Is sustainable investing back on the horizon?

Sustainable investing was a hot topic in Asia during the bull market, but with the economic downturn, like many other capital-intensive efforts, it fell off the radar screen. Then, US President Barack Obama dedicated roughly one-tenth of his $787 billion stimulus bill to spend on energy and the environment. This is important because it will spark a renewed interest in renewable technologies -- such as windmills, solar power, advanced batteries and hybrid cars -- all technology that Asian companies have been working on. With competition will come lower prices, which in turn will spur on the likelihood of more projects to be developed elsewhere in the world. We talk to Ashley Wilkins, head of capital raising and financing in Asia-Pacific for Societe Generale, about the possible return of sustainable investing.

Has sustainable investing ground to a halt?
If you look at the projects we've done, you know we've been very consistently busy for the past few years -- with about a dozen projects around the world in 2006 and 2007. Now, if you look at 2008 and look at solar, we've done three projects in Spain and one in Italy; with wind projects, most were pre-2007; there was just one in France in 2008 and one in Spain last year. The big utilities are carrying on, but other renewable energy financing has slowed down.

The more entrepreneurially oriented renewable energy projects obviously have been stopped in their tracks by what happened to oil prices. Now that could have a bit of a recovery, to a certain extent, as the oil price goes up and sticks at $60 plus, which it may, or may not do. It is very difficult to tell, at the moment, because there are 100 million barrels of oil sitting in tankers off the coasts of various countries around the world, waiting to go on the market. That's quite a lot of supply. As a result, I think what will happen is we'll actually see a sharp dive in the price, at least for a short period.

The other thing that is happening is we're seeing countries such as Taiwan and Japan dealing with a 50% drop in exports. That's unprecedented. And everyone is getting the Krug out for a mere 7% monthly rise recently. Hmmm.

So there's a big yawning gap underneath what's happening in the stock markets, which is just not terribly connected with what is happening in the real economy. And I think you should expect to see some very interesting [as in not positive] half-year results in American and Europe. And that will feed back into the cycle, making it more difficult for the entrepreneurial side. The big utilities take a different view. They are very much committed to the long-term, and are able to fund their view.

Is it not just oil, but also the liquidity crunch that's problematic for the more entrepreneurial side of this sector?
That's the other thing that is causing trouble with the more entrepreneurial side -- obviously, the credit worthiness of the two [looking at an entrepreneurial project versus a utility] is chalk and cheese. At the moment Asia is much better than America or Europe because you have the local banks that weren't as damaged by buying toxic products such as CLOs and CDOs as the Western banks were. Credit is still there and they are willing to use it -- in China in particular, which has arguably turned the tap on a bit too far. But I think certainly in Europe and America that's a big constraint.

Equity finance may be a bit more available because of the run-up -- rights issues are understandably all the rage for the moment; and public market issuance is at all-time highs.

I've recently heard arguments that solar power has to become a bigger play in Asia, what's your view?
The issue with solar is its lack of availability, if you've got a packed country -- like Indonesia for example -- you just don't have the room so it's not a solution for everyone. They are better off focusing on geo-thermal and other renewable resources (although solar installations on buildings would make a useful contribution). But if you've got wide open spaces or desert, for example in Rajasthan, China or Australia that are baking in the sun, that's the way to go. Nevada is a good example of how to use your desert. Solar is clearly a very attractive technology if the price curve goes down to be competitive with coal-fired generation. It's a lot lower than it was before and it's getting lower all the time. So if solar gets to be competitive you really start attacking that oil-energy problem.

In light of the economic crisis, isn't it still hard to sell folks on the idea of solar -- who wants to go out and allocate capital expenditure on this?
Solar has such a momentum going for it, that while there may be a lessening of intensity of efforts at the moment, this economy is not going to stop it. Ultimately the cost curve is going to be pushed down. If you look at the first stimulus package Obama did, he clearly kept is focus on green initiatives -- and that's going to be an important element in pushing the cost curve down. It doesn't matter where in the world you push the cost curve down, if it gets pushed down it gets pushed down.

If the US imposes cap-and-trade measures and then goes out and starts taxing imports from countries that don't have cap-and-trade measures, that will surely have an impact too.
You could solve all these problems tomorrow with less distortion by simply imposing a direct carbon tax, but it's politically tough to do and would take massive courage.

Ultimately, 10 years ago when oil was the price it was then, if governments had simply imposed a carbon tax, we would not be in the position we are today. We would have had the incentive framework to have developed cleaner technology -- wind, sun, etcetera -- but it wasn't done so we have what we have now and need to make the best of the current situation.