Investec Interview: Sustainable Financing

Charlotte Davies joined Investec Asset Finance in April 2020 to launch a new Sustainable Energy Finance offering, helping UK companies to fund renewable energy assets such as solar panels, biomass boilers and onshore wind turbines.

In this article, we catch up with Charlotte, to find out what’s new in the sector and ask how Investec can support brokers with sustainable energy financing for their clients.

Charlotte, you joined in April 2020. How has Investec’s offering – and the market – changed over the rest of the year?

I joined in April 2020, right in the middle of the first lockdown, meaning that I had a virtual induction but happily the tech was working and I was able to get up and working from day 1.  Although I hadn’t met the majority of my colleagues I found the team very supportive and helpful whilst I settled into my new environment.

Before I joined, Investec would consider sustainable energy finance deals, but we just looked at whether they would be able to service the debt based on existing cash flows. Of course, a big driver for these sorts of investments are the savings – and in some case income – that come from generating power and selling it back to the grid. Combined with government incentives, this can be really meaningful, and we are now able to take those savings and income streams into account when assessing debt serviceability.

This marks a significant shift in credit policy for us, meaning that we’re relevant to a new part of the sustainable energy market.

The reason for this change is that we now have the in-house expertise to really look at the viability of the projects being undertaken, and can quickly and effectively assess the serviceability of the loan.

And how has the market changed?

There’s been a huge change in mindset. Historically, if you were looking at something like solar panels on your roof, government incentives would have been a big driver, along with the possibility of selling energy back to the grid. Now that those subsidies have expired, people are moving away from asking “how much money can I make” and instead asking “how much money can I save” on their bills using these non-subsidised installs – which are proving very popular.

Incentives for producing your own heat are also expected to change in March. So we’re getting a lot of enquiries for that.

Looking at the bigger picture though, over the last 12 months, the world has become more switched on to the environmental impact. And as well as the obvious environmental benefits, there is also some very hard-headed thinking that underpins this: particularly if you’re supplying big businesses, you’re likely to come under significant pressure to be able to demonstrate strong environmental credentials in procurement processes.

Big names like M&S and IKEA have been doing this for years, and it’s becoming more and more common (and Investec is no exception – we have long focused on making a positive contribution, having achieved net zero carbon emissions, and we have high standards for our suppliers).

Does Investec see a big opportunity in sustainable finance?

Absolutely. I think the above makes a really strong case, but when you also consider government targets around emissions, a proposed landfill tax which will make anaerobic digestion more popular, not to mention countless other initiatives, it’s clear that this is going to remain a big priority.

There’s lots more out there too – for example, we’re looking at battery storage as a future area for funding, which is certainly an area with big potential.

What kind of deals should brokers be approaching you with?

I think there are three main categories where have particular strength:

The first is new, simple projects. If you have a client who wants to fund the installation of solar panels on a factory building, for example, get right in touch. We can take a look and reach a decision quickly.

The second is refinancings. If you have a client who took out funding to build an asset that is now in use (generally for at least six months), we find that we can often help them to refinance at a significant discount. Some lenders charge a higher rate pre-build to reflect the increased risk, but once a project is up and running, that rate should come down.

The last one is new installations going into a third party business. We’ve worked with a number of firms who install sustainable energy equipment for third party businesses (put simply: putting a solar panel on someone else’s roof, for example). It’s something that benefits both parties – the third party gets cheap energy, and the customer – who is responsible for the installation – has a business who uses the energy, which is a requirement for the incentives. We have a number of clients with portfolios of assets like this, which can work for solar and heat.

Lastly, unlike some other banks, we can accommodate stage payments, giving your clients extra flexibility.

What else should brokers know when approaching you?

We appreciate that not everyone is an expert in sustainable energy, so we’re always happy for you to approach us with deals that fit broadly within our criteria. We can do the rest! We’ll talk to the customer and do the due diligence, but will keep you involved at every step so that you retain the relationship and can learn along the way too.

I think Investec has a strong – and hard-earned – reputation for flexibility and speed of execution (particularly transactions which fit within our increased local mandate of £2m), and expertise: we really understand these assets and sectors.

This is potentially a really exciting area for many brokers – so we look forward to working with you to make the most of the opportunities over the year ahead.