What significance does the trend topic of sustainability have for the strategy of the large international financial institutions? WELT talked about it with Diony Lebot, 55, deputy CEO of the major French bank Société Générale, and with Jochen Jehmlich, 63, managing director of the subsidiary Gefa Bank and head of Société Générale Equipment Finance. Her company wants, says Lebot, "to play a very important role in the ecological transformation, especially in the energy transition". The bank recently became involved in the German Circular Valley Foundation.
WORLD: Ms. Lebot, Mr. Jehmlich, Société Générale supports the Circular Valley in Wuppertal, which wants to develop the greater Rhine-Ruhr area into a world center for the circular economy and networks start-ups with established companies and research institutions. What was the reason for your involvement?
Jochen Jehmlich: The initiator of Circular Valley, Carsten Gerhardt, approached us with the idea of founding an accelerator for start-ups in the circular economy. He had previously successfully initiated a project worth millions and transformed a former railway line into a 30-kilometer cycle path. This project was convincing and since the idea of the Circular Valley corresponds to our strategy, we decided to support it.
WORLD: Has your bank recently pursued business interests with waste avoidance and recycling?
Jehmlich: At first glance, there doesn't appear to be many points of contact. But sustainability has always been at the heart of our strategy. That is why we would like to strengthen our knowledge and commitment in the life cycle management of goods, not least in the interest of our medium-sized customers. Of course, as a bank, we can make an important contribution to extending the useful life and life cycle of things by making it easier for our customers to invest in the circular economy.
WORLD: What attracts the third largest French commercial bank to the greater Rhine-Ruhr region in general and the Circular Valley in particular?
Diony Lebot: The fact that it started locally, or let's say regionally, so it fits very well with our bank's strategy, which is to support the energy transition and contribute to local growth. We want to play a very important role in the ecological transformation, especially in the energy transition, and support the many global companies in this industrial heartland of Europe, accompanying the change and their circular economy initiatives.
WORLD: Do Société Générale and GEFA support other comparable initiatives?
Lebot: Like this one? No not true. I think the Circular Valley is quite an innovative, one-off model and a pioneer in sustainability and circular economy with the support of start-ups. But of course we enter into partnerships and coalitions with players from many industries. For example, we are a co-founder of the Green Hydrogen Council, a global initiative promoting the use of green hydrogen in the clean energy transition. And we try to do this systematically, because we work with many companies that have to change their business models significantly and often even reinvent them.
It is of great value for a bank to really understand exactly what is at stake for many companies and what opportunities, but also risks, are associated with these changes. If the task of the banks in the past was to finance the economy as it is, today it is about accompanying the transformation of the economy and, if possible, actively supporting it, including the financing of new business models.
WORLD: According to the Commission, the EU should be a circular economy by 2050 at the latest. The aim is to halve the proportion of household waste that is not recycled by 2030. Sustainable financial transactions are the big industry trend - not voluntarily, but decreed by politics. What role does the financial sector play on the way to climate neutrality?
Lebot: Allow me to disagree with your statement that only politics is driving this forward. All stakeholders are pushing for change and pursuing sustainable development, the scale and speed of which is unprecedented. The financial industry plays an important role insofar as investors increasingly include the entrepreneurial, social and ecological effects of their investments in their decisions. At the same time, our customers have very high expectations of us, for example whether we behave responsibly towards the environment, but also towards our employees.
Quite apart from the fact that you as an employer have no way of winning over the younger generations if you are not serious about sustainability. Incidentally, I am of the opinion that politicians even reacted a bit late to the ecological change and did not provide enough incentives to meet the immense necessary challenges. Interestingly, up until a few years ago, corporate social responsibility was still considered “nice to have”. When you speak to the CEOs of large companies today, social responsibility is now a central theme and a core part of their strategy.
WORLD: But not only for noble reasons, but for business reasons, because violations of sustainability criteria or good corporate governance entail major reputational risks, for example if companies become the target of boycotts as a result.
Lebot: There are certainly many motives, and risk is an important consideration. But another driver is also that companies are able to anticipate change, adapt to it and seize business opportunities. When you look at the scale of investment, which is estimated at more than $3 trillion annually through the end of 2050 for the energy transition alone, it becomes clear what huge opportunities are opening up for investors, companies and banks.
WORLD: Borrowing replaces ownership and turns consumers into users. The Ellen MacArthur Foundation estimates that the circular economy will help save at least $1 trillion in materials annually by 2025. The circular economy is also becoming increasingly important for Gefa, since you get your leased items back after the contract expires.
Jehm: There is a clear trend towards more than leasing, also towards more subscriptions: For example, you only use an investment good for as long as you need it and then simply return it after a certain period of time while the manufacturer is in control of the object keeps. Then he might give it out a second or third time, or it might be refurbished in between, disassembled at the end, and some parts can be reused. That would be the perfect circular economy. We provide all the means to make this possible and, in collaboration with manufacturers, to facilitate the relationship with end customers.
WORLD: Most leasing products are new. On the other hand, as you say, circular economy offerings may have changed hands three or five times before. That makes the offer less attractive, doesn't it?
Jehmlich: We are already financing a significant portion of used capital goods. Don't forget that a new good suffers a large depreciation in value within the first six months, and that used goods represent a comparatively lower but more stable value. We also work with large manufacturers who have often set up their own refurbishment centers and, for example, repair, repaint, completely technically refurbish cars before the next leasing and so on.
Lebot: I think it's about much more than just switching from one type of financing to another: it's about adapting to people's new consumption patterns. For example, I am Chairman of the Board of ALD, a leader in sustainable mobility and a subsidiary of Société Générale, and one of the key foundations of ALD's strategy is precisely this shift from ownership to use of a product. In addition, and Jochen just mentioned this, customers expect greater flexibility.
People want cars for certain needs, but also alternatives for others, such as the option of switching to an e-bike. Leasing and subscription models can make all of this possible. The second major trend is extending the life of assets. We used to rent a car to a company for four years and then sell it. And now we've developed our own leverage for a second life, which means we let private individuals use an asset for maybe 10 or 20 years.
WORLD: Large asset management companies are now almost completely focused on the topic of “sustainability”. Have you noticed increased customer interest in sustainable financial products?
Lebot: Well, we're definitely noticing that our customers are much more interested in sustainable products than they used to be: private customers want to invest their savings wisely in projects or companies that are sustainable. But institutional investors in some sectors also increasingly prefer such investments, even if the returns are lower.
Because people do not want to take the risk that they have an asset that loses value, for example due to expected regulations. Much of this is substitution of other types of finance and is therefore difficult to quantify, but the direction is clear and the process will accelerate to reach the Paris climate agreement target.
WORLD: The monetary policy of the ECB and the war in Ukraine have led to a surge in inflation and also to a reassessment of energy policy in the German public, as far as the operation of nuclear and coal-fired power plants is concerned. How do you assess the effects of the war in Ukraine on the EU financial markets, but also on the European Green Deal?
Jehm: I think that the war in Ukraine shows that we still have to accelerate the switch to green energies. If you pay two or 2.50 euros for a liter of diesel at the petrol station, you quickly understand that something needs to be done and all renewable energy is much cheaper in comparison.
Lebot: I too believe that there is a growing awareness of the need to switch to renewable and green energy. But of course we are also physically limited on this path and come up against limits with the raw materials for batteries, for example. We must therefore also increase the energy efficiency of buildings, cars and industry in order to save CO2 and reduce our dependence on foreign energy. And a very big challenge is that the change we need to make is fair and socially acceptable, especially for low-income households.
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