Brown industries: the Transition Tightrope

A seat for everyone is necessary at the climate action table. Sustainable Finance will fail in its mission if it continues to confine high-emitting industries to the sidelines.

In December 2019, we announced Natixis' approach to tackling brown industries’ transition....

This research project investigating the topic of transition in detail, more specifically that of brown industries, with the aim of providing definition, assessment methods as well as exploring relevant financing tools. 

Our methodology frames a change management model that differentiates brown companies into groups depending on whether they need to transform, shrink or shut down. Using case studies, we examined how the 5 transition levers we identified were actioned by  companies across the mining, cement, shipping, power or aviation sectors (e.g. Lafarge Holcim, Maersk, Ørsted Engie, Neste).

We also identified eligibility pre-requisites to be able to draw red-lines and provide structuring guidance for transition finance instruments. We believe that KPI-linked instruments are best suited for transition because of their “skin in the game”, material, holistic and forward-looking features.

...and to build together a low-carbon future.
Climate finance needs a two-leg approach:
a green one, in synch with a transition one....

CHAPTER 1: 
Brown industries: the elephant in the climate war room

CHAPTER 2.
Unpacking the transition box

CHAPTER 3.
Transition levers & Case studies

CHAPTER 4.
Transition finance toolkit

In 2019 and 2020, Natixis Green & Sustainable Hub developed an in-house methodology fed by market intelligence, investor survey and dialogue with issuers, SPOs providers and think tanks. This product-oriented methodology aims at accompanying companies in the funding of their transition, or investors in identifying compelling transition opportunities.

- Cédric Merle, Head of Center of Expertise & Innovation

Investors have a common path  when it comes to investing
in brown industries' transition....

Julien BRAS Allianz GI

Julien BRAS

Green Bond Portfolio Manager, AllianzGI

RANSITION ASSESSMENT METHOD IN THEIR INFANCY BUT ALREADY CRUCIAL

"It is necessary for us that the company has a medium-term transition plan. We pay high attention to this question of credibility and ambition."

Victoria BARRON

Victoria BARRON

Former Responsible Investment Analyst, Newton IM

PRINCIPLES-BASED RED LINES FOR AN IN-DEPTH TRANSITIONING INVESTOR DIALOGUE

"In our strategy, companies that are heavy emitters, which would be unprofitable under a certain carbon pricing [$140/CO2 ppm scenario], and which have no current intention of transitioning are not investable."

Yo Takatsuki AXA IM

Yo TAKATSUKI

Former Head of ESG Research and
Active Ownership, AXA IM

TRANSITION BOND MARKET: REGARDLESS OF FINANCING FORMATS, THE MAIN QUESTION IS WHETHER THE ISSUER IS ON THE PATH TO A CREDIBLE CLIMATE TRANSITION

"It is important that companies which are committed to meanngful decarbonisation at the corporate-level and which can adequately evidence progress should be able to secure stable and long-term fundind through the Transition Bond market."

Ladislas Smia

Ladislas SMIA

Co-Head of Responsible Investment Research, Mirova

TRANSITION REQUIRES TRANSFORMATION, NOT JUST TRIVIAL IMPROVEMENTS 

"We have to bear in mind that the longer we delay non-incremental climate action,
the tighter the remaining carbon budgets will be."

Gautier QUERU

Gautier QUERU

Fund Director, Land Degradation Neutrality Fund, Mirova

Edit Kiss

Edit KISS

Director of Development and Portfolio Management, Althelia Funds

NATURAL CAPITAL FINANCE ROLE IN THE TRANSITION 

"Nature-based solutions are gathering momentum and appear to be at a similar stage as renewable energies were 15 years ago.
Capital markets start to discover its unraveling potential and benefits."

Andrew Grant

Patrick ARTUS

Senior Economic Advisor of Natixis

LOW-CARBON TRANSITION AGENDA:
AVOIDING SOCIAL QUICKSAND 

 

"To mitigate the social effects of a CO2 tax, the most efficient solution is to redistribute explicitly the proceeds of the tax to the population, specially to the low-income people [...] in a way which is completely decorrelated from their energy consumption"

Samantha Mason

Sam MASON

Policy Officer, PCS Trade Union

UK GREENER JOBS ALLIANCE AND A JUST TRANSITION

Workers and communities should not pay the price of transition and ensure that they are protected in terms of their livelihoods and future job prospects."

Andrew Grant

Andrew GRANT

Senior Analyst, Carbon Tracker

INTENSITY TARGETS ARE FLAWED ON A PLANET THAT WORKS ON ABSOLUTES

 

"CCS and/or other means of mitigating and offsetting emissions will most likely need to be part of the solution. But there is no getting away from the need to lower fossil fuel use which will inevitably entail big changes in business models."

Manuel Adamini

Manuel ADAMINI

Former Head of Investor Engagement,
Climate Bonds Initiative (CBI)

WALKING THE TALK: TRANSITIONING BROWN INDUSTRIES TO GREEN

"Past green bonds issuances  have been heavily biased toward energy and buildings sectors [...] We need to activate those segments of the market that have remained absent but offer huge emissions reductions potential as well as nice yield. It’s easy to do some mapping: we’re talking cement and concrete, metals and mining, and private transport."

Christa Clapp

Christa CLAPP

Research Director, CICERO

ECONOMY-WIDE TRANSITION REQUIRES TO INCLUDE BROWN INDUSTRIES IN SUSTAINABLE FINANCE

"We need financing for all Shades of Green to solve the climate challenge. Light Green can apply to issuers-in-transition that are making emission reductions with good governance, such as climate targets and procedures to measure against those targets."

Alain Quinet SNCF Réseau

Alain QUINET

Deputy CEO, SNCF Réseau

A SHADOW PRICE OF CARBON FOR A TIMELY AND ORDERLY TRANSITION

Today, every economic sector must be tackled. A deep decarbonization of the economy requires to enlarge the perimeter of public and private actions to fight climate change."

Guillaume Neveux I Care & Consult

Guillaume NEVEUX

Founding Partner,
I Care & Consult

2°C ALIGNMENT: RISK & OPPORTUNITIES ANALYSIS BASED ON A BOTTOM-UP APPPROACH

While most companies are not yet 2°C aligned, we find companies’ awareness is arising.
The notion of pathway and dynamic is key: climate transition will not occur overnight but in a “transition window” of 10-20 years."

Andreas Schroeder

Andreas SCHROEDER

Responsible for the Industry section of the IEA's World Energy Outlook, IEA

Tiffany Vass

Tiffany Vass

Industry researcher in the Energy Technology Policy Division, IEA

Laura Cozzi IEA

Laura COZZI

Chief Energy Modeller, IEA

THE INSTRUMENTAL ROLE OF INDUSTRY DECARBONIZATION IN IEA'S SUSTAINABLE DEVELOPMENT SCENARIO

"The majority of the overall emissions savings (i.e. process and energy-related) are from the production of cement, iron and steel and petrochemicals; energy-intensive industries that together account for around two-thirds of total industry sector CO2 emissions today."

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CONTACT US

Cédric Merle

Head of Center of Expertise & Innovation,

 Green & Sustainable Hub, Natixis

Orith Azoulay

Global Head of Green & Sustainable Finance

Managing Director,

Natixis

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