in the energy transition, saying, “We’re not going to change the world in a day. I mean, it’s not like we’re suddenly going to have the perfect number of windmill farms tomorrow, or even the day after. Think about it: if we were to stop using oil today, many sectors – like transport and heavy industry – would simply grind to a halt. Dilemmas are just part of a transition phase like this. Our aim is to be a leading bank in the energy transition. But some of our clients trade not just in lithium and cobalt, which are currently in great demand for battery technology, for instance, but also in other raw materials that are harmful to the environment. What do you do? Do you stop doing business with them? We can’t turn the tide at the drop of a hat – after all, we’re still dependent on oil and gas. But that doesn’t mean we shouldn’t challenge our clients, and we do. One step we’ve taken involves honing our financing policy, which now rules out the financing of new coal plants or oil sands extraction. The policy also states that energy companies need a clear transition strategy to be eligible for financing.” 

Rutger is convinced that ABN AMRO has an obligation to use its influence for good. He’s pleased with all the bank’s initiatives, like those launched in connection with Mission 2030 to reduce carbon emissions from the built environment. He says, “We’re seeing that our influence is also having an effect on mortgage lending. The bank currently has a €150 billion portfolio. The properties financed by the bank will have earned an average energy label A by 2030, which makes a huge difference in terms of energy consumption and, consequently, carbon emissions. The bank has a similar aim for commercial real estate. Further, ABN AMRO is strongly committed to facilitating the energy transition and, last but not least, financing circular business models, since recycling raw materials also helps to lower emissions.”