New Opportunities to Increase Corporate Value Using Carbon Credits

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New Opportunities to Increase Corporate Value
Using Carbon Credits
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• Contact Geoff Sinclair
• geoff.sinclair_at_standardbank.com
• 44 20 7815 2984

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Financial Information
Strong Capital Adequacy
R 296 billion (US47 billion) 14.2 10.5
Total risk adjusted assets Total capital to
risk-weighted assets Primary capital to
risk-weighted assets

Source Annual Report 2005
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Awards and ratings
Global Finance Best overall bank for cash
management in Africa 2006 Best bank for payments
and collections in Africa 2006 Best CLS-linked
bank offering 2006

• The Banker
• Best Bank in Lesotho, Malawi, Namibia, Swaziland
  and Zimbabwe 2006

Ratings Short term Long
term Fitch Ratings - Foreign currency
F2 BBB - Local currency
A -
National F1 AA Moodys
Investor Services - Bank deposit P-2
aaa1 StandardPoors BBBpi
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Awards and ratings
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Standard Bank Leading in Carbon Markets

• One of first banks to make serious moves in
  carbon market
• Strength in emerging (CDM/JI) markets
• Central player in CDM and JI markets, both from
  project financing and trading points of view
• Strong role in financing projects to make them
  happen
• Develop innovative approaches to value
  maximisation
• Excellent distribution networks
• Strong in Russia first ever project finance
  deal in early 1990s
• New focus on Ukraine putting in significant
  resources

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Increasing concentrations of CO2 in atmosphere

• Widespread scientific consensus that this is
  caused by humans the Industrial Revolution

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Increased temperatures have unpredictable effects

• Intergovernmental Panel on Climate Change
• Temperature rises of between 2 and 6 degrees C
• Sea level rise up to 6 metres as polar ice melts
• Widespread desertification and extreme weather
  events
• e.g. Hurricane Katrina
• World may move away from fossil fuels

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Increased temperatures have unpredictable effects

• Intergovernmental Panel on Climate Change
• Temperature rises of between 2 and 6 degrees C
• Sea level rise up to 6 metres as polar ice melts
• Widespread desertification and extreme weather
  events
• e.g. Hurricane Katrina
• World may move away from fossil fuels

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International community constructed cap-and-trade

• Many measures being taken to combat climate
  change
• Regulation e.g. emissions standards on card
• Tax e.g. emissions and fuel taxes
• Carbon pricing through cap and trade
• Cap and trade creates business opportunity in
  decreasing emissions

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How does it work?

• The Kyoto Protocol is an international treaty
  that places maximum greenhouse gas emission
  targets on developed countries which have
  ratified
• Countries can meet their targets through domestic
  emission reductions AND/OR emission trading
  (where someone else reduces their emissions and
  sells the reductions)

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What are carbon credits?

• 6 gases are covered CO2, Methane, N2O, HFCs,
  PFCs, SF6. Each has different global warming
  potential, so they are converted to a common
  unit tonnes of CO2-equivalent (CO2-e)
• Carbon credits represent
• The right to emit a tonne of CO2-e OR
• A tonne of CO2-e reduction

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Carbon markets and instruments
National Targets on Annex 1 countries
(developed)
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Strong market growth
Carbon market turnover (million euros)
Source PointCarbon, Standard Bank
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European Union Carbon Prices 2006-07
Phase 1 Initial allocation was too
generous Phase 2 Prices assume allocation will
be tighter (allocations are currently being made)
Dec 2008
Dec 2006/7
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Joint Implementation (JI) in Ukraine

• Ukraine ratified the Kyoto Protocol and
  implemented procedures for Joint Implementation
  projects
• Reducing emissions in Ukraine can earn carbon
  credits, and these can be sold
• Estimated market potential of 500 1,000
  million per year from sale of Emission Reduction
  Units

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Examples of JI Projects in Ukraine
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Examples of JI Projects in Ukraine
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Examples of JI Projects in Ukraine
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Examples of JI Projects in Ukraine
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Carbon credits boost investment returns

• Example
• Automation of point feed in aluminium production
• Reduces emissions of various flourides
• Increases safety and quality

Project cash flows
With JI IRR36
Without JI IRR -3
Illustrative only
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Current situation in Kazakhstan

• Kazakhstan has not yet ratified Kyoto Protocol
• Not eligible for carbon credits
• Some speculative carbon project development
  occurring
• At low prices
• Substantial potential for carbon credit earnings

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Business and infrastructure opportunity in
Kazakhstan

• Some sectors that can benefit from carbon
  credits
• Energy
• Mining
• Metal production
• Manufacturing
• Waste handling and disposal
• Forestry
• Earning carbon credits can make a whole new set
  of business opportunities viable

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Impact on corporate valuations

• Ability to benefit from carbon trading and
  exposure to the costs of climate change are
  increasingly being looked at by investors
• Example Carbon Disclosure Project
• Instutional investors ask companies to disclose
  key climate change-related information about
  their businesses
• This information is analysed and a summary
  published
• Investment managers can access detailed
  information
• Last year 225 investors with 31 trillion
  requested and 1000 of the worlds largest
  companies responded
• Climate change can both increase and decrease
  corporate valuations
• If business is better positioned than others,
  value can increase
• If worse positioned, there can be a discount

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Banking opportunity (2006 global estimates)
Trading 20 billion
Estimates only Sources Point Carbon, World Bank
and Standard Bank analysis
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Financial structures and services

• Trading
• Securitisation and structured trade finance
• Financing projects
• Fund establishment, investment and administration
• Example deal structure

Market Operations
Loan Against Securitised Commodity Flows
Carbon Credits
Aluminium Offtaker
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Almaty carbon trading hub?
Large JI potential

• Large proportion world demand
• London carbon trading hub

Largest JI supplier

• 40 world supply
• CER exchange being developed

• 15 world supply

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Conclusions

• Carbon credits are a large and rapidly growing
  market
• Significant potential in Kazakhstan
• To attract carbon credits related investment
• To position as a carbon trading and finance hub
• Role for London-Almaty link

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Standard Bank Leading in the Carbon Market

• Standard Bank offers a wide range of
  carbon-related services, including
• Carbon-linked financing
• Trading and Risk Management, including credit
  wraps
• Structured commodity and acquisition finance
• Trade and equipment finance
• Financial and carbon advisory services
• Full Kyoto project identification, screening,
  development and documentation
• Fund services