Interview with Olivier Musset (NAT)
Olivier Musset is co-Head of Energy Project Finance
Could you explain how the Equator Principles (EP) impact on your team?
Our Energy Project Finance team ensures that the projects we advise on or finance are EP compliant. Our review begins at origination with a project categorisation in order to assess how sensitive a project is from an Environmental and Social (E&S) standpoint. Our dedicated environmental team is also made aware of the project at this early stage. This allows us to integrate the evaluation by the front officers and plan how best to proceed when we have a project that presents specific E&S issues which require attention. During execution, we have to comply with a series of requirements which are set out by internal procedure and our environmental team continues to be involved to ensure that all EP aspects are met. Our due diligence involves an independent expert to certify that the project is implemented in compliance with the EP. This review is exhaustive and covers all aspects from pre-consultation requirements to the level of emissions. Similarly, the relevant legal documentation is drawn up to ensure that the borrower undertakes to comply with an appropriate monitoring process and, where relevant, improve a project's E&S performance. As you can see, environmental issues are now fully integrated in our project assessment and execution.
What do you consider to be the key advantages and challenges of the Equator Principles for your team?
Starting with the advantages, my first thought is that the EP are shared by almost all OECD banks involved in project finance. This simplifies our work since other banks follow the same standards and we all put the same requests to our clients. There is simply no other way to limit recourse debt involving international banks. My only wish is that all banks, including banks in large emerging countries, apply the same rules to avoid competitive distortion. It is up to our front officers to verify that a project will be built in a manner which is sustainable in the long run. As our financings have a very long maturity, in some cases more than 20 years, we need to validate and monitor that our borrowers apply the highest E&S standards when designing their plants. By doing so, we can avoid construction budget overruns and unexpected future investments.The main challenge probably lies with our clients who are not familiar with the EP which means that we are sometimes obliged to go through an education process to explain why it is important for them to ensure compliance. The consequences in terms of costs and time are often the main concerns they raise at the start. But this initial reaction does not last for long and it has to be said that clients quickly recognise the benefits of an exhaustive E&S assessment. In the long run, they see that this provides them with a robust framework to achieve sustainable development. Another issue we face is when a project is located in a country where the legal framework is lacking. For example, there are countries with no regulations or policy to allow you to consult local communities which is one of the criteria of EP compliance. In these cases, external E&S consultants help by sharing their experience in other countries and proposing a solution.
More generally, how do you think environmental/social considerations will impact the Oil & Gas and energy sector in the medium term?
The EP have been in place for some time and almost all OECD banks are signatories to them. In fact, even before the EP we had internal procedures to ensure sound environmental and social policies on the projects we finance. But I think that the more formal and coordinated process recommended by the EP provides a straightforward framework in which borrowers have a clear understanding of lender requirements. Both banks and energy companies benefit from this since we all have to rely on the long-term success of the projects we finance. I think that the biggest impact on the Oil & Gas industry is the changes in regulations and industry practices. It is best for all involved that new plants are scrutinized to ensure that they comply with recommended industry practices. Changes in environmental regulations, provisions or measures to curtail greenhouse gas emissions are very real factors that have an impact on the energy companies and banks involved. Take the renewables sector, for example, which has emerged as one of the main growth drivers for industry and should continue to fuel investment opportunities in the future. The same is true for the Liquefied Natural Gas (LNG) market which has rapidly grown to satisfy increased demand in countries that promote the use of gas instead of less environmentally-friendly fuels.
